SunTrust's Bob Peck Reviews Twitter's TellApart Acquisition

In a report published Thursday, SunTrust Robinson Humphrey analyst Robert (Bob) Peck commented on Twitter Inc TWTR's acquisition of TellApart, noting that he was "surprised" at the company's lack of initial disclosure given the deal size. Peck noted that Twitter's 8-K filing suggested the deal was valued at $533 million, making it Twitter's largest acquisition to date. The deal consisted of 12.6 million shares of Twitter's stock at a price of $42.27 with no further details on management contracts, earn outs, cash component or cash acquired being disclosed. "We are surprised by the lack of disclosure on the earnings call that Twitter had made such a sizable acquisition," Peck wrote. "Further, we question what the acquisition (along with the Double Click deal) means for the current state of Twitter's ad tech stack. Lastly, we think the size and significant further weighs on management and would not be surprised to see shareholder frustration voiced about execution and disclosure." Peck continued that the most recent revenue metric he was able to locate on TellApart was an article in TechCrunch from December 2013 which tied an approximate $100 million revenue rate. The analyst added that he "feels" that TellApart likely generated approximately $100 million in gross revenues for 2014, implying a trailing EV/Revs multiple of approximately 5.5x. The multiple Twitter paid is above the 3x trailing revenue The Rubicon Project Inc RUBI paid for Chango while leading retargeter Criteo SA CRTO is trading at an approximate 2.5x trailing gross revenue. Nevertheless, Peck offered three reasons to explain Twitter's acquisition. First, the source of weakness in Twitter's earnings report and guidance was advertising – TellApart's specific expertise. Second, Twitter cited a need to improve targeting, measurement and content. Finally, retargeting assets are being consolidated by large ad tech players. Bottom line, Peck stated that TellApart is a strong asset for Twitter but does question what the acquisition means in terms of the quality and progression of the TapCommerce asset and internal ad tech stack at Twitter. Shares remain Neutral rated with a price target lowered to $44 from a previous $45 to account for the share dilution from the acquisition.