Twitter Inc (NYSE: TWTR)
Twitter is having an incredible day in the market today following yesterday’s strong performance. The big reason for the growth was the company has completed the acquisition of TellApart, and the value of the acquisition was far lower than originally agreed to. Today, we’ll talk about the acquisition, how investors reacted to the news, and why I don’t believe that this will be enough to save TWTR.
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TWTR Acquires TellApart
Last year, Twitter announced that it had reached a $533 million deal to acquire TellApart. TellApart is a digital ad platform that will help TWTR with regard to re-targeting its ads. According to a recent 10K filing by the company, the acquisition is moving forward, but with a total value of $479.1 million, instead of $533 million. So, how did TWTR get TellApart for such a discount?
As mentioned above, the agreement between Twitter and TellApart was signed last year. However, the deal was agreed to be paid for almost entirely in shares. In fact, the deal was that TWTR would pay $22.6 million in cash and 12.6 million shares. However, at the closing of the deal, the number of shares had dropped from 12.6 million to 12.2 million. Nonetheless, there’s still more to the story. When the agreement between Twitter and TellApart was first signed, TWTR shares were trading at $42.27 each. Today, the stock is trading at under $19 per share, generating an incredible discount on the original price since the deal was made primarily in shares.
What We’re Seeing In The Market As A Result
As investors, we know that the news moves the market. Any time there is good news with regard to a publicly traded company, we can expect to see gains in the stock associated with that company. Adversely, any time we see negative news, we can expect to see declines. On top of this, news of acquisitions generally causes more movement than just about anything else. So, it makes sense that we’re seeing strong growth in TWTR today. Currently (11:46), the stock is trading at $18.54 per share after a gain of $0.70 per share or 3.92% so far today.
Why The TellApart Acquisition Won’t Save TWTR
While investors are jumping up and down with excitement over this deal, what they really should be doing is running for the hills. In fact, Twitter’s acquisition of TellApart is a classic example of what is wrong with the company in the first place. You see, TWTR has been struggling with user data for some time now. For some reason, the company can’t seem to drive new users in and keep them as regular users on the network. Last year, this led to the resignation of Dick Costolo and the appointment of Jack Dorsey as CEO, which I’ve said time and time was a bad idea.
Since the problems started at TWTR, the company has lacked focus on the true issue – user data. Instead, they have focused on driving further revenue by over-advertising to the users they currently have. When this started, I predicted that if TWTR kept going down this road, we wouldn’t just see struggles with regard to user growth, we’d watch as users start to abandon the network. Well, guess what’s happening? Twitter’s daily active user numbers are falling! The reality is that this acquisition is great for advertising. However, the company has still done little to nothing to revamp the experience for users. Ultimately, until TWTR puts advertising on the back burner and starts to focus on users, we’re likely to see further declines on the stock.
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What Do You Think?
Where do you think TWTR is headed moving forward? Let us know your opinion in the comments below!