No one is saying that Twitter (NYSE:TWTR) needs to get hitched, but it sure seems as if the market's becoming an arrow-slinging cupid. Shares of the social media giant rose 15% last week, moving higher after the LinkedIn (NYSE:LNKD.DL) acquisition spurred many market pros to wonder if Twitter will be next.
The buyout of one popular social networking hub doesn't necessarily mean that Twitter is buyout bait, but it does open the door for other tech giants to follow the $26.2 billion deal for LinkedIn just to keep up. There were plenty of Wall Street pros talking up Twitter as if it had just caught the bride's bouquet tossed by LinkedIn at its wedding reception.
- SunTrust Robinson Humphrey analyst Robert Peck tells The New York Times that it's "inevitable" that the social broadcasting platform will be acquired.
- That same James Stewart article also reached out to RBC Capital Markets' Mark Mahaney who was more skeptical on a deal going through. "There just aren't many logical buyers," he concludes, but he still sees the argument in favor of a tech, telco, or cable giant diving in to snag Twitter.
- Dot-com pioneer Ted Leonsis appeared on Bloomberg TV, discussing Twitter as the next shoe to drop, but more out of desperation on Twitter's end to hook up with a larger parent. "You can't make it as a single point media company," he says.
Twitter also made waves last week after confirming to Recode that it had made a reportedly $70 million investment in music-streaming specialist SoundCloud. The move makes sense in light of its Vine and Periscope outlets for video, but it was clearly LinkedIn's buyout that pushed shares of Twitter higher on the week.
It's a long walk down a long aisle
A Twitter buyout would seem to put investors out of their misery. The stock went public at $26 in late 2013, and it was initially a hit out of the gate. It traded as high as $74.73 shortly after the IPO, but it's been a brutal trip downhill since then. The stock plunged 41% in 2014, following that up with a 35% drop in 2015. It has gone on to plummet another 30% this year, and that's with last week's pop.
Twitter's clearly out of favor after working on its third consecutive year of at least a 30% decline. User growth has stalled. Revenue continues to move higher -- clocking in with a 36% year-over-year pop in its latest quarter -- as Twitter gets better about monetizing its traffic, but reported losses continue.
Armed with 310 million monthly active users, it's easy to see why Twitter would be attractive as an acquisition target. Stacking that up against the 305 million monthly active users it was reaching a year earlier -- a mere 3% uptick -- explains why the market doesn't feel the same way with the stock trading all the way down in the teens.
Last week's 15% spike may be warranted given the LinkedIn deal, but it's also the hardest kind of pop to sustain. Twitter's fundamentals weren't behind the move, and that means that any kind of doubt that it won't be the next former dot-com darling to walk down the wedding aisle will weigh on those gains.