Entering text into the input field will update the search result below

Twitter: The Deal Is Dying, Long Live The Deal

Oct. 04, 2016 7:23 AM ETTwitter, Inc. (TWTR)CRM, DIS, GOOGL97 Comments


  • CPE, an acronym for Twitter's problems.
  • Salesforce, Google or Disney?
  • The deal is dead.
  • Picking holes in the mainstream story.

CPE, An Acronym For Twitter's Problems

For the first time ever, Twitter (NYSE:TWTR) US revenues have declined for two successive quarters. They were down 7.6% in Q2 2016, the equivalent of a 27% annualized run rate. Seasonality is no longer an excuse as it was in the previous quarter.

The collapse is a consequence of a downwards adjustment in the historically high CPE (cost per engagement) Twitter charges to advertisers. Based on real campaign spending, Wells Fargo research confirms that Twitter's CPE is still several times higher than that of Facebook (FB) and Google (GOOGL) (GOOG) (see exhibit below). Twitter's competitive position is even worse than that of Yelp's (YELP), as the latter benefits from a customer base comprised largely by rather unsophisticated small local businesses.

Twitter has been constantly reducing its rates to keep doing business with advertisers. In the second quarter of 2016, Twitter's CPE dropped by 21% q/q and 64% y/y.

"On CPE, the decline of 21% sequentially is due primarily to increasing mix of video, autoplay video, but also impacted by declines in like-for-like CPE for certain ad products…I think, overall, as we look at it, there certainly is increased competition for social marketing budgets, and we are effectively priced at a premium in terms of a CPE. We're doing a bunch of work to help bring both prices down and improve ROI for those advertisers". Anthony Noto, CFO, Q2 2016 earnings conference call.

In addition, Twitter has recently emphasized live streaming in an effort to rejuvenate user growth and engagement, stagnant for several quarters now. The pitch is that the live stream offerings will help cable companies extent their reach to attractive demographics (18-34) that do not have cable subscription. Yet, as Twitter is losing the Millennials to other digital platforms, this idea is tough to sell. Twitter has to pay full price even

This article was written by

Seasoned investment executive with a passion of mentoring young professionals. Harvard graduate and fellow, INSEAD and London Business School graduate.

Analyst’s Disclosure: I am/we are short TWTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (97)

SevenSeas Investment Research profile picture
30% plus return in 1 week, no big deal I am sure your pulling in millions a week day trading shares of HaterAde. ....

Lets not waste people's time shall we
I made 100% on the IPO day and sold....so technically that is better than 30% in a week

When you are a gambler vs an investor 30% gains are possible along with 150% losses...See Green Mountain Coffee

The funny thing is well he may be right for now, that can easily change...Ask all the contributors bashing FB when it went under 20, they had big gains on the short side...Not so much now....I take the long view on TWTR as soon as it dropped below it's IPO price in the 20's

TWTR could still be bought out, and all those bidders that left will suddenly be right back
Omillionaires profile picture
You said 'Only the idiots after the fact' to describe those who were agreeing with this article. Yet you cite your FB 'after the fact' trade to back up your argument here...

The irony in calling yourself an idiot... and then being wrong on Twitter...

Or maybe being an idiot twice cancels it out...
Except i have been pushing FB since it went for it's IPO, but good try
Sandy Lighthouse profile picture
Hope you're enjoying your profit Ioannis. You earned every cent.
He isn't enjoying it today...
Omillionaires profile picture
Piece came out when TWTR was $24 ...
big whoop
Omillionaires profile picture
$TWTR Twitter Sales Process Said Almost Dead As Suitors Lose Interest
: http://bloom.bg/2dNypRB
KIA Investment Research profile picture
so in other words, nothing new.
Omillionaires profile picture
Yeah, the ones who do due diligence vs. the Kool-aid drinkers... ohh yeah
To be fair WSJ put out the article that it was going to get bought and bidders were considering it....that's the game of the market

Due diligence would only say it may or may not get bought....I felt in the 20's a long position is better than a short, and i still feel that way...Twitter has worth and 3.5 billion in cash...I did the same thing with facebook when everyone hated it, now try and find a hater
Omillionaires profile picture
.. and they have 1.9 bil in debt w/ interest payments..

There is no 'FAIR' in the markets... its those who make money and those who don't...

If i had a penny for all the posts from folks bashing anyone mentioned a buyout price of $30 and below I would be... well you know the answer...

And yes, that's the game of the market... winners and losers...
GreenPirate profile picture
A 100K investment at 17 dollars brought in 80K profit at 25. Deep and abiding love may actually prevail.
This is were they separate the men from the boys.
GreenPirate profile picture
Most important two words about the Twitter buy out offers from Google and other big players is UNNAMED SOURCES.

Here again today 10/10/16, UNNAMED SOURCES claim that Google and other big players have withdrawn their "deals". What deals? Did anyone actually hear any details about a formal deal of any kind at this point?

A few spokespersons for companies said a few things here and there, but they are way in the background. All we know at this point is that Sales force may still be in there. Result? Stock drops this am.

Just hold at anything between 17 and 20 bucks. And hoid long. Either way you will come out OK.

