A Twitter Inc Acquisition Is Back on the Table

Twitter Inc (NYSE:TWTR) has been roaring higher after a strong end to 2017. TWTR stock is up 60% from its lows in August. So why after such a large move is a buyout back on the table?

According Credit Suisse analyst Richard Greenfield, Twitter is “too valuable to remain independent.” As a result, Greenfield confidently bumped his price target to $30 from $25, arguing that its turnaround is still in the “early stages.”

This take shouldn’t be too surprising. While a buyout from Walt Disney Co (NYSE:DIS) is seemingly off the table thanks to its M&A deal with Twenty-First Century Fox Inc (NASDAQ:FOX, NASDAQ:FOXA), other suitors are still there.

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In the fall of 2016, Twitter was soliciting offers for a buyout. While a deal was looking likely — with Disney and salesforce.com, inc. (NYSE:CRM) in the running — both chose not to pursue Twitter in the end. Part of the reasoning? The platform could be a hostile environment at times.

But Twitter is working on a number of initiatives to improve its user experience. From hiding distasteful comments to emphasizing video, the company is making strides. As a result, business and user growth is improving, helping to elevate the stock.

Buy TWTR Stock?

All of this leads to the vital question: Should investors buy TWTR stock? Hopefully, some are still long from when we were pounding the table back in late August.

We said TWTR stock was a solid trade candidate, where if things panned out correctly, Twitter would turn into a longer-term hold. Often times, trades turn to investments for undisciplined traders who fail to cut their losses early and end up holding onto a dud.

chart of TWTR stock price
chart of TWTR stock price


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That was not out case for Twitter stock. Instead, we wanted a low-risk entry that allowed us to take quick losses if the stock didn’t pan out. If it did pan out and became more bullish, we wanted to hold TWTR stock because the fundamentals were improving so much. In fact, we were looking for a run to $25.

So what do we do now that it has run so much? Bulls should remain long if they already have a position. However, new investors may consider waiting.

Twitter stock very well could rally into its earnings report on Feb. 8. But that’s not always a good thing — at least once the report is released. The 21-day moving average has been recent support. However, a retest of the 50-day moving average would mark for an attractive entry provided it acts as support.

The $22 to $23 area was a big level for TWTR stock to push through. That’s where the 50-day moving average is too. So a retest of this level could make for a great buying opportunity. It’s possible that Twitter’s earnings report could cause a potential pullback.

The Bottom Line on Twitter Stock

Twitter is generally lumped in with other social media stocks like Facebook, Inc. (NASDAQ:FB) and Snap Inc (NYSE:SNAP). However, it’s not really a social media play. At least not exclusively.

Facebook, Instagram and Snapchat thrive on placing ads between content that is generated by friends, family and followers. Be it stories, posts or pictures, users are there to see what’s going on others’ lives.

Generally speaking though, Twitter is a discussion board, a breaking news outlet and a platform to get the message out. One can easily post a chart of a stock, while a politician can make his or her message clear.

They don’t need a press conference or media outlet. Instead, they can send their message right out into the world. I think Twitter’s team realizes this and is now working on solutions to enhance that experience.

This news platform element is the value that Twitter has. If it can fully unlock this value, then Twitter is very easily undervalued at its current levels. The question is, will another buyer see that value now and feel compelled enough to pay a premium to today’s prices without seeing further progress that Twitter can unlock that value?

I don’t know that they will. But if Twitter continues to improve, it will become vastly more attractive. If those quarterly reports start to show an unlocking of that value, TWTR stock is very much a buyout target. And with big companies benefiting from tax reform, they’ll have plenty of cash to make the transaction.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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