A speculative run in shares of Twitter (TWTR) as buyout chatter was increasing in recent months came to what is at least a temporary halt last week. Twitter stock tumbled 13.9% as reports surfaced that potential bidders were bowing out.
Reports in recent weeks had companies as diverse as salesforce.com (CRM 2.76%) and Disney (DIS -0.65%) making a play for Twitter. However, a new Bloomberg report claims that interest is waning. Sources are saying Twitter cancelled a Friday board meeting with outside advisors to assess the situation now that potential buyers of the former market darling are unlikely to enter into a bidding war.
The plunge in the share price is rough, but it doesn't even reverse the 24% surge that the stock experienced in the six trading days before last week's drop. The stock has soared 43% since bottoming out in February just before the buyout buzz started to build, even after last week's wake-up call.
Suitors don't wait on the porch forever
It's easy to see why Twitter would be a magnet to media and tech giants, in theory. It commands an audience of more than 300 million active monthly users, and it's an established broadcasting platform for generating buzz and breaking news.
However, the reason Twitter's stock got so cheap is that growth has started to decelerate. Twitter closed out the second quarter with an average of 313 million monthly active users, just 3% higher than a year earlier. Twitter is doing a good job of milking more money out of its users, though. Revenue showed 20% year-over-year growth in its latest quarter. However, that's also Twitter's weakest top-line growth as a public company.
Growth at Twitter has decelerated for eight consecutive quarters, falling from triple-digit growth to this second quarter's 20% showing. Closer to home, U.S. ad revenue is climbing at a mere 12% pace. Folks are warming up to other social hubs, and even the side projects at Twitter, including Vine and Periscope, which seemed to be generating buzz, are falling short to rival offerings.
Disney as a buyer didn't make sense. Salesforce has been vocal in its admiration of Twitter, but investors wouldn't have forgiven a purchase. Salesforce may have been attracted to the potential of Twitter as a communication tool, and Disney may have been wooed by the possibilities of being behind the wheel of the platform that its peers are using to promote their content, but the market would crush these stocks if they went this route. Many of the potential buyers are already growing faster than Twitter, and a purchase would be dilutive to earnings.
Even Ali Rowghani, former COO of the company and current Y Combinator partner, was on CNBC late last week pointing out that a deal was unlikely. He thinks chatter about a takeover in the $20 billion to $25 billion range doesn't seem realistic at the time.
A deal can still happen, and the lower Twitter's stock falls, the louder the cries for an opportunistic suitor to step up will get. However, with Twitter user and revenue growth only continuing to slow, it's going to be hard to get excited about the out-of-favor stock until its fundamentals start to bounce back.