The stocks of Twitter Inc (TWTR) surged by 4.7% on Monday morning is off the back of Microsoft Corporation’s announcement that is was acquiring LinkedIn Corp. The professionals network platform is being sought at a 50% premium as 1.4 million shares traded, making it the fourth most active stock ahead of the opening.
The micro blogging, social network site with, a claimed 310 million active monthly users has been in talks before about a possible acquisition, one remembers reports earlier in the year of a possible transaction by News Corp. Could Twitter shareholders be standing in line to benefit from an acquisition, they could be if the jump in their stock is indicative of what might the future may hold.
Overall, the stock went up by up to 8% before closing at a 4% increase. The stock has again shot up by over 2% till the end of morning trade on Tuesday.
In stark contrast to the S&P 500 which has improved, year-to-date, by 2.6%; Twitter shed 39% for the same period, as at Fridays close. Analysts suggest that high executive turnover, the inability of the social network to adequately monetize its offering are pointing towards dismal prospects of providing any meaningful return to investors. Difficult to argue against when one considers that the value of the stock has more than halved in the past 10 months, despite a few rallies. Taking a view that historically poor trading results were sufficient to support the dominant sentiment to sell. Could Twitter stock not now present a buying opportunity given the price against its earnings over the past year, it seems not.
Gross profit margins remain very high at 80.73%, albeit lower by comparison to last year, it is the net profit margin of -13.41% which has significantly under performed against the sector average.
Whilst the company has a very strong short-term cash need position, and the current debt to equity ratio of 0.36, which may seem low; it is high by industry standards, and suggests that management of debt levels may need to be evaluated. An increase in net operating cash flow of 77% to $163m compared to the same quarter last year, and whilst it is ahead of the industry average by a considerable margin at a growth rate of 19.28%, the overall outlook remains negative.
The departure of four company executives earlier in the year may account for the reported inability of the company to adapt to the needs created through continuously changing technologies, amend product or service offerings, and improve performance.
The internet software sector, which includes all companies which develop, market, and service the internet and allied services sector, is able to expose any company shortcomings quicker than most other industries. There are approximately 4000 companies which combine to produce an annual revenue of around $30 billion.
Insatiable demand from connectivity hungry consumers provides a very sharp edge with which the US dominant industry evolves. And whilst LinkedIn may demand and, achieve, a 50% premium, the relative inability of Twitter to adequately monetize its platform, may see it having to accept a considerable less appetizing offer, one that, when it comes, is likely to disappoint shareholders.