“What happens next to Twitter?”
That’s the question someone asked me the other day, after Salesforce.com publicly swore off a bid to buy the pioneering messaging company. Twitter’s stock had fallen 30% from the peak of its deal-rumor-fueled high. Google, Disney, and Microsoft were all said to be uninterested as well. My immediate response: “Oh, that’s easy: It becomes a zombie.”
A zombie is a company that people once were interested in that joins the ranks of walking dead. Software maker Sybase was a zombie for years before SAP finally bought it. Blackberry, once known as Research in Motion, recently recognized its zombie status by discontinuing the product line that made it famous: smartphones. Zynga, the “social” gaming company, has groped in the dark for four years now, more highly prized for its real estate than its prospects to release hit games.
Its rich valuation of $12 billion notwithstanding, Twitter is on its way to zombiehood. Though Twitter loses gobs of money, it does generate a small amount of cash. Its losses are a result of spending an amount equal to 30% of revenues on equity grants to its employees, a non-cash expense. The small cash flow plus an ample balance sheet mean Twitter could last for years. Yet it isn’t growing and doesn’t earn money. More, its compensation expense is a Silicon Valley-inflicted Catch-22: Without the stock grants it won’t be able to attract talent, further diminishing its growth prospects.
Fortune’s Mathew Ingram surfaced a hedge fund manager who thinks Twitter is ripe for buyout by a cost-cutting private-equity firm. That seems unlikely as asset-light tech firms don’t lend themselves well to financial engineering. There’s a reason, after all, that investors in Salesforce opposed the purchase CEO Marc Benioff was keen to make. They saw Twitter’s finances hurting the cloud software leader, which itself isn’t yet profitable.
Being a zombie can’t be fun. But the living dead tend to stay that way for a long time.
Have a lively week.
BITS AND BYTES
Thiel doubles down on the Donald. Peter Thiel, the Silicon Valley venture capitalist and co-founder of both PayPal and Palantir, pledged $1.25 million in support of the Republican presidential candidate this weekend. A renowned contrarian, Thiel is the only major name in the tech community supporting Donald Trump's bid. Thiel also funded a lawsuit that bankrupted online blog network Gawker earlier this year. (New York Times, Fortune)
Samsung's no-fly zone. Flying on a commercial airline with Samsung's explosion-prone Galaxy Note 7 smartphone became a federally prosecutable crime as of noon on Saturday, according to an order issued by the Federal Aviation Administration on Friday. Violators could be fined nearly $180,000 for each violation or subject to imprisonment for up to 10 years. More, Samsung tested the phone's batteries internally, rather than using a third-party lab as other manufacturers like Apple do. (Wall Street Journal, Fortune)
Elon Musk postpones reveal. The billionaire co-founder of automaker Tesla delayed a major product announcement believed to pertain to its "autopilot" software by two days to Wednesday. Musk broadcasted the news in a Tweet on Sunday saying that the project "needs a few more days of refinement." Meanwhile, the company partnered with Japanese electronics maker Panasonic to start producing solar power cells in Buffalo, New York. (Fortune, Fortune, USA Today)
Hewlett-Packard to slash headcount. The PC maker said Friday that it would trim 3,000 to 4,000 jobs between 2017 and 2019. The cutbacks build on an earlier 3,000 layoffs announced in February. HP said it expects the move to save $200 million to $300 million annually starting in fiscal year 2020, though it will create $350 million to $500 million in charges in the meantime. (Fortune, Financial Times, Wall Street Journal)
Ex-Cisco CEO John Chambers chatted with Fortune's Aaron Task. Chambers, who served as chief executive officer of networking giant Cisco for 20 years, says he believes that "America is at risk of being left behind" if the country doesn't invest in digital infrastructure and education reform. The latest guest on the Fortune Unfiltered podcast, Chambers spoke about his own personal battle with dyslexia, his thoughts on the presidential election, and some advice he once received from GE's Jack Welch. Read (and listen) more on Fortune.com.
IN CASE YOU MISSED IT
Apple Might Not Be Building a Car After All, by Aaron Pressman
Mt. Sinai Hospital Is Using AI Software to Conquer Heart Disease,
by Barb Darrow
France Is Pushing For a Tax on YouTube and Netflix, by Jeff John Roberts
Emails Show Uber's Cozy Relationship With Pittsburgh Officials, by David Z. Morris
Why Microsoft Is Putting 'FPGA' Chips at the Center of Its Cloud, by Barb Darrow
ONE MORE THING
Saturday Night Live mocked Honda's humanoid robots. The late-night comedy show aired a skit parodying the Japanese conglomerate's "Asimo" robotics demos. The "robots," played by humans, fail spectacularly at serving hors d'oeuvres to guests of a disastrous innovation showcase. (Recode)