Is Twitter sale near? Shares of Twitter jump while Salesforce’s fall

Shares of Twitter rose sharply Wednesday on word that a sale of the struggling company is nearing, despite questions about which suitor would be the best buyer for the social media site.

San Francisco-based Twitter jumped more than 4 percent Wednesday, but still languished well below the price for its initial public offering of $26 a share.

It was a markedly different story for shares of rumored buyer Salesforce.com, whose interest in Twitter is a bit puzzling.

Investors seemed to think that Salesforce is the most likely buyer, or at least the one that faces the most risks were it to be successful. San Francisco-based Salesforce plunged 7 percent on Wednesday.

“We remain concerned about Salesforce management’s quest for acquiring Twitter,” Abhey Lamba, a managing director with Mizuho USA Securities, wrote in a research note Wednesday.

The Mizuho analysis also contained a dire warning to investors about the consequences for the cloud company if it succeeds in buying Twitter.

“Any deal will likely destroy $12 billion to $17 billion, or 20 percent to 25 percent” of Salesforce’s value, the Mizuho analysts wrote. That could take “two to three years to recapture, if all goes well,” the analysts stated.

For now, Mizuho maintained a “buy” rating on Salesforce, along with a price target of $85. But Mizuho tempered that recommendation with a yellow flag.

“We would recommend exercising caution until we get more clarity on the deal situation,” Mizuho wrote.

Mizuho also questioned Salesforce’s ability to complete a purchase of the social media site.

For one thing, Salesforce had $1.17 billion in cash on hand as of the end of July, and currently generates $1.87 billion in cash flow a year. That suggests Salesforce would have to borrow a considerable amount to pull off a purchase of Twitter, which is estimated to cost $20 billion.

“Salesforce’s ability to close the deal is questionable especially if Google or Disney is serious about acquiring Twitter,” Lamba wrote in his note.

Over the 12 months that ended in June, Twitter lost $408.9 million on revenue of $2.48 billion. During the one-year period that ended in July, Salesforce earned $217.7 million on revenue of $7.47 billion.

“Twitter is almost entirely supported by advertisement revenues,” the Mihuzo analysis stated. “Additionally, Twitter’s core growth is slowing significantly.”

Burbank-based Disney and Mountain View-based Alphabet, the other companies that are reportedly interested in buying Twitter, both were up about 0.4 percent.

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Photo by Justin Sullivan/Getty Images

 

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