Those reportedly licking their chops for a bite of Twitter (TWTR) may want to think twice before swallowing a potential poison pill.
Make no mistake: Twitter the platform does some great things. It's the first place where news breaks and the best place to track developments in real time. For example, on Sunday Twitter was the first platform I saw with photos of the boat that tragically took the life of baseball star Jose Fernandez. It was also the same place I heard of the passing of American golf legend Arnold Palmer. Twitter is also pretty good at connecting influencers with their fans and helping to drive healthy debates (although those debates could get way out of hand) on buzzy topics. But for all its good, Twitter has a ton of basic problems that go beyond being an outlet for potential criminals.
So buyer beware, Alphabet (GOOGL) , Salesforce (CRM) or whatever other party is stalking Twitter right now. Any company that would get Twitter would have a hard time justifying paying an exorbitant sum to its board. Here are three reasons why.
Business model still has not been proven
Considering the prices talked about for Twitter, it would be nice for the company to have earned a profit at one point since going public, no? Unfortunately for those on Twitter's board itching for a sale, profits have been non-existent and the platform hasn't shown it can generate profits at some pre-determined point in the future. As a result, a rational party doesn't even know if Twitter has a viable model. Right now it's a giant high school experiment that so happens to be a publicly traded company. In fancy terms, Twitter doesn't have proof of concept, and having that proof of concept is important when a deal that could alter the structure of a public company already doing well is presented to the board.
New ventures, so where is the money?
Twitter hasn't shown that its newest ventures could make money within the next five or 10 years. Take a look at Periscope. For starters, the user interface is horrible and should come with a 20-page digital user manual. But in terms of business model, how on Earth does Twitter think it can place ads on a platform such as Periscope? If a 15-year-old kid on Twitter has to wait 30 seconds for an ad to play before shooting a Periscope of an event in their life, it's going to turn them off. What will they do instead? Take a regular video using their iPhone and then upload it to Facebook. That is even if the 15-year-old is on Twitter instead of the way more popular Snapchat, WeChat or any number of services that this old millennial is aware of because all he does is write columns each day.
The primary takeaway is that Twitter is pouring money into ventures that may have no chance of viability at any point in its life. Why would a deep-pocketed tech giant pay a premium to gain exposure to that? For the sake of putting money to work on something other than stock repurchases? Twitter certainly could continue to invest in things such as Periscope, but in order to do so it has to cut costs more deeply than the ones made so far by Jack Dorsey. There still remains a ton of fat at Twitter. The company would benefit from the zero-sum budgeting practices employed in the packaged goods space.
Just where are all the eyeballs?
Bluntly, Twitter is for sports stars who have a team of people tweeting for them, journalists trying to drive clicks, frauds, and people who potentially want to cause us harm. In other words, the group is limited. Twitter just doesn't have the mass appeal that drove Facebook (FB) and Instagram to fame and, more recently, Snapchat. Despite enhancements to the user interface (Moments is horrible), Twitter is boring to use for most because it doesn't provide the instant gratification that an Instagram offers. Even if I have one follower on Instagram, I could still secure hundreds of ego-stroking likes by playing around with trending hashtags. Using myself as an example on Facebook, a video interview I did last Black Friday with the CEO of Toys R' Us for TheStreet got more than 2 million views. I have never gotten 2 million likes or retweets on Twitter, and am not even sure if it's possible.
Twitter's limited appeal shows up in user-number comparisons, which have been sluggish in recent quarters. Twitter's users tally more than 313 million (who knows if most of them are engaged users), badly trailing Facebook's more than 1.65 billion users. Instagram weighs in at more than 500 million. Newly minted public company Line (LN) has over 218 million users.
A person can't be on every app around the clock; they pick and choose based on what's cool and where their community exists. Looking at Twitter's stalled user numbers, folks are voting that their community isn't necessarily on Twitter, and therefore why should they be.