Technically, it's a juicy rumor that Twitter (TWTR) will be acquired, but the outcome sure has a sense of certainty for several reasons.
Various reports have Twitter hiring Goldman Sachs (GS) to thwart two possible takeover attempts, including one from Google (GOOGL). The timing is unsurprising -- any company would want to ink a deal for Twitter right from the get-go this year, and gain access to all of the whiz-bang things it's working on. And what the company's team is working on is finally starting to surface -- from a test of a redesigned search screen to fiddling around with pictures on top of tweets, instead of below, to lure in more users. Of course, there was the launch of the live video streaming app Periscope last month, which opens up a realm of possibilities for advertisers.
The company boasts that 288 million monthly active users send 500 million tweets a day, with 80% of users active on mobile devices. Yet there continues to be a heavy dose of skepticism on Wall Street (and Twitter) that Twitter will be purchased by Google, Apple (AAPL) or even an Oracle (ORCL). The skepticism is rooted in a view that Twitter is a niche product used by media and journalists that will never be able to monetize to the extent its public valuation demands. Such a view is reasonable, but misguided, and some of the bigger players in tech with forever investment time horizons understand the inherent value creation possible from Twitter's always-buzzing platform.
Here are three reasons why Twitter is likely to be acquired within the next 18 months:
1. Data accumulation: Having talked with folks at Twitter, I can tell you the amounts of data they are collecting are impressive. And it's not solely data on broke millennials tweeting in their parents' basements, it's data on Fortune 500 companies. Obtaining this type of intimate data is of significant value to a Google and its traditional search and ad businesses. Remember, Google purchased thermostat-maker Nest in many respects to collect data (company will deny this...) and move closer to understanding the daily routines of households.
2. New product releases: Why wasn't Twitter more consistently rumored to be acquired in 2014, 2013 and earlier? Simple: It hadn't yet shown to potential suitors the endless stream of transformative products that would justify a heady valuation. What exec wants to be blasted by his/her board for offering a 50% premium for a company with no competitive advantages or hot products? That discussion has begun to change, and increasingly so, over the past 12 months. The company's developers seem to be on an innovation spurt, sparking curiosity among Silicon Valley's elite on what Twitter's geeks are preparing to hatch next after marathon coding sessions. Periscope has the opportunity to be transformative. I think the buy-now button, which has gotten lost in the shuffle, is transformative once more retailers sign on to adopt the function and consumers feel comfortable.
3. Talent integration: One doesn't snag a job as an engineer, designer or whatever at Twitter by not having graduated high school. What I mean is that Twitter has built an impressive internal team that is typical of a VC-backed enterprise that went on to rake in zillions of dollars on IPO day. Imagine the opportunity to take Twitter engineering talent and have it work alongside Google's driverless-car team. They may be different product sets, sure, but that integration may lead to more of a value-driven driverless car in the future -- from marketing to tech features inside of the car. Or how about at Apple. Imagine Apple gaining access to a team of folks that are tracking top songs being discussed at a given moment or what color Apple Watch strap is the most discussed 10 minutes after pre-orders begin (Friday). Tons and tons of value in that, from marketing and development standpoints, it's almost laughable.
Here is a fourth one as a bonus: There has not been a credible competitor to Twitter yet. Pretty telling as to the runway an acquirer would have to extract value from the platform.
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