Does CEO’s exit put Twit­ter in play?

The so­cial me­dia com­pany could be­come a buy­out tar­get, an­a­lysts say.

Los Angeles Times - - BUSINESS - By Tracey Lien and David Pierson

SAN FRAN­CISCO — A day af­ter em­bat­tled Twit­ter Chief Ex­ec­u­tive Dick Cos­tolo an­nounced that he was step­ping down, an­a­lysts were spec­u­lat­ing whether the mi­croblog­ging ser­vice could be an ac­qui­si­tion tar­get for a deep-pock­eted com­pany like Google.

In the past, Twit­ter turned down of­fers from Google and Face­book, choos­ing in­stead to com­pete with them for ad dol­lars and users. But ad­ver­tis­ing never be­came as lu­cra­tive as in­vestors wanted and user growth has slowed; for months now, the San Fran­cisco com­pany has been un­der in­tense pres­sure to prove its rel­e­vance.

Now, with the com­pany in a state of flux as its chief ex­ec­u­tive of five years pre­pares to step down July 1, Twit­ter could be ripe as an ac­qui­si­tion tar­get.

“Prospec­tive buy­ers have been in­ter­ested in pur­chas­ing Twit­ter in the past,” an­a­lysts Brian Pitz and Brian Fitzger­ald wrote in an in­vestor note. “And the lack of a CEO suc­ces­sor sig­nals to us the po­ten­tial for ac­qui­si­tion.”

Pitz and Fitzger­ald didn’t name any po­ten­tial suit­ors but said the like­li­hood of a deal is “height­ened” as Twit­ter scours in­ter­nally and ex­ter­nally for a new CEO. Come July 1, co-founder and Square CEO Jack Dorsey will take the helm on an in­terim ba­sis.

A sale “could plug some holes for a larger com­pany,” said Robert Peck, man­ag­ing direc­tor and In­ter­net eq­uity an­a­lyst with SunTrust Robin­son Humphrey.

“Google for ex­am­ple doesn’t have strong so­cial,” he said. “Twit­ter is also highly mo­bile, and ev­ery­thing is on mo­bile now. It’s also mov­ing to­wards video, and hav­ing video post­ings and video ads. Th­ese are the big trends on the In­ter­net ... and Twit­ter has all those things.”

In­vestors, too, are call­ing for a buy­out.

Last week, ma­jor Twit­ter in­vestor Chris Sacca posted a nearly 8,500-word es­say on

how to im­prove Twit­ter. He then took to CNBC to pro­claim that Google and Twit­ter would be an “in­stant fit.”

A Google spokesper­son did not re­spond to a re­quest for com­ment.

There is prece­dent for the two com­pa­nies work­ing to­gether. In April, Google agreed to help Twit­ter sell and mea­sure pro­moted tweets paid for by ad­ver­tis­ers. Last month, Google be­gan show­ing tweets in its search re­sults. That means if you do a search on, for ex­am­ple, Justin Tim­ber­lake, you’ll see his most re­cent tweets along with the re­lated news, bi­o­graph­i­cal in­for­ma­tion, songs and movies that would typ­i­cally show up. A Google search for #Game­ofThrones brings up fan tweets con­cern­ing the HBO fran­chise.

That was a win for Twit­ter, which now has its con­tent seen by many more peo­ple — in­clud­ing non-Twit­ter users — as a re­sult of the deal.

In a con­fer­ence call Thurs­day re­gard­ing his de­par­ture, Cos­tolo said Twit­ter’s board would “care­fully eval­u­ate” any of­fer while Dorsey in­di­cated that the com­pany would not change di­rec­tion.

The next day, when asked whether a po­ten­tial takeover of the com­pany was on the ta­ble, Dorsey and Cos­tolo told CNBC that they be­lieve they can “max­i­mize value” best as an in­de­pen­dent com­pany.

Dorsey, mean­while, de­scribed the “fun­da­men­tals” that the com­pany is build­ing right now as “ex­tremely strong and beau­ti­ful.”

But they didn’t rule out a takeover en­tirely. And Dorsey might not even be the one to make that de­ci­sion: Adam Bain, Twit­ter’s pres­i­dent of rev­enue and global part­ner­ships, has al­ready emerged as the front-run­ner to take over the CEO po­si­tion per­ma­nently.

Some ob­servers cast doubt on a po­ten­tial sale, ar­gu­ing it would have hap­pened in lieu of a CEO tran­si­tion. Oth­ers say Twit­ter just needs bet­ter man­age­ment at the top.

“I’d be sur­prised to see Twit­ter get ac­quired by an­other com­pany,” said Betsy Sig­man, pro­fes­sor of so­cial me­dia and in­for­ma­tion sys­tems at Ge­orge­town Uni­ver­sity.

Sig­man said re­cent changes in­tro­duced to Twit­ter, such as the re­moval of a char­ac­ter limit in di­rect mes­sages and the launch of the Periscope mo­bile app, could help the com­pany.

That said, if Twit­ter were to be ac­quired, Sig­man said, Google would be an ob­vi­ous can­di­date be­cause it lacks its own ro­bust so­cial net­work. “They’ve never done as well as Face­book with Google Plus.”

Re­gard­less of whether a takeover is on the ta­ble, an­a­lysts agree Twit­ter has a slew of prob­lems it needs to quickly ad­dress — and not just its lack­lus­ter ad rev­enue but a user ex­pe­ri­ence that strug­gles to at­tract a main­stream fol­low­ing.

“Twit­ter is a niche busi­ness,” said Steve Sar­ra­cino, founder of Ac­ti­vant Cap­i­tal.

As it is, Twit­ter hasn’t evolved much since its launch nine years ago, and it has a steep learn­ing curve for new­com­ers un­fa­mil­iar with its at times clunky user ex­pe­ri­ence. Sar­ra­cino said Twit­ter needs to de­velop or ac­quire com­ple­men­tary prod­ucts to ex­pand.

“A good anal­ogy is Face­book’s pur­chase of Instagram,” he said. “Twit­ter needs to find an­other de­liv­ery model be­yond tweets and a Twit­ter feed.”

Twit­ter shares closed at $35.90 on Fri­day, up less than 1 cent.

An­drew Gombert Euro­pean Pressphoto Agency

OUT­GO­ING CHIEF Dick Cos­tolo, left, and other Twit­ter ex­ec­u­tives ap­plaud as the com­pany’s shares begin trad­ing on the NYSE in Novem­ber 2013.

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