Please ensure Javascript is enabled for purposes of website accessibility

Down Over 60% From Its Peak, Twitter Inc May Still Not Be the Bargain Buyers Think It Is

By Motley Fool Staff – Sep 30, 2016 at 5:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While a Twitter acquisition could be a wise strategic move for many tech companies, investors have to wonder: Is there be a better use for that cash?

As Twitter (TWTR) acquisition rumors continue to grab headlines, a number of technology giants have been named as likely buyers of the social media company. Among the Silicon Valley suitors is none other than Alphabet (GOOGL -1.02%) (GOOG -1.24%), which likely sees value in Twitter's large user base and developing video strategy.

In this segment from Industry Focus: Technology, Motley Fool analysts Dylan Lewis and David Kretzmann discuss the pitfalls of acquisitive behavior and potential better uses for Alphabet's large cash balance.

A full transcript follows the video.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

This podcast was recorded on Sept. 23, 2016.

Dylan Lewis: Looking at some of the rumored acquirers, on my end, it's not really shocking to see Google's name thrown into the mix, here. You see, pretty much anytime there's been rumors about Twitter being acquired, Google has gotten lumped in there. They integrate tweets in the search results, so, clearly, they see some value in what the platform provides in terms of live content. Google has over $12 billion in cash at their disposal. They have $77 billion if you include their short-term investments. That's a lot to work with.

David Kretzmann: They're doing OK. They've produced about $20 billion in free cash flow over the past year. Google has no shortage of cash. From Alphabet's perspective, I think Twitter could be attractive, because they still have a sizable platform of relatively engaged users. Online advertising, obviously, is Google's bread and butter. They might be able to transfer some of their learnings and expertise to Twitter and fine-tune the strategy there. If Twitter's move into live video streaming grabs hold, that could really compliment what Google is doing with YouTube and competing against Facebook Live for this emerging market of online video. There are a fair amount of parallels where it could make sense for Google.

At the same time, I still worry that, just because Google has that mountain of cash, you don't want to overpay for an acquisition, as we've seen with Microsoft's reign under Steve Ballmer. Just because you have a lot of cash and spend it acquiring a lot of companies doesn't mean it's going to work out well for shareholders. You want to be sure that just because Google or some of these other companies have a lot of cash, it's still very important that they're getting a good value for the cash that they spend on acquisitions.

Lewis: And just looking at what they've done as a company in the last year or so, particularly since Ruth Porat has hopped on, of the share repurchases, is one of the other ways they can use that cash. You have gone through almost all of that authorization now. So, it'll be interesting to see what happens with that. But that's another use for that cash that, as a shareholder, I wouldn't necessarily mind.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Kretzmann owns shares of Facebook and Twitter. Dylan Lewis owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. The Motley Fool owns shares of Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet (A shares) Stock Quote
Alphabet (A shares)
GOOGL
$97.46 (-1.02%) $-1.00
Twitter Stock Quote
Twitter
TWTR
Alphabet (C shares) Stock Quote
Alphabet (C shares)
GOOG
$97.60 (-1.24%) $-1.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.