By default, Twitter stays independent
Cold-footed suitors force it to hone strategy, improve growth as a stand-alone company
Left at the altar after seeking buyout offers from potential suitors including Google and Salesforce.com, Twitter Inc. remains an independent company by default.
As such, CEO Jack Dorsey has little choice but to rally his troops in hopes of hastening improvements that would broaden the microblogging and video platform’s appeal — and keep predatory buyers at bay.
“The people who use Twitter every day deserve our best,” Dorsey said in a memo to staff obtained by Bloomberg on Monday.
He cited Twitter’s live video strategy, calling the company the “people’s news network. The fastest place to get information — now it needs to be the first place people check to see what’s happening.” The 410-word memo did not mention the possibility of a sale, Twitter’s stagnating user growth, tumbling share price, or the fact that much larger rival Facebook is social media’s de facto first choice for news and information.
Along with growth worries and Twitter’s struggle to wring profits from its 313 million active monthly users, a 25-percent drop in the company’s market value this year has ratcheted up pressure for a sale.
Some have even called for an activist investor like Carl Icahn to take control of Twitter to pare costs, retool strategy and replace senior management.
The loss of advertisers to Google and Facebook, along with disappointing engagement in the U.S., reportedly led Twitter to seek expressions of interest from potential acquirers, with the process to be concluded by Oct. 27 when Twitter is slated to report third-quarter earnings.
But website Recode last week said rumoured buyers Disney, Google and Apple were all unlikely to enter the race to acquire money-losing Twitter.
Meanwhile, cloud computing company Salesforce has taken steps to tamp down speculation, although it along with Google are still seen as among the most likely buyers.
The indications of cold-footed suitors pushed shares down 10 per cent this week, helping to reduce Twitter’s market cap from more than $17 billion (U.S.) to $12.64 billion.
That makes Twitter more affordable, but its market valuation remains high and future profitability is very much in doubt, according to hedge fund manager John Hempton, who in a blog post said the answer is big cuts in spending and staff to make the company more palatable to strategic buyers.
Some analysts, however, believe the stock has farther to fall before any offer emerges from a strategic buyer or a private equity player who could shake out costs and replace Dorsey as CEO.
A possibility is that Twitter will remain independent at least in the near term, allowing Dorsey more time to hone a strategy that relies on live streaming of sports, embraces longer tweets and encourages image and video sharing interactivity.
Observers said premium subscription pricing could be applied to specialized content as a way to monetize segments of its users on an Internet network where too few brands have been willing to commit.
“It’s a wonderful platform . . . that would be a tasty bit for Google to snap up,” said Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto.
But he said investors are clearly disappointed with the progress Twitter has made under co-founder Dorsey on the road to monetization and profitability.
Dorsey replaced Dick Costolo as CEO in the summer of 2015, although Dorsey has held onto his other job as chief executive of e-commerce company Square.
Dorsey introduced several changes in an attempt to spur user growth and engage advertisers on Twitter, including a feature that highlights the best of the San Francisco-based company’s platform at any given moment.
The company has also entered into a series of new sports-streaming deals and on Thursday announced that its live-video service Periscope will now let media companies and other users channel live video feeds directly, without the need for a smartphone to record the images.
But industry data suggest the changes have so far failed to increase daily time spent on the platform and Twitter in its most recent earnings report showed just1per cent sequential user growth.
It posted revenue below analysts’ estimates, with sales expanding year over year at the slowest pace since its IPO.
Twitter also reported a smaller $86.4-million loss and positive free cash flow.
And despite intense volatility around Twitter shares amid buyout speculation, Deutsche Bank analyst Ross Sandler said in a report market checks point to a third-quarter reve- nue in the high end of forecasts, along with a slight improvement in monthly active users. “We think 4Q guidance could meet/exceed consensus.”
David Trainer of research firm New Constructs, meanwhile, argues that Twitter’s live video streaming strategy holds promise, saying companies including Time Warner and Ford have signed deals with Twitter that guarantee ads on selected videos in Twitter accounts.
“Despite its growth problems, Twitter is a unique platform, not only for live videos, but also for getting fast news from a wide variety of sources,” he said.
“If the company can make it more convenient for people to use the service, and it keeps on working to improve user engagement, Twitter has a lot of room to grow.”