Twitter is reportedly looking for a buyer.
And according to a Bloomberg report on Monday, Walt Disney hired a financial adviser to explore a possible bid for the company.
Twitter has struggled to grow monthly active users and is investing big in live video as one possible turnaround strategy.
As Twitter explores a sale to suitors that reportedly also includes Microsoft, Citi analysts hope the buyer is not Disney.
“Any way we slice the data, we just can’t get enthusiastic about this potential transaction,” wrote Citi’s Jason Bazinet and his team in a note on Tuesday.
“As such, we’re maintaining our Buy rating on Disney. But, that means we hope the press reports are wrong and Twitter is acquired by some other firm.”
The report does not mean that Disney has made a bid, or that a deal is around the corner, just to be clear. But Bazinet hopes that Disney doesn’t even get that deep into a transaction for four reasons.
First, the analysts struggled to find one successful merger between a traditional media company and a tech company; think the botched AOL/Time Warner merger.
That’s because there are fundamental differences between how media and internet companies distribute information. Most traditional media firms create their own content locally and disseminate to a massive audience, but both the sources and receivers for internet companies are vast.
The second reason is that Twitter is not a very impressive company even on its own, Bazinet argued.
Monthly average users used to grow at a double-digit pace just 18 months ago. But today, it’s flattish in the US and internationally.
And, the company has had significant turnover in various rankings of its top leadership, with four CEOs in nine years.
Third, Citi thinks that Disney’s equity value would fall if it pays for Twitter in cash or stock or a combination of both. For example, if Disney paid all cash for Twitter at a 4% interest rate, it would result in $600 million of incremental interest expense for the former, by Citi’s calculations.
The final reason is that Disney’s content cannot help Twitter, and Citi doesn’t know of any internet company that has successfully monetized sports content online.
The analysts estimate that after Twitter paid $1 million per game to stream Thursday night NFL football games this season, they made very little of that money back from ad revenue, based on the number of viewers, average viewing time, and the cost for every thousand impressions of an ad, or CPM.
The Citi analysts noted, however, that they had been wrong about Disney’s acquisitions before. “Back in 2009 — seven years ago — we somewhat confidently suggested Disney made a mistake when it acquired Marvel,” Bazinet wrote. “We were wrong.”
Citi thinks it will be right this time if Disney buys Twitter.
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