By Marissa Lang, San Francisco Chronicle
An odd thing happened to Twitter in September: For the first time in a long time, things were looking up for the stalled social media company. Its shares saw their biggest gain since the company went public in 2013. Investors seemed optimistic.
All this because Disney, Google and Salesforce were reportedly considering buying the company — a prospect co-founder and CEO Jack Dorsey has long resisted.
That optimism has since dried up.
As Twitter prepares for its third-quarter earnings report on Oct. 27, a sale no longer appears imminent. A Twitter board meeting scheduled to bring in outside advisers to discuss a possible sale was canceled.
Salesforce’s investors pressured the company to back off a bid, though the companies may still be talking, and interest from Disney and Google seems to have waned.
“It’s unlikely anyone would step in and buy Twitter when the fundamentals are deteriorating,” said Neil Doshi, a senior Internet analyst with Mizuho Securities USA Inc.
Some analysts deemed it a sale “fail whale,” recalling the image of a beluga whale held up by a flock of birds that signals a Twitter server overload.
If Twitter is the whale, then its video strategy is the birds Twitter hopes will help keep it afloat.
In lieu of attracting new users to what is essentially a mini-blogging platform meant to share information in real time, Twitter has bet heavily on drawing people in by offering live video content through its website and new apps for Apple TV, Amazon Fire TV and Microsoft’s Xbox One.
The hope is that people who don’t understand why Twitter might be relevant to them will be wooed by the video the company provides and stay for the conversations it hosts.
Twitter announced its slate of TV apps last month, ahead of an NFL matchup between the New York Jets and Buffalo Bills. It was the first of 10 NFL games Twitter had purchased the right to stream during the 2016 season. The company, which outbid Facebook, paid $10 million to stream Thursday night NFL games. It will also carry video of other sporting events, political and business news.
Any possible buyer is probably interested to see how that gamble pays off, analysts said.
If it does well, drawing more eyeballs and increased ad revenue, the company will become much more valuable — perhaps enough to stand on its own or bring in a sizable purchase price.
But if Twitter’s video push flops, it’s likely the company will have to sell for less. And there is no shortage of ways Twitter’s video strategy could go wrong.
“If the response is lackluster, if the audience is small, if people tune in but then tune out, or there are things about the interface they don’t like, if there are technical problems,” eMarketer analyst Paul Verna said. “Any one of those things could create a total downward spiral for Twitter.”
Twitter, which went public at $26 per share in 2013, has watched its stock drop about 35 percent in the last 12 months. Last month, as rumors of a sale swirled, shares rebounded to above $24.
On Thursday, shares were down to $17.80.
If Twitter can’t demonstrate a return on its investment in video, and its stock continues to fall, the company may wind up on the auction block for less than its IPO price.
This could complicate matters as some doubt that Dorsey, who has long resisted a sale, would be willing to let the company go for less.
“That’s an acknowledgment of failure,” Wedbush analyst Michael Pachter said. “It would be saying, ‘We went public, and we sold for less because we suck.’”
But Twitter might be running out of options, said Bob Peck, an analyst at SunTrust Robinson Humphrey Inc.
If Plan A was to turn the company around and Plan B was getting acquired, the company has been left to devise a Plan C, which, Peck wrote, could mean taking more drastic steps — like replacing Dorsey as CEO or putting pressure on him to give up his other CEO gig at Square, the mobile payments company he founded.
Dorsey returned to the helm of Twitter last year after former CEO Dick Costolo was pushed out because of the company’s underperformance. Though hopes were high upon his 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.
“The most common question we receive from investors is ‘Given the struggling turnaround, doesn’t the company need a full-time CEO?’” Peck wrote. “Investors believe the board and CEO Jack Dorsey will need to address this issue for the shares to stabilize and appreciate.”
In its most recent quarterly earnings report, Twitter missed Wall Street’s revenue projections by a substantial amount. And going into the release of its third-quarter results, investors have remained cautious.
By the end of the year, though, the company will probably be pressed to demonstrate results, analysts said.
That means Twitter has just a few months left to prove whether it will sink or fly.
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
