(Photo by Bill Pugliano/Getty Images) Twitter’s stock plunged by more than 15% last week after leadership gave Wall Street an ugly report on the state of the company.
The sell-off shaved billions of dollars from Twitter’s market capitalization and left the company’s stock at nearly half of what its price was in October.
So what’s the magic number?
Twitter’s stock price closed at $31.01 on Friday. Some have suggested that if the stock price falls below the $30 level potential acquirers would be drawn out and start to circle the company.
Twitter shares have only traded below $30 once since becoming a public company. Twitter priced its IPO at $26 in November 2013, but the shares began trading at more than $45. The stock has bounced around a lot since then, but it has never dipped below $30 other than one time in May 2014.
Still, while falling below $30 would represent a big milestone, some investors say the stock would need to fall still further for the company to truly become a takeover target.
At $30 a share, Twitter’s market capitalization would be roughly $20 billion. Add in an acquisition premium and the purchase price could be around $30 billion, said Ironfire Capital’s Eric Jackson.
“It’s still going to be a pricey acquisition for anyone, even a Google,” says Jackson
Not that Google doesn’t have the money. The internet search giant has roughly $70 billion in cash on its balance sheet and an obvious hole in its portfolio for a social-media company given the recent struggles with its Google+ social network.
Apple, Microsoft or Facebook have also all been suggested as potential acquirers, though it’s far from clear that any of the companies would be interested in Twitter.
Jackson reckons Twitter’s market cap would need to fall significantly further, to as low as $10 billion, before other tech companies are tempted.
“Anything over $10 billion is a huge thing,” he says. “A lot of people will have hiccups with these bigger numbers.”
Twitter is currently trading at 12.8 times its trailing sales. By comparison, Google trades at 6.2 times its trailing sales, and Amazon trades at 2.6 times its trailing sales. In other words, Twitter still isn’t cheap.
According to another hedge fund investor, an acquisition could happen if Twitter’s market cap declines by another 20% or so to $24 a share, or about a $15 billion market cap. That’s roughly the amount that Snapchat, the hot, privately held mobile app is currently valued at.
“I think it’s a bigger platform than Snapchat today because it can reach more people, and it applies to everybody, and it’s more differentiated,” he said.
Still, he cautioned that Twitter’s ongoing user-growth problems and other issues mean that assigning a value to the company is a moving target.
“You can’t trust any of the numbers,” he said. Twitter’s value is predicated on users and user growth is stagnating, he said. “How do we know what the users look like in two years?”
More From Business Insider