Twitter (TWTR) Only Worth $17-$26 in a Takeover - Susquehanna

Susquehanna analyst Shyam Patil performed a potential takeout price analysis on Twitter, Inc. (NYSE: TWTR) and sees a takeout range at $17-$26. With the stock currently trading at $24, they believe most of the potential upside has likely been captured.

Patil does think Twitter should sell now, before share losses to Snap (Snapchat) play out. "TWTR’s fundamentals have deteriorated significantly since going public, as user growth (or lack thereof), engagement, and monetization have all been challenged. We believe share losses to Instagram, which opened up broadly in 3Q15, have played a major role in TWTR’s advertising challenges over the past year and believe that Snap could pose another meaningful threat. Snap’s API opens up in early October and our agency checks have suggested that advertiser interest is the highest they’ve seen since FB… and our checks believe TWTR will be a source for Snap’s initial budgets. With additional share losses potentially on the horizon, we think TWTR is most likely going to maximize its value through a sale now, but it’s likely that any potential buyer is aware of the Snap risk and this might either create pause (to see how the near-term shakes out) or lead to a meaningful discount."

The analyst looked at a potential takeout valuations in two ways: 1) EV/EBITDA multiples, and 2) EV/MAU multiples and examine current public comp valuations, precedents, and recent private funding valuations.

"Our analysis suggests that a reasonable range is $17-$26," he said. "That said, while our analysis attempts to be rooted in reason, we don’t believe that M&A is always logical or predictable, especially in Internet, as we’ve seen many surprising deals over the years, including AOL/Time Warner, EBAY/Skype, GOOGL/Motorola, PCLN/OPEN, and MSFT/LNKD. But we also acknowledge that TWTR’s potential price tag of ~$20b (plus or minus a few billion) would represent a larger, riskier deal and warrant much more scrutiny from potential suitor boards, increasing the likelihood of rational behavior. It’s also worth noting that TWTR’s IPO priced at $26 and that’s also the price of the stock the day Jack Dorsey formally returned as CEO in 2015…and quite possibly a psychological floor for TWTR’s board."

Aside from Facebook (NASDAQ: FB) and Google (NASDAQ: GOOGL), they struggle to see other realistic buyers.

The firm maintained an Neutral rating and price target of $15 on TWTR.

For an analyst ratings summary and ratings history on Twitter, Inc. click here. For more ratings news on Twitter, Inc. click here.

Shares of Twitter, Inc. closed at $24.00 yesterday.

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