Is Google Buying Twitter (TWTR)?

A burst of rumors yesterday (Tuesday) had many investors considering the possibility of Google buying Twitter.

Twitter Inc. (NYSE: TWTR) stock popped 4% yesterday to close at $52.87, up $2.03 after Barron's posted an item on its website saying that the social media company had not one but two suitors.

One of those allegedly is Google Inc. (Nasdaq: GOOGL, GOOG). The other possible suitor is unknown but would have to be a tech titan with deep pockets such as Apple Inc. (Nasdaq: AAPL) or Microsoft Corp. (Nasdaq: MSFT).

google buying twitterDeep pockets are a prerequisite for any buyer of Twitter. With a market cap of $33.5 billion, the acquisition price would be at least $40 billion and possibly as high as $65 billion.

It would be a lot to swallow, but Google can afford to buy Twitter if it wants to.

As of the end of 2014, Google had $64.4 billion in cash and marketable securities. Since much of Google's cash is overseas and subject to taxation if brought home to the United States, any deal to buy Twitter would probably involve a mixture of cash, stock, and some borrowing.

Of course, for Twitter investors, a major acquisition would be a bonanza.

But how realistic is a deal?

The idea of Google buying Twitter has been around at least since 2009. Back then, Google and Twitter made a deal that allowed tweets to show up in Google search results.

So this marriage makes sense to a lot of people.

In fact, yesterday's rumors weren't even the first time this year that someone has suggested Google buy Twitter.

On Jan. 22, SunTrust Banks Inc. (NYSE: STI) CEO Bob Peck sent Twitter stock up more than 3% when he said just that on CNBC.

"It's not lost on Google that Twitter is the best real-time search engine out there," Peck said. "It would be a tremendous amount of leverage, obviously, having Twitter disseminated across all of Google's products."

While some critics have dismissed the possibility of Google buying Twitter, benefits for both companies could make a deal happen...

Why Google Buying Twitter Would Make Sense

Many people may not realize that Google and Twitter already have a pretty good working relationship.

Although the 2009 deal expired in 2011, Twitter CEO Dick Costolo announced in February that the two had inked a new data-sharing agreement, although he did not disclose any details.

A friendly relationship is not the norm in Silicon Valley, where tech companies not only compete in the marketplace but often poach each other's workers.

And both companies do have something to gain from joining forces.

Twitter's main problem has been user growth. For a while it also struggled to monetize those users, but is making progress on that issue.

This is where a Google acquisition could really help. Google's vast resources and wide reach in search could be used to drive more users to the Twitter platform.

Twitter could also tap into Google's stable of top-notch software developers. Adaptation is vital for survival in the tech world, and Twitter is already running up against competition from other social media companies, as well as new ways that people want to use the platform, such as video.

Finally, Twitter has suffered from a revolving door in the C-suite. The company has had three CEOs since its launch in 2006. It's gone through three heads of product in 18 months. And in the past 15 months, Twitter has lost its chief operating officer, chief financial officer, its head of news, and its head of engineering.

Google buying Twitter would bring much-needed stability.

And Google has a pretty strong incentive to make a deal.

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Google has grown increasingly worried about the threat that social media - particularly Facebook Inc. (Nasdaq: FB) - poses to its dominance in search. And defense of search has to be a top priority for Google; it still contributes 90% of the company's revenue.

Google's own attempt to build a social media network, Google+, was a total flop. It recently scaled back the project, essentially reducing it to a log-on function for other Google services.

So Google buying Twitter would give it control of an established, successful social network that it could use to expand its efforts in mobile search and fight back against the likes of Facebook.

Twitter could also help grow revenue for Google over the long run. Just last week, Jeffries initiated coverage of Twitter stock with a buy rating and a $65 price target.

"We believe [Twitter] is a leader in the crowded social media space and is particularly well-positioned to benefit from online video ad and mobile tailwinds," the Jeffries team wrote in a note.

Even without Google's help, Twitter's revenue is expected to grow to $2.4 billion this year and $3.62 billion in 2016. And earnings are expected to jump from $0.38 a share this year to $0.81 in 2016.

A Twitter unit within Google would have the ability to grow earnings even faster, and contribute to Google's bottom line in multiple ways.

Twitter closed on Wednesday at $52.30; Google closed at $541.47.

The Bottom Line: The possibility of Google buying Twitter is only a rumor for now. But it makes sense for both companies and should surprise no one if it happens in the next year or so. Expect more TWTR stock investors to hold on to the stock - or buy in - hoping to profit from a deal...

How to Profit from Twitter: Whether Google buys Twitter or not, the company's prospects have greatly improved. Right now is the ideal time to move on Twitter stock. And by following a simple strategy, more aggressive investors can manage a 300% gain or more on Twitter. Here's what you need to do...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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