SunTrust's Peck Lists 10 Reasons Why a Twitter (TWTR)/Yahoo! (YHOO) Combo Could Make Sense

January 6, 2015 1:15 PM EST
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SunTrust Robinson Humphrey analyst Robert Peck weighed in on a possible Yahoo! (NASDAQ: YHOO)/Twitter, Inc. (NYSE: TWTR) combo after it was suggested by Ross Levinsohn (former Yahoo! CEO) on CNBC earlier that Twitter should buy Yahoo!’s core, should Yahoo spin out its Asian assets.

Commenting on if the hypothetical scenario is feasible, Peck said: "Should Yahoo! spin its Asian assets, leaving Yahoo!’s core plus its ~$9b of net cash, it could be worth ~$6-9b assuming a 5-7x multiple on Yahoo’s core ~$1.3b EBITDA (ex the acquired ~$9b of net cash). Twitter’s FD market cap currently is ~$27b and the company has ~$3.6 of net cash (assuming the convert becomes equity). Hence, assuming a ~30% premium to buy the core at the $9b high end of the range, it would imply a price of ~$12b for the core ex cash. While Twitter could apply a good portion of its cash toward the deal, it would need to raise more debt or a significant component of equity in any potential transaction."

Peck provided 10 reasons the deal could make sense:

1) Technology Coupling –- It would be a marrying of traditional "1.0 and 2.0" tech platforms.

2) Display – it would couple Yahoo’s publisher, exchange and network programmatic expertise with Twitter’s Native and DR attractive inventory

3) Search – it would couple Yahoo’s organic and Bing partnership search expertise, with Twitter’s market leading "real time" search

4) Mobile – it would couple Yahoo’s emerging Gemini & Flurry mobile platform with Twitter’s MoPub network’s leadership

5) Content Form – it would couple Yahoo’s long form Tumblr content with Twitter’s short form, providing all options platform for users and advertisers

6) Video – it could couple Yahoo’s video & original content offerings with Twitter’s Vine, video cards, and Amplify opportunity.

7) Audience – both Yahoo! and Twitter have strong audience in: sports, news, finance, and entertainment, which would leverage each other’s content

8) Targeting – it would combine Yahoo’s demographic data with Twitter’s interest graph data, providing even more targetability

9) Geographic – it would combine Yahoo’s strong domestic reach with Twitter’s more international skewed reach

10) Cost Synergies – Removing duplicate efforts and excess R&D needed to have the capabilities of the other, could expand over margins.

price target of $58.00

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 $36.38 yesterday.

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SunTrust Robinson Humphrey, Twitter, Robert Peck