Twitter Would Need New Strategy for Growth as Salesforce Walks Out of Deal
Salesforce announced walking out of the deal to buyout social network Twitter last week. The news led to 5 percent decline in Twitter stock and 5% jump in the stock price of Salesforce on Friday. Twitter has been losing its market valuation over the past several months as the company has been witnessing stagnation in number of users on its network. Twitter hasn’t declared profit over the last 11 quarters and investors are worried about the upcoming quarterly results from the social network.
In 2016, Twitter has lost nearly 34 percent in market valuation and market experts still feel that the stock is overpriced. Twitter faces tough competition from Facebook’s Instagram and Snapchat. Salesforce management faced questions from investors after the company announced its plan to acquire Twitter. Earlier, Salesforce CEO informed investors that the company was considering Twitter but the final decision would be based on several factors. Finally, Salesforce has dropped out of the race to acquire Twitter.
Earlier, Google and Disney were reportedly planning to buyout Twitter. Both the companies walked out of the deal and informed that they had no interest in acquiring controlling stake in Twitter.
Market experts are speculating that Japanese investment major SoftBank could consider buying controlling stake in Twitter. However, Twitter at its current valuation looks overpriced, considering stagnant growth and continued losses the company has reported.
Twitter went public in 2013 and the company has faced leadership issues. Jack Dorsey returned as CEO of the company last year. However, Dorsey is acting as CEO of two entities, Twitter and payments company Square. Investors have raised concerns that Twitter needs a full-time CEO.
Twitter would need to think about a new strategy for growth. The market is having lot of competition and users have many options. Twitter also has tough task of making money from its user base. Facebook has managed to report strong earnings as the company has been able to monetize its traffic effectively.
Salesforce CEO Marc Benioff has taken the right action by walking out of the deal. The Cloud software company’s management was criticized by investors for trying to do something out of context by acquiring Twitter.
Talking about interest of Salesforce in Twitter, Deutsche Bank research analyst Karl Keirstead said, “Salesforce is battling enterprise giants like Microsoft, Oracle and SAP that are gunning for a bigger slice of the cloud pie. Buying a consumer-focused social media platform does little to help Salesforce in this effort.”
It would be better for Salesforce to focus on its core business and the management has possibly understood that. Acquisition of Twitter would bring lot of spotlight to any company as Twitter has mass media appeal but in terms of bringing profit, it wouldn’t be a very intelligent decision. And, considering market valuation of $12 billion, Twitter seems too expensive for only spotlight.
After few setbacks, Twitter could now focus on improving its financial position and user base. If the company manages to report better numbers, it could fetch higher valuations.
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