Twitter sell-off mooted as social network faces 'dumb pipe' scenario
The boutique M&A investment bank, which advises investors on potential M&A activity, has issued a release claiming that Twitter’s “strategic immobility” has led to its surrender of the early “mobile first” advantage it had over rival social offerings – the social network started out as an SMS-based microblogging service.
This lethargy means Twitter is no more valuable than a public utility company, and is now in danger of rendering itself a “dumb pipe” (i.e. a business where other companies are able to extract value, while it can extract little additional revenue).
Victor Basta, Magister Advisors, managing partner, said: “Twitter has for all practical purposes failed to innovate its product since it went public. At IPO, Twitter had a unique platform that was mobile-first, significant momentum and global profile from the Arab Spring and other high-profile events, and a billion sign-ups.
“Fast forward less than two years and, alone among internet ‘majors,’ Twitter has squandered its lead by failing to innovate, failing to drive engagement and consequently ceding the lucrative mobile ad revenue land grab to Facebook and Google.”
Basta went on to compare the performance of Twitter with that of Facebook, since both the social networks went public (Twitter in late 2013, and Facebook in mid 2012), and also highlighted how Twitter should be “grabbing a big percentage of new mobile ad spend”. But instead it has allowed Facebook and Google to command a combined 75 per cent market share, according to eMarketer numbers.
He said: “When Facebook went public it faced serious questions about its mobile strategy. Since IPO it has successfully transitioned from desktop to mobile far more successfully than most analysts ever expected.”
In addition, Facebook has also advanced its mobile offering through a series of strategic acquisitions, these include the $1bn purchase of photo-sharing site Instagram in 2012, plus WhatsApp for $19bn in 2014, as well as that of Oculus. Basta added: “This has given Facebook a far broader product portfolio than it could have developed internally.”
By comparison, Twitter has been inert in this respect, with the company also failing to develop products internally, despite starting as a ‘mobile first’ service, that wouldn’t have to go through the painful transition which Facebook had to endure, according to Basta.
“Standing still for an internet major leads quickly to a valuation death spiral (witness AOL). We see multiple addressable markets where the business could innovate – from sports to news to fashion – but Twitter is nowhere to be seen,” he added.
The latest commentary from Basta comes just weeks after he speculated that Twitter may become an acquisition target for Facebook and Google, with the social network’s share price continuing to fall (last month it fell to 25 per cent below its IPO price), as it also seeks to find a permanent chief executive.
Speaking at the time, a Magister Advisors release read: “Twitter would be worth materially more to a larger business that can accelerate its product and feature innovation. An acquisition, in the absence of that innovation, would appear far more likely today than six months ago.”
The company went on to claim that despite being able to monetise through acquisitions such as mobile ad exchange MoPub, Twitter and achieved a valuation too far ahead of its revenues.
Speaking about the company’s (much diminished) valuation last month, he added: “At $17.bn Twitter is no longer too big to be acquired. A logical acquirer for Twitter would be from two camps: organisations with larger user networks (Facebook / Google) or a news organisation with an interest in real time data. Both would bring a strategic user-focused discipline to a business.”