Despite its flaws, Twitter is a fascinating social phenomenon, and probably one of the most powerful sources of real-time information and free speech. But as a publicly-traded stock, it has been a disaster. And the rapid decline in share price makes it look like a tempting takeover target. But for whom—and why?
Is “disaster” a little strong? Not really. Twitter’s shares peaked at $73 in December 2013, giving the company a market value of more than $50 billion. Since then, they have been through ups and downs, but each time the highs have been a little lower and the valleys a little deeper.
In the past three months alone, Twitter (TWTR) has lost more than 50% of its market value while dropping from $31 to the $17 level, making the company worth about $12 billion. That’s a loss of $38 billion in market value in two years. And that has some investors sniffing around (and possibly hoping) for an acquisition.
This week, Twitter’s shares got a boost partly because of rumors that News Corp. may be interested. A News Corp. spokesperson denied it, but that didn’t stop people from trading on the rumor anyway. It’s likely some funds are betting that Twitter is in play.
Here’s what an acquirer would be buying: A company with an estimated 300 million users and revenues of about $2 billion annually—but one that is losing about $125 million every quarter (although some note that the losses are primarily due to stock-based compensation). So far, Twitter has an accumulated deficit of $2 billion and about $3 billion in cash and short-term securities on hand.
Everyone has their own favorite Twitter acquisition candidate, and their own theories about why they should buy the company. Below are are some of the most popular names, along with some of the reasons why they either make sense as an acquirer or don’t:
Google: The search giant seems to be everyone’s favorite acquirer, in part because it has failed to get anywhere with its own social platform, Google+, and because it is clearly interested in the kind of real-time behavioral and interest data it can get from Twitter. It definitely has the resources and the interest. The counter-argument: It already has a deal with Twitter for access to its real-time data firehose. Why does it need to buy the company?
Facebook: The social network is a perennial No. 2 on the most-favorite acquirer list, partly because it (like Google) has reportedly tried to acquire Twitter in the past. It has also shown a willingness to spend obscene amounts of money on services that have no revenue or profits, such as the $19 billion it paid for WhatsApp. The counter-argument: Facebook (FB) seems to be busy building its own Twitter-style features, which is much cheaper.
Twitter may want to increase the character limit to 10,000
Apple: This one doesn’t make much sense, but people love to suggest it anyway, mostly because Apple has about $200 billion in cash and could acquire Twitter without even blinking. But beyond that, there’s little reason to think Apple (AAPL) would actually want to buy the company, since it has shown repeatedly that it has no interest in the social web. Maybe Apple CEO Tim Cook will be struck by lightning and decide he has to own a money-losing social platform, but that seems unlikely at best.
Amazon: The rationale for the online retailing giant acquiring Twitter is similar to Apple’s—namely, that it has a pile of money. Also, Jeff Bezos doesn’t seem overly concerned about making a profit. The counter-argument: Just because Bezos has the money doesn’t mean Amazon (AMZN) is interested in buying a social tool that he seems to have no affinity for, professionally or personally (he only started tweeting in November).
IBM: This one is a little out of left field, but the argument is that the computing-services behemoth is looking for products that generate a lot of interesting data, as a way of advertising its data-mining services—hence its acquisition of The Weather Company. And it could probably afford it. The counter-argument: Like Google, IBM (IBM) could just sign a deal to get the data, no need to buy the company.
Get Data Sheet, Fortune’s technology newsletter
Microsoft: Like most of the above, the software maker likely has the resources to buy Twitter if it wanted to. But why would it want to? One argument is that Microsoft (MSFT) knows the retail software business is in decline, and it doesn’t really have anything to replace it. The counter-argument: The company has enough problems with its own business that it doesn’t need to spend $15 billion to buy more problems, in an industry it knows nothing about.
Verizon: The telecom company has already shown that it’s looking outside the traditional industry for ways to capitalize on mobile computing and behavior. That’s why Verizon (VZW) acquired AOL and says it plans to keep and even build on AOL’s media and ad-technology assets. Twitter is definitely big in mobile, and it has a fairly strong ad platform that is growing revenues rapidly. The counter-argument: $12 billion or more is a lot to pay for a mobile ad network.
News Corp: The Murdoch empire has lots of money available that it could spend on something like Twitter—and it has been known to absorb losses for the right asset (like the New York Post, which is said to lose as much as $50 million annually). But $100 million worth of losses every three months? That seems like a stretch even for Murdoch. And for what? He is an enthusiastic user of Twitter, but it’s not clear that he would see $12 billion worth of in value in owning it.
Softbank/Tencent: Japanese and Chinese giants don’t get mentioned as often as U.S.-based companies like Google, but there’s a case to be made that they might be interested in Twitter at the right price. Both Softbank and Tencent not only have the resources but have shown that they are interested in buying Western assets when it suits them. Chinese conglomerate Alibaba (BABA) should probably be on that list as well.
The bottom line: As with most companies whose share price has hit the skids, the biggest problem for Twitter is that the cheaper it gets, the less it looks like an attractive acquisition candidate because it means the business isn’t getting any better. Its revenues may be growing, but its user base isn’t. Even if you exclude stock-based compensation and other expenses, it is still barely breaking even on $2 billion in revenue (although an acquirer could use the accumulated losses to reduce its tax bill).
In many ways, Twitter is caught in a value trap: It raised so much money that it was forced to go public at a high valuation, but the actual business value of the network has never met those lofty expectations, and maybe never will. One solution might be for the company to acquire itself—in other words, to go private. But someone has to fund a transaction like that, and it’s unclear who, if anyone, would be willing to take that on.
Have we missed anyone you think is a particularly good acquisition candidate? Let me know at @mathewi on Twitter or in the comments below, or at mathew.ingram@fortune.com.
