From the looks of it, investors don't seem thrilled about the possibility of entertainment behemoth Walt Disney (DIS) - Get Report making a play for micro-blogging site Twitter (TWTR) - Get Report . Disney stock fell Wednesday morning as speculation ran wild, although the stock recovered later in the day to finish slightly higher.
The company has emerged as a potential purchaser of Twitter, which has been the subject of takeover speculation for months. It's unclear if such a deal would benefit the company. Assimilating Twitter will take time and a sound strategy, particularly for making use of Twitter data. Regardless whether Disney pushes forward, the company is a good option for investors?
Twitter is a social media pioneer, and it's been championed by celebrities and ordinary users alike. The site currently has more than 300 million monthly active users.
But the company has had difficulty in monetizing its product. Toward the end of last year, co-founder Jack Dorsey took up the role of CEO (he's also CEO for Square). Analysts have pinned their hopes on Dorsey's attempts to turn the business around.
But so far, a major improvement hasn't been forthcoming. And now some of the biggest celebrity tweeters appear to be shifting their gaze toward other trendy sites, such as Facebook's Instagram.
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During the last year, Twitter's stock has lost more than 50% of its value. Investors have been steadily heading for the exit doors, dismayed by the company's lackluster efforts to turn its business around, as well as its lack of profitability, despite growing revenues.
The company desperately needs a larger company to come along and gobble it up.
One of the biggest candidates has been Microsoft, which recently snatched up business-networking site LinkedIn for $26.2 billion. LinkedIn is a lot like Twitter, in that it is very popular but also has monetization difficulties. Other rumored buyers have included Alphabet, Salesforce, and 21st CenturyFox.
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Why would these tech majors consider purchasing the beleaguered social networking company?
The true value in Twitter lies in the massive amount of data about its users that it gathers and stores. It is practically a database of popular thought.
However, that's not the main reason why Disney might be eyeing Twitter. ESPN, Disney's cable sports network, has been suffering as Americans "cut the cord" on cable television. Simply put, they're turning off their TVs and watching content via the internet.
And one of the places they're watching sports in particular is on Twitter. The social media company has inked deals with Major League Baseball, the National Hockey League, the National Football League, and the National Basketball Association. And it's found success in streaming games online.
Disney already owns a 33% stake in BAMTech, the Major League Baseball-created media streaming company that Twitter uses to live stream baseball games. And Twitter's CEO Dorsey already sits on Disney's board. So there's already an "in" and an interest.
To be sure, investors don't seem keen on the idea because it might mean a costly bidding war for Disney with Microsoft, Alphabet, Salesforce, Fox, and any other tech and entertainment giants.
However, the purchase of Twitter could be a good move for both companies.
Moreover, Disney remains a play for the long term. Although the company is facing some of the same headwinds as competitors as entertainment shifts from TV programming to video streaming. But it has the management smarts and resources to end up better than ever.
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The author is an independent contributor who at the time of publication held none of the stocks mentioned.