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Salesforce is mulling over an acquisition of Twitter per a report today. The deal is not imminent and is still in its early stages and may not ultimately lead to fruition.
Twitter’s stock has crashed this year going from a high market capitalization of over $40 billion to only $13 billion prior to the news. The onset of the takeover news has led to the stock price skyrocketing by over 20% on Friday alone.
Twitter’s board of directors indicated that they would consider takeover attempts and be receptive to them, but are in a position to be patient until the right offer came along. Twitter’s stock has been hit by stagnant growth as well as challenges associated with further monetizing the advertising revenue that they are able to generate. A deal with the NFL that was much publicized and intended to boost revenue was unable to truly boost revenues to a meaningful amount and the stock price did not surge. Competitors like Facebook have proven to be much more effective in monetizing advertising revenues and generating new income sources.
Social media site LinkedIn generated a tremendous sales price of $3 billion when I was purchased by Microsoft earlier this year. Salesforce appears to have several takeover offers that it is considering The tech companies that are currently making offers are not known but beyond Salesforce some people believe that Google is likely in the running.
Ultimately, given Twitter’s stagnant business and lack of an earnings history that shows significant profits, a buyer would have to be flush with cash as many companies in the tech industry happen to be. Other companies like Facebook and Microsoft have competing product lines and their desire to acquire Twitter may be limited as a result. The tech industry has been experiencing a period of consolidation that has been creating several large tech behemoths that dominate the industry. While Salesforce is not considered to be the size and scope of a company like Microsoft, Google or even Facebook, their Salesforce system dominates the industry and is used by the majority of Fortune 500 businesses, creating a stable cash flow.
For long term stock holders, Twitter is unlikely to pay off as the stock has crashed from a high of $76 a share to its current stock price of $26 per share today. Even with large premium these long-term stock holders will not reap significant financial rewards.