MorningWord 9/26/16: Twitter (TWTR) – SubTweet

by Dan September 26, 2016 9:51 am • FREE ACCESS

In case you missed the stories on Friday, it’s not likely that Twitter (TWTR) remains an independent company much longer. From CNBC’s David Faber:

Since founder Jack Dorsey formally returned to the company a year ago as CEO, investors, analysts and the financial/ tech press seemed willing to give him a year to fix the product, attract advertisers, find new ways to monetize existing and logged-off users and ultimately re-accelerate user growth, which has basically flat-lined, resulting in a massive deceleration in sales growth.

For the better part of 2016, shares of TWTR have traded between $15 and $20 (a 22% range). That’s also a $3.5 billion in market cap range, equal to the company’s cash position. When investors became discouraged about Dorsey’s progress, they marked the stock’s value down to about $12 billion (enterprise value of about $10 billion). The only times it has traded above $20 in the past year was usually the result of take-out rumors:

TWTR 1yr chart from Bloomberg
TWTR 1yr chart from Bloomberg

Friday’s 21% surge in the shares matched the 2016 high. It also got everyone thinking on price for a takeout. What is the right price for Twitter on a takeout?

My view is simple. As a financial asset, the company is likely overpriced at a $16 billion market cap ($14 billion enterprise value) given its lack of growth and possibly the maturity of the platform. But what is less clear is the replacement and/or scarcity value of the platform for the right strategic buyer.

My thoughts on TWTR on Twitter from Friday:

Obviously I have no idea whether the company will be sold, who will be the buyer and at what price. I do know that Twitter has no reason to sell anywhere near current levels. Recode has done some very good reporting on this topic.

From Friday:

The week before, on who will ultimately buy TWTR:

What’s nuts to me, and demonstrates the deal a company like Google may ultimately get by being patient (or lazy) on TWTR, is that shortly after TWTR’s 2013 IPO when the Nasdaq Composite was 4000, TWTR had a nearly $50 billion market cap. Now with the Nasdaq at 5300, almost 35% higher, gaining more than a trillion (with a T) dollars in market cap, we are debating whether TWTR Is worth $17 billion or $20 billion:

From Bloomberg
From Bloomberg

While media companies may be the most strategic of buyers, tech companies who have benefited (or the reason for) the Nasdaq’s gains since 2013 are the most likely buyers because they will be more inclined to pay the wrong (too high) price.

And let’s not forget the rumors from earlier this year that a large TWTR shareholder (former Microsoft CEO Steve Ballmer) was going to team up with another large shareholder (Saudi Arabia’s Prince Al-Waleed bin Talal) to buy the company.

But unlike a lot of these types of deals, we get unique insight into what high profile investors and potential buyers think about the product itself, because we can see if and how they use it in public. For instance, Fred Wilson, of Union Square Ventures (an early TWTR investor) has lately been a vocal proponent of live streaming events like the NFL and the presidential debates on the platform.We’ve of course seen Chris Sacca’s (early investor) manifestos on how the company could turn things around.

Which brings me back to an even more intriguing rumor. It was that active Twitter user, Facebook board-member and founder of venture capital firm A16Z, Marc Andreesen would team up with private equity firm Silver Lake to take the company private. All these rumors have been denied

But over the weekend, prolific Tweeter Andreessen (who Recode calls the “father of the tweetstorm“) suddenly deleted his entire Twitter history and announced:


I wonder why? Involved? Fave for yes, Retweet for no.