Can Twitter Afford To Buy SoundCloud? Can It Afford Not To?

Paul Bonanos
·1 min read

Twitter is reportedly mulling a potential shares have done especially poorly, as some stakeholders have dumped shares following the expiry of the post-IPO lock-up phase.

At its current valuation of about $18.7 billion, Twitter would have to use a lot of equity to buy SoundCloud. If it wanted offer $1.4 billion — double last year’s $700 valuation — in stock, the buyout would require 7% of its equity. That’s a big hit for a company that would have needed to give up a lot less equity just a few months ago. The company could also cobble together a package that included debt, saving itself both cash and stock.

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It’s not clear what Twitter paid for social data analysis company Gnip in April, but it was hardly in the same league as what SoundCloud would cost — and even then, Twitter shares were worth more than 25% more than they are today.

If you’re wondering about the Google/YouTube buyout, to which some have compared a Twitter/SoundCloud deal, well, that 2006 all-stock deal cost Google about 1.3% of its shares. The $1.6 billion acquisition, of course, turned out to be an incredibly good deal.

So if Twitter’s going to make any big buyouts that require it to dig beyond its disposable cash reserves anytime, it’ll need to wait for its share price to rebound before it does.

SoundCloud declined to comment on the reported deal while Twitter did not respond to requests for comment.

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