Can Twitter Recover from Huge Drop?

Twitter Inc (NYSE: TWTR) shares plunged by 13.9 percent last week as news came out that potential buyers are bowing out.

Recently, reports came out that Disney, Salesforce and other companies are bidding to acquire Twitter. Yet, the latest reports from Bloomberg suggest that the interest of these potential buyers is waning. According to reliable sources, the microblogging giant has cancelled a board meeting with outside advisors last Friday in order to evaluate the current situation.

The stock experienced a sharp decline, but it wasn’t able to take back the 24 percent gain Twitter experienced in the 6 trading sessions before the decline last week. The microblogging company’s stock has rallied by 43 percent since bottoming out in the month of February just before the buyout rumors began to grow.

A number of companies got interested to buy Twitter since it has 300 million active users every month and is an established platform that generates breaking news and trending topics.

Yet, the primary reason the company’s stock significantly slumped and became so cheap is that growth has begun to slow down. During the second quarter, the microblogging platform posted average monthly active users of 313 million. This figure is just higher by 3 percent in the year-ago quarter. However, it can be said that Twitter is doing a great job in getting more money from its users, as its revenues climbed by 20 percent on a year-over-year basis. Despite this growth in revenues, that is also the most disappointing top-line growth of the microblogging firm as a public company.

Growth has declined for 8 straight quarters, dipping from triple-digit growth down to the latest quarter’s 20 percent growth. The company’s revenue from ads is edging higher at just 12 percent. Even with the company’s side projects, such as Periscope and Vine, it is still lagging behind the offerings of competitors.

Salesforce may have shown interest to acquire Twitter as it can be an effective communication tool, while Disney may have been attracted to potential of being behind the platform’s wheel that its rivals are utilizing for their content promotion. Yet, acquiring the microblogging company may be dilutive to earnings as the potential bidders are already growing at a much faster pace in comparison to Twitter.

The ex-Chief Operating Officer of Twitter Ali Rowghani also asserted that an acquisition deal was unlikely. Mr. Rowghani believes that speculation regarding a buyout within the range of $20 billion to $25 billion does not sound realistic at present conditions.

Although a takeover deal can still happen, it doesn’t seem easy to get excited about a company with decelerating revenue and user growth. At this point in time, we believe that the microblogging company will begin to attract potential buyers once its fundamentals start to recover.

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