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Why Is Twitter Keen on Its Buyout?

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Twitter’s ad revenue growth is slowing down

Earlier in this series, we discussed Salesforce’s (CRM), Google’s (GOOG), and The Walt Disney Company’s (DIS) interest in Twitter (TWTR). We also learned that it is the movement of advertising dollars towards the social media space that has put Twitter in the limelight.

Twitter’s primary source of revenue is advertising, which constitutes around 80% of its total generated revenue. Other sources of earnings are data licensing—where Twitter sells a vast array of users’ information to companies—and promotions.

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However, we shouldn’t be fooled by the broader positive market trend expected in the social media space. The chart above shows Twitter’s quarterly advertising revenue trends. The company’s advertising revenue growth is showing signs of a slowdown. Although Twitter made serious efforts to drive user engagement, its user growth showed little or no signs of improvement.

Twitter is clearly lagging behind fast-growing rivals Google and Facebook (FB), who remain the dominant players in the digital ad space according to net revenues. Earlier in this series, we discussed how Facebook is going to benefit the most from the rapid movement of advertising dollars towards social media.

Analysts question Twitter’s survival as a standalone entity

In the recent past, Paul Kedrosky, a venture capitalist, tweeted, “I’m not optimistic that Twitter makes it out of 2016 as a standalone company, which is sad.” Lou Kerner, from the Social Internet Fund, which invests in the social media space, highlighted how Twitter is different from LinkedIn (LNKD): “Twitter has scale, but what it doesn’t have is growth, so it’s a far less attractive asset than LinkedIn.”

According to Investopedia, Oppenheimer analyst Jason Helfstein downgraded Twitter’s stock rating to “underperform” from “perform,” citing slow user growth, unsatisfactory product execution, platform security concerns, and current advertising technology.

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