KEY POINTS
- NO EASY FIX: TWTR may have inflicted too much damage to its model over the past 2+ years for any acquirer to step in and fix it. We believe the problem with TWTR had been that the pre-Dorsey regime was scared of the street. Instead of rebasing expectations early on, TWTR chose to chase estimates with rampant increases in ad load, in turn pushing its users away. We had previously estimated that TWTR had churned through nearly 40% of its US user base (Aug 2015 survey, n=7.5K); in turn shifting the US user story from organic growth to recapture, which may be tougher to achieve. That said, monetization is now even more challenged since TWTR is struggling to capture the user/engagement growth necessary to drive its longer-term revenue growth. We also now suspect that the model is in worse shape than we initially believed after segmenting its Advertising business. Declining revenue growth is a real possibility in the next 2-3 quarters and may be what is prompting TWTR to seek a take-out.
- AL DAVIS EFFECT: Al Davis was the legendary owner of the Oakland Raiders who was also an early champion for civil rights, but unfortunately may be better known for the multitude of reckless personnel flops he made toward the end of his career. Enter Marc Benioff (CRM CEO), who is still reeling from losing out on the LNKD acquisition; going so far as to supposedly petition EU regulators to make MSFT share the primary asset it acquired from LNKD (professional database) (link). Benioff is allegedly enamored with TWTR’s potential, but more importantly has made no attempt to refute his interest despite watching his stock - where his net worth is concentrated - gap down over ~10% since CRM was rumored as an acquirer. Put another way, he could have stopped the bleeding at any time if he wasn’t really interested. So while we do not believe TWTR has enough potential suitors to actually field a competitive bidding process, it may only need one eccentric billionaire who isn’t scared of his fans (investors) to make this happen.
Let us know if you have any questions or would like to discuss in more detail.
