Alphabet (GOOGL) a Logical Buyer for Twitter

September 26, 2016

Twitter (TWTR) shares took flight on Friday, September 23 as rumors circulated Salesforce (CRM) or Google (GOOGL) could buy the struggling microblogging site. On Stocktwits, it was the most-talked about tech stock.

Twitter is not a cheap stock. Its price to free cash flow is 52x and it trades at 3.5x book. The market still prices in sustained user growth, yet in the last few quarters, the company has disappointed its shareholders. On September 17, The Economist voiced concern over the CEO, Jack Dorsey, spending just half his time as the  CEO. He spends the other half of the time running Square (SQ).

The NFL deal brings hope Twitter will recapture the same user growth it had before its IPO. Chances are good Twitter will succeed. In the gossip world, Twitter reported “Brangelina” before mainstream media. Sports watching – especially football – is a favorite past time in the U.S. Having a means to chat and voice opinion during a game.

Google a Logical buyer

Google would benefit by owning Twitter. It would have a microblogging asset, ownership over real-time data storage and sharing, and would speed up delivery of news. Granted, Twitter is not the authority for verified news reporting. Trending hashtags would give a signal a news is about to break. Google could validate the trends as news soon afterwards.

If Google does buy Twitter, expect the search giant paying a premium. Twitter is relatively cheap, since its turnaround is in the early innings.

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