In Any Acquisition, Here's How Much We Think Twitter Is Worth

There is much market speculation at the moment about Twitter potentially being acquired, with prospective buyers including Alphabet and Salesforce . Both of these companies likely have different motivations for acquiring Twitter: Alphabet could benefit from Twitter’s established social media presence (although its growth has slowed) and live video streaming potential, while Salesforce could use the social/news platform’s large amounts of data generated by its 313 million users for accelerating the former’s artificial intelligence-led future growth strategy.

Owing to the possibility of a takeover bid, Twitter’s stock price jumped over 20% Friday. We have maintained our price estimate for Twitter around $22 (market valuation of $15.7 billion) for the last quarter, which is now around in line with the current market price. Here’s why we think that is still a fair value for the company at the moment.Twitter’s average monthly active users (MAUs) grew just 3% y-o-y and 1% quarter-over-quarter to 313 million in Q2 2016. The company’s struggle to grow its active user base has been the primary investor concern for the past five quarters, and the company recently started focusing on video to attract new users through its different offerings such as Periscope, Vine and live-streaming. Our estimates for the company’s valuation assume a moderate turnaround in Twitter’s user addition statistics as well as user engagement levels going forward.

Twitter’s increasing focus on video content and content creators is a step in the right direction, considering that video usage is rising at a rapid pace and video has much higher engagement and monetization potential than banner and text ads. We expect this to help improve the average revenue per user in the medium term, helping the company generate revenue of around $3 billion and $2 billion in the U.S. and international markets, respectively, by 2020.

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