8 reasons for Google to acquire Twitter

If Google could get its way, it would own Twitter. The company has apparently made several attempts to acquire the social media company, but Twitter has always refused. Now, the game is changing. Despite having made a run at Twitter last year, GOOG)" href="http://www.insideipo.com/tag/google">Google could have another shot. While twitter's growth has been impressive, there are doubts as to whether it can pick up enough revenue to justify its already high implied valuation.

Let's take a look at eight reasons why this would be a great move for Google, based on an analysis done by Forbes (with some added color):

1. Google has money to burn: the search giant is sitting on $44.6 bn in cash and cash equivalents, 60 percent of which is located in the US. So, there are no repatriation issues, and Google has plenty of money on hand, even if we believe some ‘reasonable' premium over Twitter's latest implied valuation of around $10 bn.

2. No stranger in the night: Google tried to pick up Twitter for $10 bn around a year ago and wasn't able to convince the microblogging service to bite. A year later, Twitter has some sense of its potential, strategy and ability to scale. This could help the two companies find the right place to meet, or at least pave the way for the future.

3. Going the distance: Twitter is forecast to hit $260 mn top line this year, following around $150 mn last year. It's tough to get to a $10 bn valuation from there. Further, there are some doubts as to Twitter's ability to scale, though I suspect the broader rollout of an advertising self-service module will help Twitter accelerate growth. And, the company has grown to more than 2,400 clients with a retention rate of 80 percent. Pairing existing growth with acceleration from the self-service solution (now in private beta) could provide a bump. How big a bump, however, is uncertain. What we do know is that Twitter has a long way to go. According to Forbes, Twitter generated less revenue last year than YHOO)" href="http://www.insideipo.com/tag/yahoo">Yahoo! does in a quarter – and than AAPL)" href="http://www.insideipo.com/tag/apple">Apple did in one day in its last quarter.

4. Integration opportunities: Google+ reportedly has 90 mn users, although it doesn't reveal the number of active accounts. This trails Twitter's 100 mn active users. What could be interesting would be the combination of the two: there is probably room for complementary growth (through users on one platform who have not adopted the other), and the technology integration appears to be where both Google and Twitter are headed anyway.

5. Native social media knowledge: this has been a long and constant criticism of Google: it doesn't ‘get' social. Twitter obviously does. So, an acquisition could fill a gap in Google's institutional knowledge.

6. Employee exit: an IPO isn't the only liquidity event that could benefit Twitter's employees. An acquisition would still provide them – and the investors – with an exit. There would still be plenty of reason to celebrate.

7. Inherent value: Twitter could be worth more as part of Google, especially in that Twitter could just be plugged into the existing Google monetization machine. Google has scale, it has the infrastructure to squeeze more money out of Twitter than the social media company can on its own and it has naturally complementary products. It really is a no-brainer.

8. Defensive moves: if Google bought Twitter, Facebook wouldn't be able to. Google is sitting on far more cash than Facebook, and it would probably be tough for Facebook to use its stock for an acquisition so soon after going public. But, if Facebook were able to put together a deal with Twitter, a wide range of opportunities (above) would evaporate.

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Source: Forbes

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