Berlin-based SoundCloud likes to call itself "YouTube for audio," and claimed to have 250M listeners as of last October (a base roughly on par with Twitter's). A large chunk of those users rely on SoundCloud's mobile apps.
A recent $60M funding round valued the startup at $700M. Its services are monetized both via ads and subscription services.
An acquisition would come with copyright baggage attached: Twitter once planned to integrate SoundCloud with its (now-abandoned) music service, but backtracked after music labels protested about SoundCloud's lack of licensing deals.
Joining Twitter would give SoundCloud the resources to strike licensing deals, as well as to ramp its audio ad sales. It would also bolster Twitter's attempts to act as a media-sharing/distribution hub (results have been mixed thus far).
If Twitter is looking to pay with equity, a deal might've been a lot cheaper in January.