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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

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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.

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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.

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Alphabet (A shares) Stock Quote
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