OPPENHEIMER: Twitter doesn't make sense at this price

Jack DorseySCOTT EISEN/BLOOMBERGTwitter CEO Jack Dorsey

After news of a potential acquisition on Friday, shares of Twitter shot up 22% in trading, going from just over $18.50 per share to more than $22 per share.

According to Jason Helfstein, an analyst at Oppenheimer, no one should buy Twitter because with a stagnating user base and dwindling impact, even at just $22.75 per share, the social media company isn’t worth it.

“At $22 per share, we believe that Twitter is fully valued at best, and potentially overvalued, precluding a potential acquirer from paying a normal take-out premium from the last trading price,” said Helfstein in a note to clients. “In addition, we see any acquirer factoring in the large capital investment necessary to make Twitter’s platform competitive again.”

Helfstein argued that since Twitter’s user base is not growing, newer rivals such as Snapchat have already outpaced it in terms of user engagement, and there has been negative coverage surrounding harassment on the platform

Additionally, said Helfstein, the attempts at reigniting user interest in the platform through Olympics coverage and steaming the NFL’s Thursday Night Football games have failed. The Thursday night football engagement was particularly disappointing according to the note.

“It is our belief that the stream would have done better if it were offered on a platform with a wider reach, such as Facebook,” said Helfstein. “Again, we don’t see any significant increase in search interest for Twitter on the day of the first Thursday Night Football stream, September 15th.”

To be fair, comparing Twitter’s stream to linear TV is a bit of a stretch given that online streams for live events typically underperform linear TV. Additionally, the stream drew generally positive reviews and one can only speculate how many people would have watched the stream on another platform.

Regardless, its obvious that Twitter’s growth has slowed, and for that reason Helfstein thinks that it no longer makes sense for any buyer at the current price. For two of the largest rumoured buyers — Salesforce and Microsoft — Helfstein thinks there is no chance.

“Lastly, media reports state Twitter’s asking price at about $30 billion,” said the note. “We don’t believe that Salesforce would be willing to pay 60% of its market cap for Twitter. Microsoft is obviously out of the question, having just acquired LinkedIn.”

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