Stock market fluctuations don't get more frenetic than in the case of Twitter (NYSE:TWTR) stock of late. In just two weeks' time, Twitter shares rose nearly 33% in the wake of a surge in buyout rumors, only to give up much of those gains as bidders including Apple, Alphabet, and Walt Disney opted not to further pursue the mired microblogging platform.
Barring any other suitors lurking behind the scenes, this leaves CRM giant salesforce.com (NYSE:CRM) as the lone potential bidder for Twitter, something its investors may or may not approve of.
In an attempt to tap into the wisdom of crowds, we turned to Twitter itself to poll the Fool's 635,000 followers there, asking what they foresaw for Twitter shares. Here are the results.
The buyout bids are coming. So we poll again.— The Motley Fool (@themotleyfool) October 5, 2016
Twitter, around $24 today, will sell for...?
Our readers believe Twitter's shares will once more rise above $30 per share, a near-term outcome that would most likely result from a buyout offer. But given the nearly equal split in reader opinion, let's delve deeper into the various scenarios surrounding a possible Twitter buyout.
Why Twitter will trade above $30
Twitter has a lot going for it. Though the popular post-IPO impression of the social-blogging platform is somewhat negative, Twitter has achieved a remarkable amount in its decade-plus of existence. Its market value has taken a sharp fall since its post-IPO pop, yet it still sports an $11.2 billion valuation, making only Facebook, LinkedIn, and the privately held Snapchat the only more valuable social-media companies in the world. That's impressive company.
Furthermore, the company counts nearly as many monthly active users as the entire population of the United States. The company is expected to achieve regular profitability this year, and its revenue is expected to climb toward $3 billion next year. Twitter also sports incredible brand recognition; the word "tweet" has become part of the English lexicon.
Sure, Twitter has fallen short of becoming the "next Facebook," but these are all still impressive feats.
Twitter as both a business and a cultural fixture could indeed prove to be valuable to another company, in no small part because of what is arguably its most valuable asset: its data. Providing a digital window into public discourse, Twitter's data could benefit a host of potential buyers from the advertising, media, and technology industries.
What's more, Twitter's ability to reach its massive audience also makes it an intriguing potential distribution channel for content. How many cable distributors count over 300 million users? Zero. To be sure, Twitter needs to continue to improve and evolve, but there's obvious value in Twitter, and a legitimate case to be made that the stock will eventually rise above $30.
Why Twitter won't trade above $30
Now let's consider the counterargument. The company's recent history suggests it has plateaued, with little evidence that meaningful growth lies ahead. Since co-founder and former chief Jack Dorsey returned to the CEO position in late 2015, Twitter has favored implementing a number of smaller enhancements instead of enacting any sweeping changes or improvements to the service. Barring a more fundamental change to the service, Twitter will probably find it difficult to expand the service to anything close to a doubling of its user base. That's a red flag for any potential acquirer.
Another problem that might cap Twitter's stock price below $30 is its valuation. Twitter's $11.2 billion valuation as of this writing would represent a massive investment from all but the largest tech companies, especially considering the uncertainties that come along with Twitter. For example, Twitter's valuation is roughly one-fifth of Salesforce, its only known remaining possible bidder. Salesforce's assets total just over $14 billion, meaning the company would probably need to issue a large amount of stock to finance a buyout.
Which seems more likely?
Expensive and risky acquisitions require a tremendous amount of conviction to justify, and even then they can run into several derailing factors. That's why I don't think Twitter will trade above $30, at least as the result of a buyout.
I've followed the company for a long time, and it's always made far more sense to me as a standalone entity. The company enjoys ample opportunities in our digital and connected world, and if it can find a way to introduce complimentary mass-market products or features to its platform, it will almost assuredly rise above $30. But the lack of evidence that it has the ability to do so suggests that its buyout prospects above $30 are limited.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Apple, Facebook, Twitter, and Walt Disney. The Motley Fool owns shares of LinkedIn and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. 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.