Twitter may get bought out before it has a chance to go public.
The Wall Street Journal is reporting that there have been low-level acquisition talks between Twitter and executives at both Facebook and Google
This isn't really a surprise. Twitter's the micro-blogging rock star that would look good on the arm of any dot-com looking to maximize page views. The only real shocker is the $8 billion to $10 billion valuation that's being bandied about.
Sources tell the Journal that Twitter lost money on $45 million in revenue last year. Even if revenue clocks in between $100 million to $110 million this year, is Twitter really worth $10 billion?
Don't be surprised if it happens. Google and the handful of tech companies that can come up with that kind of scratch would likely convince themselves that they will be able to crack the monetization nut. More importantly, buying Twitter makes sure that the high-traffic site doesn't fall into the hands of a rival.
It's not easy for Twitter to make money given the nature of its short-form content. Users are posting thoughts in 140 characters or less. It's not easy to slap an ad on that, especially given the wide array of devices being used to follow tweets.
Twitter has already scored the low-lying fruit. It began licensing its real-time tweet results to Google, Microsoft
Three months later Twitter broke out @earlybird, a Groupon-esque account where Twitter can promote flash sales. The @earlybird account got off to a good start in mid-July. Disney
Twitter kicked out 133 @earlybird tweets in a little more than two months to its growing base of followers. It's been silent since late September. It's a surprise since there are still 227,581 followers tracking the account that's been dormant for nearly five months. It's an even bigger surprise given the booming popularity of Groupon and LivingSocial.
The victor of Twitter would get the spoils, but would regulators even let Facebook or Google get their grubby hands on Twitter at any price?
Microsoft would have an easier path to regulatory approval, given its smaller online operations. Microsoft's also still losing money in cyberspace, so the shareholder uproar over such a costly deal may be easier to swallow.
Yahoo! would make the most sense. Twitter would help give the meandering dot-com giant the sizzle it's been lacking in recent years. It doesn't have enough money to pull off an all-cash deal, but it would if it sold off some of its Asian investments to make it happen.
None of this means that a bidding war is about to break out for Twitter. For years, we've been treated to Twitter buyout rumors that prove hollow. However, if two parties have had low-level talks, a bidding war even at these lofty levels wouldn't come as a surprise.
If a company believes that it can pick up Twitter as an @earlybird special given its sloppy financials, it probably missed the memo.
Who do you think should buy Twitter? Shares your thoughts in the comment box below.
Walt Disney, Google, and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Walt Disney is a Motley Fool Stock Advisor selection. Yahoo! is a Motley Fool Global Gains recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google, and Microsoft. 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.
Longtime Fool contributor Rick Munarriz has been tweeting from his @market account since the early Twitter days, and he's finally starting to be convinced in its lasting power. He does not own shares in any of the companies in this story, except for Disney. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
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