Is Twitter getting ready to buy SoundCloud?

Acquistion would help Twitter gain ground in the music space, plus help beef up its user base

Financial trends and news by Steven Loeb
May 19, 2014
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It is no secret that Twitter wants a closer relationship with the music industry. And while those efforts have come up short in the past, it may have found a way to do it that is considerably less risky than trying a to launch a new app every year.

The company is "considering a deal" to acquire SoundCloud, a service that allows anyone to upload, and share, audioclips online, according to a report out from ReCode on Monday. SoundCloud calls itself the "YouTube for audio," and the fact that Twitter wants to buy it should not come as a very big surprise.

First of all,, only a few days afer the demise of #Music, Twitter's first attempt to break into the space, it was reported that Twitter was already trying to enter into a partnership with numerous music companies, including SoundCloud. The others were Vevo and Beats Music. 

Secondly, there is a big advertising opportunity, given that SoundCloud is, by far, the most popular music service on the network. With 42 million tweets over the course of 15 months, it more than doubled the second place service, Spotify, which only had 16 million. Users are already synching up the two services, and owning the company would give Twitter even more control over which ads ran alongside those tweets.

Plus, there is SoundCloud's user base. It reached 250 million in October of last, meaning that is no doubt grown even bigger since then. That has to be enticing to Twitter, a company whose user growth has been stagnating over the last couple of quarters.

In its most recent earnings report, the company saw its average monthly active users (MAUs) grow 25% year to year, to reach 255 million. That is slower growth than it saw in the previous quarter, when MAUs went up by 30% year to year. Analysts had been expecting MAUs to hit 257 million.

As a result of those anemic numbers, Twitter's stock has been slammed since it released its fourth quarter, and full year, earnings report back in February. At that time it was trading at $65.97 a share, roughly $32 more than it is now.  The stock is currently at $32.07 a share.

So there are obviously a lot of benefits to Twitter if it were to buy SoundCloud, as it looks to gain ground in the music space and potentially expand its user base at the same time, but there are some downsides.

First, as ReCode pointed out, SoundCloud does not have any licensing deals with the big music labels. And that has caused problems for Twitter before, specifically when it was launching #Music. By becoming part of Twitter, SoundCloud would be pressured into entering into such agreements.

Second is the cost. SoundCloud has raised over $120 million, most recently a $60 million round at a $700 million valuation. Twitter most expensive acquisition so far was when it bought ad network MoPub for $350 million last year. SoundCloud would absolutely be a more expensive acquisition if Twitter decides to go through with it.

When asked about the report, a Twitter spokesperson gave us the old, "We don't comment on rumor and speculation" response. SoundCloud could not be reached for comment. 

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