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The rumor mill chugs the same old things around the bend from time to time. One of the favorite speculations in the market is that Google (NASDAQ: GOOGL) might one day purchase Twitter (NASDAQ: TWTR). Could a Twitter buyout happen, and would it even make sense?
Let me first say that from a pure valuation standpoint, such a purchase would be lunacy. Twitter is a $32 billion company. A buyout of any kind would have to come with at least a modest premium, so we’re looking at $35 billion.
Thirty-five billion dollars? For Twitter? For a company that lost $577 million in fiscal year 2014 and is repeatedly cash flow negative?
That could be the stupidest acquisition since The Priceline Group (NASDAQ: PCLN) purchased OpenTable for $2.6 billion. The company had net income of $22 million in the previous 12 months. Stupid.
So maybe such a deal doesn’t occur at these prices, but might it occur at a lower price?
Twitter’s investors cannot sit idly by for a few more years while the company keeps losing money. It has $3.6 billion of cash and $1.5 billion in debt. There is a ticking clock here. If the situation deteriorates, the potential stock price will decline. It may decline significantly. It probably has to for Google to even consider it.
However, if the price fell far enough, and assuming another buyer didn’t swoop in first, the purchase would make some sense. There’s an awful lot of data tied up in Twitter’s usage history, and Google loves data. It can be leveraged for other purposes that might generate revenue for Google.
Yet there remains a fundamental problem with Twitter. There just doesn’t seem to be any intuitive way to monetize the platform.
Look, the platform has been around for years. If nobody has figured this out yet, nobody is going to figure it out. A lot of very smart people have been working on this issue.
As billionaire investor Mark Cuban says, you only have a business when you can solve a problem. What problem does Twitter solve? None. It’s a way of communicating, yet it has an inherent restriction in that communication is limited to only 140 characters. It gets messages out instantly, and it seems to be the most effective way to do that, but how often is there some vital message that MUST be spread to the world?
Instead, it has evolved into part of any campaign’s “social media strategy” – whatever that means. I don’t think anyone actually knows what it means. It makes me wonder how any campaign would be affected if Twitter just vanished.
Obviously, businesses have done just fine in the days before Twitter. I don’t think there’s much added value at all to having Twitter, at least not for public companies.
Where I think Twitter is useful is for individuals. If someone can build up enough of a following, it is possible to monetize products for that audience.
I know one person with 47,000 followers. He’s published several e-books and his Twitter following has turned those books into serious revenue generators. But his audience is highly specific and it took years to cultivate.
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