Don't Look Now - Twitter Shares Approaching Rumored Potential Takeout Price

Since 2016, Twitter Inc TWTR shares have been rangebound between $15 and $25. Amid the range bound movement, the shares saw a mini-downtrend since mid-February this year following the release of lackluster fourth-quarter revenues and below-consensus forward guidance.

Mixed Technicals

In a telling bearish signal, the longer period 200-day moving average (currently at $17.73) has crossed over above the shorter period 50-day moving average (currently at $16.47). However, suggesting that there is potential for upside, the 14-day relative strength index is currently in the oversold zone (36.61).

Source: Y Charts

Now that valuation is cheap (the market cap now is $10.98 billion versus nearly $35 billion in late 2013), it definitely is an attractive target for potential predators.

Source: Y Charts

Potential Suitors

Chief among the companies that could be interested in a Twitter buy include Apple Inc. AAPL, salesforce.com, inc. CRM, Alphabet Inc GOOG GOOGL, Microsoft Corporation MSFT, Facebook Inc FB, Verizon Communications Inc. VZ, Comcast Corporation CMCSA, Twenty-First Century Fox Inc FOXA, News Corp NWSA, Walt Disney Co DIS and Softbank. Among these companies, when several aspects were factored in, Disney, salesforce.com and Google were being seen as serious contenders in late 2016.

Analyst Saw Twitter Deal Priced At Discount

In a note released in October 2016, Brean Capital indicated that if at all salesforce.com bids for Twitter, it could be at a price lower than its current share price. At that time, Twitter was trading around the $20 levels. Analyst Yun Kim reasoned that a higher price in excess of the current market price would necessitate a formal shareholder approval process, given that all deals that would lead to a more than 20 percent dilution in equity have to be vetted by shareholders.

"In our view, if CRM were to have an interest in pursuing TWTR, we believe the potential bid could be meaningfully lower than the current share price, which may have a difficult time getting an approval from TWTR's board," Kim said then.

Stock Down But Not Cheap

In early February, Fox Business reporter Charles Gasparino tweeted about bankers talking up a Twitter sale more now. Later, in an appearance on Fox Business, he hinted that he personally would prefer buying Twitter at $12.

Such pessimistic assessment is reflective of the weak fundamentals of Twitter.

The company has not been able to grow its user base as much as it would have desired to. Revenue growth has not been spectacular either. And on top of these, the company is also left to contend with other issues such as rampant trolls that are driving users away from the platform. Although the company has moved in to plug the loop holes, it is not yet there to be on a comfortable plane.

The plot around Twitter is thickening. Even as the stocks goes through a painful period of value being wiped out, it remains to be seen if a knight in a shining armor emerges to lap up the company.

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Twitter Nosedives After Q4 Revenue Miss, Tepid Outlook ______ Image Credit: By Yoshimasa Niwa - Flickr, CC BY 2.0, via Wikimedia Commons