No One Wants to Buy Twitter and You Shouldn't, Either

Company's failed acquisition is bad news for long-term investors

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Nov 22, 2016
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The Twitter Inc. (TWTR, Financial) rumor mill has finally come to an end, and it looks like the company is struggling to find a potential suitor. After rallying more than 30% since the initial reports of the company being acquired hit the market, Twitter has given up all the gains and then some.

Given the number of companies that were being touted to acquire Twitter, you would assume that a bidding war was just around the corner. However, the rumors didn’t have any substance to them in the first place, and even the interested suitors have rightly decided to pass on Twitter.

There are many reasons why potential suitors decided not to pursue the acquisition of Twitter. Now that every company has decided to pass on the stock, Twitter may be preparing to test its 52-week low.

The chances of Twitter getting acquired were slim to begin with. However, the stock can continue correcting now that Mr. Market has realized no company is interested in buying it, and investors can certainly benefit from this by taking up a speculative short position.

Unlike Facebook Inc. (FB, Financial), Twitter’s growth has more or less stagnated, and the company is still not on track to turn a profit.

Although the company is expected to post an EPS of 9 cents, it still isn’t enough to justify its valuation especially given its tepid revenue growth. The psychological impact of various big companies deciding not to capitalize on the chance to acquire Twitter will likely push the stock lower in the coming weeks, and a potentially weak earnings reports will prove to be disastrous as well.

As a result, the risk-reward ratio is highly unfavorable for long-term investors. Although I don’t usually recommend shorting stocks, betting against Twitter is a much safer option at current levels. Granted the stock has already lost over 40% in the last few weeks, but it still likely has more downside to offer.

Final words

Unless the acquisition rumors materialize, I can see Twitter sustaining the recent downtrend. The chances of Twitter getting acquired are next to zero now, which is why investors can bet against the stock.

Twitter is a worthy short candidate at this time.

Disclosure: No position.

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