Amid the surprising news that Microsoft will acquire LinkedIn, attention has turned to Twitter (TWTR) .
The New York Times reported on speculation that acquisitions occurring in the social-media industry is a trend and that Twitter is likely the next target.
But the article mentioned that some think that Twitter's business model is unsustainable in its competitive landscape, and unless it can attract its own suitor, the company is at risk of being overtaken by a larger rival.
In other words, because being acquired is Twitter's only viable option for survival, a takeover is imminent. Furthermore, because of LinkedIn's recent buyout, many experts are advising that investors buy Twitter.
There are several fundamental flaws with this logic.
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First, companies looking for acquisition targets are primarily motivated to boost their own business potential by bringing in their pre-established resources. They are not keen on rescuing businesses that are in trouble, so saying that Twitter needs to be acquired therefore it will be acquired soon is illogical.
Second, if a company is performing so poorly that its only way to survive is to be acquired, then there is something inherently wrong with that company itself.
However, many investors are still buying Twitter's stock on this basis. Their primary strategy is to wait until the acquisition and sell once the stock pops like LinkedIn's did.
But there is something wrong with this strategy. For instance, let's say that this strategy was applied to LinkedIn, and an investor got lucky enough to have the company get acquired by Microsoft.
The investment will only have paid off if this stock was bought either in January 2016 or before 2013.
Why? Because Microsoft agreed to purchase LinkedIn at a premium of $196 a share.