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Twitter may be attractive to private equity firm

Twitter’s stock price is shifting based on the changing likelihood of a buyout of the company. Onereport indicated that it is less likely a major company will buy Twitter and a private equity firm is a more likely buyer.

 

Twitter’s stock price skyrocketed a few weeks ago when a number of potential acquirers were thought to be interested in the company. Salesforce, Disney, and Google were just a few of the potential acquirers that were thought to be interested in buying Twitter. Last week, when a report came out indicating that bids for Twitter were not forthcoming the stock price dropped by almost 30%.

 

Twitter has experienced financial difficulties relating primarily to slowing sales and large losses. The Company had a loss of half a billion dollars in its last fiscal year. An acquirer of Twitter will need to have the financial resources to support the company during the challenging financial period that Twitter is currently experiencing including large cash injections. However, Twitter’s story is not as bad as it seems as much of its loss relates to stock option awards which are non-cash expenses that represent wages for employees through stock awards that employees receive. More volatile stocks like Twitter’s tend to have higher valuations assigned to it leading to larger expenses.

 

Twitter’s CEO, Jack Dorsey has been trying to turn around the company for the past year but has experienced problems monetizing their users in the same way that Facebook was able to engineer. A new owner, and in particular a private equity fund is likely to trim costs and terminate a significant portion of Twitter’s employees as a way of reducing their operating expenses and to potentially flip their investment to a larger buyer in the near future. While Twitter is a dominant player in its focused market, there is little room for growth and expansion in the United States.

 

The potential to lower operating costs both through salary count reductions as well as through lowering the compliance costs associated with being publicly traded. The potential for a private equity firm to flip this type of investment in a brand with a name as powerful as Twitter may ultimately prove to be too luring for a private equity company to resist.