Alphabet (GOOGL) seems like a logical suitor for Jack Dorsey's Square (SQ) and Twitter (TWTR) as it looks to shore up its gaps in social media and payments. At least that's the view of Real Money Pro columnist Doug Kass.
"I think in the long term Google could acquire both Twitter and Square," Kass, President of Seabreeze Partners Management, told us today.
He reasoned that Google's main deficiencies in market share at the moment come in payments and social media, making a fell swoop into Dorsey's properties in both areas a logical step.
"I'm connecting the dots," he explained.
After a reported data breach earlier this week, the search giant reported that it will be closing its underperforming social media arm Google Plus. The little-used platform's closure leaves Alphabet with virtually no exposure to a multi-billion-user market in social media.
"The [data privacy and data [protection] review did highlight the significant challenges in creating and maintaining a successful Google+ that meets consumers' expectations," Google's Vice President of Engineering Ben Smith explained. "Given these challenges and the very low usage of the consumer version of Google+, we decided to sunset the consumer version of Google+."
So, while companies like Facebook (FB) command a $400 billion valuation playing in the space, Google has made an unceremonious exit. Perhaps not for long, according to Kass.
He argued that the search leader will likely look to re-enter social media and Twitter makes a perfectly logical acquisition target.
Twitter is Kass' largest long position, in part due to his confidence in the acquisition thesis.
@realmoney Why $TWTR Twitter is my largest long and why I believe there is a 40% chance that Alphabet $GOOGL acquires it at $50 in the next twelve months.@jimcramer @davidfaber @andrewsirjub— Douglas Kass (@DougKass) September 24, 2018
To be sure, Dorsey has eschewed discussions of acquisition in the past, making the proposition still only speculative at this point.
Paying for Payment Platforms
The company's inability to enter the social media market echoes its deficiency in assessing the global mobile payment audience.
"[Android Pay] is nothing compared to the maturation of Square," Kass said.
According to a Statista report, Kass' analysis is prescient in terms of popularity as well. Google's Android Pay app is the least popular app among its peers. PayPal (PYPL) for example, courts nearly 10 times the audience that Google commands.
As this market is set to nearly double in size by 2021, Square makes sense for the search giant to jump on sooner rather than later. This is especially true as Square makes inroads among younger users and businesses.
To be sure, Kass is not entirely bullish on Square, as he recently covered a short on the company. He explained that the company's lending venture was a serious red flag, which helped him cash in on a short this week.
"To me, Square Installments is something of a signpost that the rapid rate of growth in Square's organic growth might be decelerating, as the company begins to rely more on the extension of credit to grow," he wrote earlier this week. "The record of online lenders is a spotty one - with numerous examples of high-profile failures (like The Lending Club)."
Of course, if Kass' speculation on a potential acquisition holds any water, Square would no longer rely on such programs. Instead, it would remain settled into a market that many analysts see as a secular growth story, shielding itself under Alphabet's far-reaching umbrella, and likely benefiting shareholders of both companies.