By Steven Davidoff Solomon
Momentum can mean everything when it comes to the fortunes of social-media giants. Just look at Twitter and the company formerly known as Snapchat.
Twitter is said to be continuing talks over a potential sale to the software company Salesforce.com. Negotiating a deal in the open is never a good thing, but it may be worse for Twitter.
For one, the reports of the Salesforce negotiations come on the heels of reports that others, including Alphabet, Google’s parent company; the Walt Disney Company; and possibly even Microsoft had taken a look at Twitter and decided to pass. All of this reduces whatever leverage the micromessaging service, which has a market value of more than $12 billion, might have possessed before the frenzy of deal speculation began.
Salesforce, meanwhile, is stuck in a situation similar to the one Microsoft found itself in when it tried to acquire Yahoo in 2008, with its bidding conducted more or less on a public stage and its own shareholders protesting.
As a result, Salesforce will have to show its shareholders that any deal is a good one for the company, and this will come at the expense of Twitter, which it is struggling in user growth. The company said in its Securities and Exchange Commission filings that it had 313 million average monthly active users for the three months ended June 30, up 3% year over year.
When Twitter went public in 2013, and its stock price shot to over $60, it had far fewer users and a third as much revenue. But back then, Twitter had user growth of 39% year over year. And with that growth, all other sins were overlooked.
That is why LinkedIn could command $26.2 billion in its sale to Microsoft. LinkedIn has 450 million members but only about 106 million monthly users, far fewer than Twitter. Yet the growth is there: Membership had increased by 18% year over year as of June 30.
Even though by some metrics Twitter is worth more, it has failed to adequately find a way to make money from its user base. Other Twitter properties like Vine are also struggling with no or low growth.
In the eyes of the Valley, Twitter has lost its mojo.
Even as Twitter was deflating, another social-media darling, Snapchat, now renamed Snap, was riding high as reports emerged that the start-up, known for its disappearing messages, was preparing for a public offering that could value it for as much as $25 billion.
Snap reports 150 million active users daily and 235 million monthly with growth rates of 30 percent—roughly the growth rate of Twitter at its public offering. And Snap has the youth market, which advertisers covet. Revenue is low, at about $376 million, according to Bloomberg, but is projected to grow fourfold by 2018. Profits appear nonexistent, but as usual, who cares?
A $25-billion valuation would be about 25 times its projected 2017 revenue. In comparison, Facebook went public in 2012 at 19 times revenue, which at the time was considered a rich valuation.
Snap lives and dies on the fickle under-30 crowd. At any time, the youth of the world may turn to another product. And Snap has no pretensions of being useful or changing the world. It is simply about having fun. So Snap has quite a few risk factors beyond those of Facebook.
The question is whether Snap can sustain its messaging business and turn into another Facebook or Google, justifying that $25-billion valuation. So far, Snap has worked hard to keep its product nimble and updated, and it has retained users.
The start-up might have just gotten lucky with its messaging product, but there is a clearly a belief at the moment that its co-founder and chief executive, Evan Spiegel, can be a visionary like Mark Zuckerberg of Facebook and push successfully into new products.
Snap, if it manages the public offering process right and isn’t too headstrong with the markets, may get the valuation it seeks.
© 2016 The New York Times
Image credits: Leon Neal/AFP/Getty Images