By Marissa Lang and Wendy Lee, San Francisco Chronicle
Twitter shares soared Friday following reports that the social media company had begun sale negotiations with several technology companies and may receive a formal offer by year’s end.
Google and Salesforce appear to be the two major suitors, interested in Twitter for the data it generates as a media company. Experts who follow the company closely said they believe talks are happening, but they remain uncertain about whether a final deal will materialize or if Twitter, which has turned down offers in the past, will go for it.
Google, which could use Twitter as a means to bolster its social media credentials after the failure of Google Plus, is seen as the more logical candidate to buy the social media company.
Venky Ganesan, a managing director of Menlo Ventures, said Twitter could give Google another way into social media and would fit nicely with Google’s products, which are for public consumption — as opposed to Facebook, which is seen more as a “walled garden,” with more users choosing to make pages private.
“That fits into Google’s world view,” Ganesan said. “It allows them to capture the pulse of the world.”
But Salesforce’s chief digital evangelist Vala Afshar took to Twitter early Friday to extol the value he sees in the social media company, which could extend Salesforce’s services to include real-time communication and a social media component that might allow for more collaboration among companies, their partners and their customers.
“I simply love Twitter,” Afshar gushed, listing its potential as a personal learning network, “the best, realtime context rich news” source, a way to “democratize intelligence” and a “great place to promote others.”
Salesforce itself declined to comment. “We don't comment on rumors or speculation,” spokeswoman Kate McLaughlin wrote in an email.
In trying to compete with Facebook and other social media, Twitter may have missed an opportunity to market its product more toward businesses, said Ajay Chopra, a Trinity Ventures partner and longtime entrepreneur. This, he added, would be why Salesforce, which makes software for businesses, may benefit from acquiring the company.
Businesses use Twitter to understand and improve their customers' experience, Chopra noted, and the company ought to have emphasized that it is a platform with data and information on people's interconnections, and encouraged third parties to develop business applications on it.
“If Salesforce is in fact looking at acquiring Twitter, Marc Benioff (CEO of Salesforce) is seeing such a vision. He understands that there has to be a continuum of communications between a company, its employees, its partners and its customers.”
This is not the first time rumors of an imminent sale have swirled around Twitter.
Google, which did not immediately respond to a request for comment Friday, was rejected in 2011 when then-CEO Larry Page reportedly made an overture to Twitter co-founder Jack Dorsey. Three years prior, Twitter was said to have been in talks with Facebook that also went nowhere.
Friday’s news, first reported by CNBC, citing unnamed sources, pushed Twitter shares 21 percent higher on Friday to $22.62 — the biggest spike since the company went public in 2013. The gains pushed its market capitalization to just above $16 billion. Three years ago, the company’s IPO market cap was set at about $18 billion, with its stock trading at $26 per share. Any bid for the company would likely have to be appreciatively above that, experts said.
“It would really surprise me if (Twitter’s) founders would take anything less than the IPO price because that’s an acknowledgment of failure,” Wedbush analyst Michael Pachter said. “I think the price has to be $26 (per share) or they lose face. It would be saying, ‘We went public and we sold for less because we suck.’ Right now the share price is high enough that if they’re in negotiations, they’re going to want to push for that $26 (per share) price.”
Dorsey returned to the helm of Twitter last year after former CEO Dick Costolo was pushed out due to the company’s underperformance. Though hopes were high upon the co-founder’s return, Twitter has since struggled to impress investors with lagging ad sales and a barely growing monthly user base of 313 million people. High-profile departures and layoffs have punctuated the past year.
In its most recent quarterly earnings report, Twitter missed Wall Street’s revenue projections by a substantial amount.
Twitter’s trouble attracting new users largely comes down to its inability to convince people who don’t use the product why they should, experts have said. But Twitter also has a core following of loyal users who experts expect would continue to use the service through a merger.
Some analysts believe a different company may be able to give Twitter the push it needs to broaden its base of loyal users.
“Twitter is the most attractive asset on the market right now when it comes to social media,” Ganesan said. “They have not been able to expand beyond the core fans into the wider market. A lot of people believe under a different management team and product orientation they can.”
Twitter is expected to grow its digital advertising revenue 13.2 percent to nearly $2.3 billion this year, even though its market share has remained virtually unchanged at 1.2 percent from last year, according to research firm eMarketer. It ranked eighth last year, the firm said, trailing companies like Google and Facebook, and even Yahoo.
Part of the issue is that the company is having trouble showing advertisers how to measure return on investment on its platform, analysts said.
On Thursday, RBC Capital Markets analyst Mark Mahaney wrote a memo saying he expected to see Twitter continue to underperform after reviewing the results from a February survey of more than 1,100 advertisers. About 26 percent of those said they planned to “significantly” or “modestly” up their spending on Twitter ads. But 28 percent said they intended to decrease such spending.
“This is the weakest result we have seen and the first time we have seen a negative skew towards spending,” Mahaney wrote in a note to investors.
Last month, Twitter co-founder and board member Ev Williams told Bloomberg TV that the company was “in a strong position” and open to considering a takeover.
Ganesan believes that Twitter could sell for 20 to 25 percent more than what the stock was trading for Friday.
Twitter did not respond to requests for comment Friday.
“This is how everything gets sold,” Pachter said. “There is always someone out there who thinks something is worth more than the seller and is willing to pay enough to convince the seller it’s time.”
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
