Twitter and Snap share some common problems. If they’re smart, they could share much more, as merger partners – provided Twitter can tie up its loose ends with fickle suitor Elon Musk.
Twitter reported a surprising decline in second-quarter revenue on Friday, even though the U.S. economy hasn’t yet fully hit the brakes. Its revenue shrank 1% to $1.2 billion, which it blamed on advertisers worrying about a potential recession. Snap had a similar experience. The disappearing message app missed the second-quarter revenue forecast it had already cut in May.
Both are still succeeding in pleasing the masses. Twitter’s average monetizable daily active users grew at a decent 17% to almost 240 million. Snap’s daily active user base increased 18% to 347 million. But separately they’re too small to woo advertisers the way rivals like Alphabet and Meta Platforms can. Twitter is also struggling to steady the ship in the wake of its sale to Musk for $44 billion, a merger which has now descended into legal acrimony after the Tesla boss got cold feet.
What if the two flocked together? Merging Twitter and Snap, which offer complementary products, would allow them to pool their spending power, especially if they can cut ballooning costs. Together they would have about $11 billion in cash and cash-like investments; still less than Meta’s $45 billion in the first quarter, but enough to have a fighting chance. Twitter could add to its cash pile by striking a settlement with Musk.
The timing is also favorable. At its peak last year, Snap had a market capitalization of more than $120 billion, far higher than Twitter’s. But its pandemic gloss has rubbed off. The firm co-founded by Evan Spiegel was worth around $16 billion on Friday, whereas Twitter, even after a slight post-earnings fall, was worth $30 billion. Spiegel controls Snap’s shareholder votes, but that could be an advantage: Offer him the chance to run the whole merged company, and it might reduce the premium Twitter would have to pay. He may also be a more effective leader than Twitter’s new, relatively unproven Chief Executive Parag Agrawal.
It wouldn’t be the first time a failed takeover has turned into a better one. Think of telecoms firm T-Mobile US, which got a $6 billion payout in cash and spectrum from rival AT&T as compensation for their nixed merger, and later bought Sprint. Twitter could do something similar: feather its nest with some of Musk’s cash and then lure a more suitable mate.