It is a great read, but disagree that the deal is dead. Some visionary in some company will buy or break it into pieces. Twitter Business, Twitter NFL, Twitter Music, Twitter Disney...
But who would buy them? Hopefully not one with big bucks just to say I got em.
I doubt very much that Twitter is going away anytime soon but changes are needed to keep it new to draw in more users.
Omillionaires profile picture
Great read
Anyone who listens to Cramer on CNBC is a fool remember what he said about FB when FB started out this guy is a joke. Bob Peck is Cramer's right hand man O by the way were is Bob Twitting his client's and telling them to sell. On Cramer's show he say's Twitter is worth a lot to other company's and today he compeer's Twitter to Myspace what is this guy on stop and take a breath of air Cramer.
-eddie- profile picture
It was an interesting reading! Thanks for your article!
$35 to $45/share--if they sell it now before it becomes as shopworn as Blackberry. Most investors would probably be glad to get this much out of it--including tendering to a hostile suitor.
Omillionaires profile picture
Most of the Bullish users here and on other TWTR articles on SA:

1. See Buyout rumors on TWTR
2. Buy Call options or Common Stock
3. Throw out crazy buyout prices
4. Confirm crazy Bias from comments from other users who followed step 1 & 2 above
5. Bash critical, well-written pieces like this one as it does not fit users outcome($40+ buyout)
6. repeat step 4 & 5 above
7. Be disappointed when reality sets in
Ioannis Tsoutsias, CFA profile picture
Birdman9989, I don’t see how the recent WSJ report is different from the previous ones. The main argument of my piece is that the info leaks aim at keeping the share price high so that the Board can claim that that the bids were not satisfactory enough.
msamara profile picture
"The main argument of my piece is that the info leaks aim at keeping the share price high so that the Board can claim that that the bids were not satisfactory enough." Wait a second, a shorty is suggesting that the board of directors is illegally manipulating the stock price of their multi billion dollar company while everyone else is watching? Hmmm I don't see anything wrong with this. No wonder the quality of SA articles has taken a dive.
SevenSeas Investment Research profile picture
Ioannis, I enjoyed the piece very much thanks!

One thing to add, MSFT's acquisition of LNKD came as a bit of a surprise and out of nowhere, which is how we knew there was serious interest, but the market completely dismissed and missed it (hence this time around he market is jumping at any bait set in front of it because TWTR is front and center thanks to the election cycle and teh republican candidate). That surprise element is always there when it comes to big deals of this nature, that's the opposite case here...... you did a grea job poking obious holes in the narrative.

It's a very logical tactic a board would take when the market is still trading Pre-IPO. I think the possibility of a deal failure is real and this leak may backfire on TWTR, but a sale is also the higher probability event only because TWTR has gotten such usage out of the election cycle. Once November passes and nobody cares what Trump has to say, the main stream media won't be talking about TWTR every 5 minutes.

This is a true guesssing game, and the author laid out a solid opinion. Remember bankers have connections to the press (in the days of old, it used to be a crucial element of moving markets), and they intend to create as much hype and anticipation as possible. It was logically at 20-22 a good deal for someone 25 if multiple parties interested, 30 and beyond is a future write down and conversation of how much of a waste of money that deal was for that kind of price.

IF TWTR is bough, it will come down to who buys hem whether it ends up a good decision.

I thank the author for sharing his opinion. It's all speculation but one can figure out a logical handicap. Best of luck

SevenSeas Investment Research profile picture

It didn't take long to show your logical perception of the situation seems to be playing out well.

Way to go !

birdman9989 profile picture
Ioannis, what do you say about the recent WSJ report?

Everyone knows Twitter. Buy the name and make it work. Big boys are submitting bids. Huge premium is change for these guys and will block other acquirers.
sfinvestor profile picture
The slowing revenue (err problems) is exactly why Twitter will be sold soon.

The decision to sell has long sailed and foregone, Twitter will be sold, its just evaluating several offers and going through rounds.

I mean. didn't we go through this with Yahoo a couple months ago? I will say the offer will disappoint most as 1) There are a lot of strings attached and insiders get paid first then shareholders. 2) Even an acquirer knows Twitter has no out other than sale so 30B is a dream. $27-$29 cash or $30 stock is stretch goal.
This author just made a fool of himself with the WSJ news after the market indicating TWTR would field bids in coming days. Of course he may have bought shares today to cover or go long. Regardless, his reputation is ruined with by these developing events, so much like the four downgrades immediately following the breaking news by so-called analysts.
Spare me the platitudes. profile picture
you're just making this sh*t up
john.fAIrplay profile picture
While I appreciate the effort to deconstruct what's going on with TWTR, it is unlikely in the extreme that the stock would have run the way it has if there wasn't something to the buy-out talk. That doesn't mean it will ultimately go through, of course, but it's clear that at least one someone is taking a very serious look.

My personal bet is that Salesforce will end up overpaying for TWTR. Benioff is an ego-maniac who believes he looked bad because of MSFT/LNKD and wants to show how tough he is.
ship99 profile picture
How is he going to buy TWTR? There is 1 B of cash on the balance sheet.
His only choice is to offer shares. However the following day his stock
price will drop by at least 5%.

Google on the other hand will have an easy go at this. Assuming they
are interested.

If I was in the TWTR BOD I would not entertain an offer from Benioff.
Remember MSFT paid for LNKD all cash.
Michael Boyd profile picture
Or go to the bond markets and borrow... just because there isn't enough cash on the balance sheet doesn't mean a company has to issue equity to fund deals.
ship99 profile picture
If he looses 8% valuation he will have a 45B company.
Twitter should not sell for less than $40 which gets
us to 28B as a minimum price a sensible BOD would accept.

So it is not realistic. For Google or MSFT it is a different
matter as they have that amount of cash + they can easily
raise more.
Jay Le profile picture
again this analysis doesn't include the Olypics and Presidential Election 2016 . Right now it's a whole new ball game.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.