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Twitter Reportedly in Talks with Salesforce for M&A, Stock Up


Shares of Twitter Inc TWTR closed up 2.5% yesterday after media reports indicated that salesforce.com, inc. CRM is still keen on buying Twitter even as other contenders like Alphabet GOOGL and The Walt Disney Company DIS pull out.

However, last week, it seemed that Salesforce too was pulling out of the race. At Salesforce’s Dreamforce conference held on Oct 5, 2016, Benioff seemed to have a changed stance. After calling Twitter an unpolished jewel, earlier on, he was quoted saying "I think it’s a great brand and I just wish Jack very well…good on his company, that’s how I look at it today."

However, the two companies are said to be holding talks as per latest reports. The reports further add that co-founder and CEO Jack Dorsey is no longer against Twitter’s buyout as long as “its integrity is upheld when folded into the new buyer”. Reportedly, Twitter will push to retain its independent status following the buyout. However, there was no official word on the matter from neither Twitter nor Salesforce.

The biggest impediment to Twitter’s buyout so far has been its hefty price tag. Moreover, analysts observe that Twitter is unlikely to contribute to the buying company’s bottom line. Twitter’s acquisition was expected to cost upwards of $16 to $20 billion, something which Salesforce’s shareholders are wary of as it could dent the company’s valuation. Salesforce, so far this year, has already shelled out more than $4 billion for acquisitions.

Plus, Twitter will come with its own set of challenges for any buyer. Despite being a world renowned brand, Twitter is currently at crossroads. Yes, its valuable data (for a stagnant user base of 300 million plus users) can be leveraged by many tech giants but then profitability issues ($100 million plus in quarterly losses), a severely under monetized platform, and the infamous trolling can be too much to handle for any company.

However, media reports quoted an analyst stating that a Twitter buyout deal could go ahead if the price is calculated per user, which at present is estimated to be $60.This takes the asking price to $11 to $15 billion inclusive of Twitter’s net cash of $2 billion. Even if its slashed by $5 billion, the asking price is still a significant amount and we continue to believe that a potential buyer is difficult to come by if not impossible.

Twitter is slated to report its third-quarter 2016 earnings on Oct 27. At present, Twitter carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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