SAN FRANCISCO — Twitter shares surged 6% on hopes that Microsoft's $26.2 billion acquisition of LinkedIn makes the sale of the struggling social media service more likely.
Microsoft said Monday it would buy the professional networking service for $196 a share — a 50% premium — in its biggest acquisition to date.
Twitter shares were down before Microsoft's announcement.
Definitely feels like Twitter surviving the year w/out a buyout just isn't going to happen.
— Michael Arrington (@arrington) June 13, 2016
Investors are wondering if the LinkedIn deal will lead to a takeover wave. If so, Twitter would be a prime target.
For years people have speculated that Google and Facebook (even Microsoft) might swoop in and buy Twitter.
With co-founder Jack Dorsey back at the helm, Twitter is under pressure to revive stagnating user growth, yet continues to have a revolving door for Twitter product executives, prompting SunTrust Robinson Humphrey Robert Peck to speculate last week that a sale had become more likely.
"We note that if the current trend of meager user and engagement growth remains, we think it’s inevitable that Twitter will need to pursue M&A alternatives as has been discussed in the media for some time," Peck wrote in a research note.
At last month's annual shareholder meeting, Dorsey shrugged off talk of an acquisition.
"The board has a fiduciary duty, but we are focused on what is before us" in building Twitter and its audience, he said.
Yet Twitter finds itself at a critical moment. Its shares are down nearly 40% year to date and down about 60% since Dick Costolo stepped down as CEO last July. First-quarter results did not help. Revenue came in lighter than Wall Street estimates and second-quarter revenue guidance fell far short of expectations. Making matters even worse for the beleaguered company, user growth barely crept up.
"The takeout valuation certainly bodes well for the rest of the tech group and prospects of takeouts, calling out Twitter, GrubHub, and GoDaddy from our coverage," James M Cakmak, an analyst with Monness, Crespi, Hardt & Co., wrote in a research note on Monday following the Microsoft news. "However, we don’t necessary think transactions will increase materially, but rather help create a better valuation floor."
Evercore analyst Ken Sena says he sees the Microsoft deal as a "clear positive" for Twitter and other social media companies that have amassed remarkable amounts of user data.
"The first opportunity (LinkedIn CEO) Jeff Weiner outlined in his letter today was 'using the network to power the social and identity layers of Microsoft's ecosystem of over one billion customers.' As such, while LinkedIn’s user data is uniquely oriented around the enterprise, it is nevertheless a positive for platforms with similar identity layers," Sena wrote in a research note.
