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Twitter Might Have to Buy Its Way to Growth. Here's a List of Possible Targets.

$1.5 billion in new debt money: Where might Twitter spend it?

Asa Mathat

For all the good things happening at Twitter — increased partnerships, revenue gains, a rising stock price — user growth continues to elude the social network.

When Twitter went public late last year, its user figures were underwhelming. Now Wall Street seems happy with Twitter’s growth numbers again, but the service remains relatively small, especially compared to Facebook’s 1.3 billion users. And even though Twitter added 30 million monthly active users in the first half of this year, the performance was weak enough that COO Ali Rowghani was ousted for failing to spur the kind of gains the company needs.

In short, Twitter still hasn’t solved its growth problem.

One way to address it is to pay for it. Twitter certainly thinks buying growth isn’t a bad idea, since it considered acquiring SoundCloud earlier this year in what would likely have been a $1 billion-plus transaction. (The Berlin-based SoundCloud describes itself as the “YouTube for audio.”)

Twitter eventually walked away from that deal, but there’s a good chance it’s considering other options. It’s also sitting on a $3.5 billion cash stockpile after raising debt, and the company’s trading at a market value of over $30 billion, which means investors are buying today with the idea that the company will grow tomorrow. All together that gives Twitter a chance (and a mandate) to go out and get something big.

Based on conversations with a handful of people in the industry, including VCs and ad execs, here are a few possible acquisition targets for Twitter, and why we think they might be a fit.

  • Tango: A messaging app with 250 million registered users has a clear benefit to Twitter, but a deal could also get very expensive. (Remember Facebook’s $19 billion WhatsApp acquisition?) A recent funding round valued Tango at $1.5 billion, according to Reuters.
  • Kik: Another messenger app, Kik has well over 100 million users, many of them teenagers, which should entice Twitter. The Waterloo-based company has taken less than $30 million in funding to date, and should fall well within the company’s target price range.
  • It’s also possible Twitter might go after messaging apps in Asia, where Twitter is very popular. The company listed Line (Japan, $10 billion valuation) and Sina Weibo (China, $3.7 billion market cap) as competitors in its latest earning release. South Korean Kakao was also on the list but it just merged with another company and the combined entity is valued at $9.5 billion.Twitter’s cash hoard and market value could allow it to go after some of these companies, but that would also require a lot of buy-in from shareholders. And in the case of Sina Weibo, the Chinese government would likely make a deal difficult because of restrictions on foreign investment or ownership of media companies (the U.S. has similar ownership restrictions).
  • Secret: The anonymous social app would be an intriguing addition to Twitter, but it’s unclear how much value it would add since Secret hasn’t revealed the size of its user base. Still, there’s no denying that people are fascinated with anonymous social networks, and the price tag would be well within Twitter’s reach given its $100 million valuation, according to a Wall Street Journal report from July.If not Secret, fellow anonymous social app Whisper also falls into Twitter’s price range — a round in March valued it at $200 million. Yik Yak, another anonymous app aimed at college students, could provide a valuable demographic to Twitter, but it has also had serious issues with cyberbullying. That may make it a turnoff for advertisers or provide liability issues that Twitter may want to avoid.
  • Prismatic: Twitter has started surfacing tweets that aren’t part of people’s regular streams as a way to increase interactions, and Prismatic could bolster that strategy. The startup works as a specialized news reader, recommending content people might miss, and if Prismatic’s algorithm works better, it could help Twitter drive user growth.
  • Drawbridge: This startup helps brands monitor consumers as they hop between devices, making it easier to retarget them with advertising. While it would basically be an extension to Twitter’s mobile ad network MoPub, it could still help Twitter’s commerce plans (it’s currently testing a buy button) by helping it drive sales within Twitter streams. The company says its software can hit up to 1 billion people, so that could come in handy.
  • Shopular: Based in Silicon Valley, Shopular uses geolocation to push relevant coupons and local deals to user smartphones as they walk around. Once again, given Twitter’s commerce ambitions, it’s possible to imagine these kinds of deals pushed to your Twitter stream someday. This is the type of technology Twitter may be able to build in house, but with only $6.4 million raised to date, Shopular might be a cheap way to pick it up instead.

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