Twitter (NYSE:TWTR) is in talks with NBA, the MLS and Time Warner's Turner Sports (NYSE:TWX) to buy digital streaming rights for content on major sports and events. The content could be actual game footage or live interviews and analysis but does not clarify whether actual games and events could be streamed over TWTR. This report comes after TWTR acquired Magic Pony to beef up its video delivery platform and the deal with NFL to stream some games this fall. Assuming this deal pulls through, this along with Magic Pony and the NFL deal could potentially be the pieces that TWTR can leverage to regain MAU growth and a rebound in engagement.
However it is still early to jump into conclusions because I see the NFL deal and the Magic Pony moves to be defensive and changes will likely to be evolutionary rather than revolutionary. Integration and execution risks remain, and in some cases one can argue TWTR is reinventing itself into a video delivery platform that could face even greater competition from the likes of YouTube (NASDAQ:GOOG) (NASDAQ:GOOG), Facebook (NASDAQ:FB) and Sony (NYSE:SNE). I remain cautious on the name as I see TWTR is in a structural decline given the engagement shift away from social media. TWTR's biggest value-add lies in its news/content delivery but as FB ramps up on its own news delivery platform, TWTR will likely to become less relevant.
Similar to the NFL deal, I do not expect any OTT/sports streaming deal that TWTR gets into would materially impact near-term fundamentals of the stock. (see Twitter: NFL Unlikely To Save The Day) I think it is important for investors to not get caught up in the hype and carefully assess the economics this may have on the company.
The positives is that TWTR will not likely overspend on any streaming rights. I note that the company most likely spent around $10m or less on the NFL rights, which is quite impressive given that the traditional broadcasters could spend up to billions for multi-year content rights. The downside is that TWTR remains very much a "show me" story. Despite the recent moves into NFL streaming, acquisition of Magic Pony and now more sports content, if the MAUs and the engagement metrics do not show a material rebound then investors will continue to stand on the sideline.
The bottom line is that it is questionable whether users and viewers would view TWTR to be a viable platform for sports content (that title belongs to ESPN) so I do not expect TWTR to gain any meaningful traction. However I do give TWTR credit for compiling the assets because these rights and platforms could potentially become highly coveted for a large media company that is looking to secure sports content on the web.
Finally, judging by the acquisition of LinkedIn (NYSE:LNKD) (see - Microsoft's LinkedIn Buyout Is A Solid Move), I believe that a sale is likely for TWTR and the current valuation of 32x this year's consensus earnings and 24x next year's earnings, along with 4.2x/3.5x 16E/17E sales metrics, appears to be reasonable and below that of the multiple LNKD took out. Technically speaking, it appears that the stock has found support at the $13-15 range so it seems that downside risk is limited at this point. Speculative investors can gradually build a position in hope of an eventual takeout. On the other hand, fundamental buyers should avoid this stock and stick with more stable platforms such as Facebook and Tencent (OTCPK:TCEHY).
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