Last year, I wrote about how Twitter (NYSE:TWTR) may be acquired by either Microsoft (NASDAQ:MSFT) or Alphabet (GOOG, GOOGL). Early this year, I soured on Twitter stock because economic weakness would hurt ad spending. I further soured on it after incidents of it censoring users for their political statements and its mismanagement of Periscope.
In the past few weeks, the rumors of Twitter being bought crept up again. This list consisted of Saleforce.com (NYSE:CRM), Alphabet, Apple (NASDAQ:AAPL), Verizon (NYSE:VZ), Microsoft, and Disney (NYSE:DIS). I think traders were bidding Twitter stock up because if Alphabet (the most likely buyer) had to compete with another firm, it would drive the price up.
However, it seems as though Twitter will be left at the altar, judging from the 29% decline in the past 3 days. It has given up the premium which would have been in place if it was bought, signaling a deal won't happen. David Trainer made a great point about the total cost of the acquisition potentially being too high when you include stock options. The point I want to make in this article is Twitter's censorship policy makes it toxic for any buyer.
Twitter isn't like any other acquisition for the companies looking at it. Even for Microsoft, buying Twitter would be nothing like buying LinkedIn. The reason it is different is its public nature. While most companies are trying to avoid political controversy, Twitter would put them front and center of the action. This situation isn't inherently bad, but with the way Twitter is treating free speech with disdain, it has become a potential problem for buyers.
There have been many examples of Twitter suspending accounts which are politically incorrect. One example of this was journalist Glenn Reynolds getting his account suspended for tweeting "run them down" in reference to drivers being in a situation where protesters were blocking the streets and attacking cars which stopped. It's not my place to discuss the veracity of this statement, but it isn't Twitter's place either! Twitter has become known for wielding a heavy hand when dealing with political statements. Deleting accounts is the last thing a firm with user growth problems needs. 17 million tweets were sent out pertaining to the recent presidential debate. This shows that political expression is paramount to the website's existence. It needs to foster debate instead of stifling it.
In my last article on Twitter, I explained how Gab.ai was becoming a potential threat to Twitter. Updating this point, Gab has become the 7,661st most popular website in the country. This reaction to Twitter censoring political statements has caused tens of thousands of users to join Gab, which shows how deep the problem is.
While Twitter censorship hurts user growth, which hurts a potential acquisition, the risk that comes with being the arbiter of what is allowed on the platform has huge potential consequences. Twitter should be a platform where, outside of clear threats of violence, anything can be posted. With this policy in place, there is less of a gray area over what can be posted, which means there will be less criticism aimed towards the company when it follows through on that policy. However, this year, Jack Dorsey has made it his mission to make Twitter a "safe place", which means he changed the firm's policies and began censoring political speech. While Twitter has good intentions with this heavier policy, it has the negative potential of silencing discussion.
Twitter is certainly in a tough position considering this election has been very contentious and, at times, ugly. However, it is only in this position because it began wielding a heavier hand. The only reason offended users clamor for Twitter to ban specific accounts is because it has become the activist referee of what is palatable on the website.
If a company such as Disney purchased Twitter, it opens up a can of worms of potential risks now that Twitter has become the arbiter of what is politically correct enough to be posted. Disney wouldn't want to be in the situation where Twitter deleted a popular conservative commentator and it then has to deal with an angry mob of people who disagree with the decision. Once Twitter were purchased by Disney, boycotts on Disney products would be put in play as users who were passionate about free speech would take action. Not only would they delete their Twitter accounts, but they'd also end their ESPN subscription.
Besides the counter reaction for a decision being made, there will be endless reactions for Twitter not doing enough. For example, if a political leader makes a statement which is sensational, this could backfire on the company. If Twitter had clear and broad rules about what could be posted on the platform, when a political leader said something inappropriate, it could say it is open to free speech and doesn't comment on particular posts. However, since Twitter has meddled in what can be posted, detractors of it could say that the firm is now endorsing what was tweeted. These detractors would have a good point, because Twitter is deleting some posts. The line on what is and isn't okay is vague, and anything that is posted on the website now receives more of an endorsement than it otherwise would be getting.
Obviously, with any acquisition - a Verizon, Disney, or Microsoft purchase, in this case - there is a risk it doesn't work out. The issues can be integration-related or simply because the firm overpaid for the company it bought. However, with the volatile nature of Twitter, not only could integration be a problem, but the entire company could be weakened by the public nature of the platform. Firms want to avoid being seen as political entities, with the clear goal of wanting to appeal to everyone. If Disney only accepted conservative or liberal guests, its attendance would be cut in half. Twitter has become aligned with the political left, which makes it toxic for any firm to buy. It's not that I have a problem with the political direction of Twitter - it's that Twitter has a political bent in the first place.
Twitter is inherently a difficult company to acquire for most firms because of its public nature. However, the company has made it tougher than it has to be by becoming an active referee on what is and isn't okay.
A good analogy is a hockey fight. Referees allow fighting because it is clearly allowed in the rules. It is clearly allowed in the rules because it makes the game exciting, putting fans in the seats. The referee only breaks up a fight after one fighter has been bloodied, in order to avoid serious injury. In Twitter's case, it is an activist referee who is banning a fighter from the sport of hockey for engaging in normal activity. This isn't the job of the referee; it is the job of the NHL to suspend players. Twitter deleting a tweet which crosses over the line is like when a referee ends the bout to avoid serious injury. It can delete tweets in certain occasions, but it isn't its job to suspend popular users for engaging in debate the firm disagrees with.
Because of Twitter's policy, it has lost potential users and potential engagement. This has also made it a toxic company to be purchased because it can cause the public to hate the parent company of Twitter. Normally, not all customers of a company would even know who the parent company is, but with Twitter, it will be common knowledge who the parent firm is, and it is that firm which will receive the ire of those angry with Twitter's recent controversial decision. Companies like Verizon, Disney, or Microsoft, don't want to be seen as having a political leaning, because this would alienate customers.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.