Suntrust analyst: Twitter sale "inevitable" if no turnaround

Steven Loeb · June 7, 2016 · Short URL: https://vator.tv/n/45f7

Bob Peck of Suntrust Robinson Humphrey expressed his concern over exec departures and tepid growth

The news that Twitter lost yet another executive this week, this time Jeff Seibart, the company's head of product who took the job less than a year ago, has prompted one analyst to bring up the dreaded A word: acquisition.

"The changing product managers in such a short time (4 in 3 years) raises concerns that changing the product innovation cadence is more difficult than previously presumed," Bob Peck, analyst at Suntrust Robinson Humphrey, wrote in a note on Tuesday.

He called the news "particularly disconcerting, given the progress of other platforms like Snapchat, Instagram, and Facebook."

Twitter has long struggled with getting its user numbers up, having seen little to no growth for a couple of years now.  

In the first quarter of this year, the company saw its average monthly active users grow a mere 3 percent year-to-year to 310 million, and up only 1.6 percent from 305 million the quarter before. That was actually an improvement from its Q4 report, where user growth was either flat quarter-to-quarter, or possible even down, depending on how you looked at it.

Earlier this month, Twitter was reportedly surpassed by Snapchat, a company half its age, in daily active users. 

With those trending numbers, combined with the apparent difficulty in finding someone to make the product more palatable to users, has led Peck to one conclusion: that Twitter should be bought by another company. 

"We note that if the current trend of meager user and engagement growth remains, we think it's inevitable that Twitter will need to pursue M&A alternatives as has been discussed in the media for some time," wrote Peck. 

His idea for potential acquirers include Google, Facebook, Apple, and "traditional media properties." 

This is not the first time that the idea of Twitter being acquired has sprung up this year. A rumor started going around in January that Twitter was going to be purchased by News Corp.

Those rumors, as it turned out, were false, but they were enough to send Twitter's stock up over 4 percent that day. 

Google is typically the most talked about potential buyer, partially because of its ambitions, and failures, in the social sphere. Talks started again last summer, when Twitter's stock dove under $30 for the first time ever. There was also a rumor in June that Bloomberg had made a bid, but that too turned out to be false. That one caused Twitter's stock to jump 8.5 percent.

Jack Dorsey has made it his mission to make Twitter less intimidating for new users, including taking media and replies out of the 140-character limit, as well as getting rid of rules that Dorsey had called "confusing." So far, none of his efforts have made much of a difference, or haven't had time to.

It should be noted that, despite Peck's seemingly dire pronouncement, he isn't giving up on the company's stock, nor does he think such a sale will happen any time soon.

"We want to underscore that we do not think the company is up for sale in the near term. However, we believe that if current trends persist, Twitter would be a top candidate in 2017," he wrote.

Peck maintained a Buy rating on the stock, which dropped 1.77 percent to $15 a share in regular trading on Tuesday.

"We don't comment on rumor and speculation," a Twitter spokesperson told me when reached for comment. 

(Image source: onthemovecharlotte.com)

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What is Twitter?

Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests. 

Where did the idea for Twitter come from?

Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.

How is Twitter built?

Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes. 

We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.

How do you make money from Twitter?

There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.

In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet. 

At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.

Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.

 

What's next for Twitter?

We continue to focus on building a product that provides value for users. 

We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.