All signs pointing to Twitter takeover
Voluntary departure of CEO without severance appears to indicate the social media firm may be on verge of being sold
The abrupt departure of Twitter CEO Dick Costolo amid disappointing growth at the micro-blogging platform has boosted the odds of a takeover, analysts said Friday.
“Prospective buyers have been interested in purchasing Twitter in the past, and during the interim search period we believe the opportunity for acquisition is heightened,” said Jefferies’ Brian Pitz, who has a buy rating and $60 (U.S.) price target on Twitter shares.
Deutsche Bank analyst Greg Poole took a similar tone Friday after Twitter said Costolo would voluntarily leave the post as of July 1 without severance to be replaced by co-founder and Square Inc. chief executive Jack Dorsey while the board searches for a permanent chief executive.
“The CEO dislocation coupled with no super-voting share structure, a board somewhat on the defensive, lots of potential asset value and the current environment of cheap money — leads us to think M+A from a strategic just became slightly more possible,” Poole wrote in a note to investors.
In a conference call with analysts Thursday, Dorsey said the company wants to remain independent while accelerating its growth strategy, but acknowledged the board’s duty to consider any proposal that would increase shareholder value.
Analysts have speculated about potential interest from Google and Facebook, with the companies declining to comment.
But they say a major hurdle is Twitter’s market cap of more than $22 billion, which reflects an overhyped IPO that has given way to revenue misses and a failure to attract advertisers at the pace of rivals.
News of Costolo’s departure initially sent the shares ahead by 7.7 per cent, but the prospect of more leadership uncertainty appears to have curbed investor enthusiasm, with the stock closing flat Friday at $35.90.
Dorsey said the change will not alter Twitter’s strategy to monetize the 300 million logged-in users who visit the site every month and to engage the 500 million visitors who are not logging in and the additional 700 million who see syndicated tweets.
“The story remains the same,” said RBC’s Mark Mahaney, “which is that this is a company and a brand that’s got ubiquitous reach, but a lot of execution challenges.”
San Francisco-based Twitter is an invaluable source for real-time news, but its product and positioning remain confusing and its “user experience looks almost exactly the same as it did nine years ago,” said Forrester analyst Nate Elliott.
“The next CEO needs to innovate and do a much better job of serving both users and advertisers,” he said.
In late April, Costolo blamed disappointing first-quarter earnings on “lower-than-expected contribution from some of our newer direct-response (ad) products.” He said the company expected the problems to persist for the remainder of the fiscal year.
Analysts said Twitter needs to improve direct marketing, monetize offline views faster to increase digital ad revenue — which accounts for less than 2 per cent of total sales — and make the service easier to use.