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Why Is Twitter Inc Borrowing More Money?

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Why Is Twitter Inc Borrowing More Money?

Twitter Inc (NYSE: TWTR) is borrowing $1.5 billion to expand the business, but is it wise for the company to take on new debt?

"They're doing the deal at extremely favorable terms," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga. "Remember when Microsoft, Google [and] Apple started doing debt deals? The broader picture is, a lot of these really big, smart, powerful technology companies are taking advantage of the debt market because they're doing really smart deals."

Rob Enderle, principal analyst at Enderle Group, said that every company in this industry "wants to start building up because they recognize that this is a land war."

"You want to get to critical mass, and Twitter isn't at critical mass," Enderle told Benzinga. "They haven't really turned the corner on revenue. They're not at the point of being invulnerable, which is where Facebook and clearly Google are right now. It wouldn't surprise me at all that they're looking for additional capital to make additional acquisitions or grow out more aggressively so they can get to that point where they're not worried about revenue so much anymore."

Related Link: 5 Advertising Mistakes Twitter And Facebook Should Avoid

More M&As May Be On The Way

Udall expects Twitter to use the money to expand the business by acquiring more companies.

"Twitter has already shown that they're very good at M&As," he said. "They bought MoPub for a very good price. They bought Gnip for a very good price. They've already shown that they're good at M&A, and they're very good at acquiring assets. I trust that if they keep doing that, if they keep doing deals at very good prices, they'll probably place this money in very good investments."

Last April Twitter acquired Cover, an app that allows users to customize where apps appear.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Posted-In: Rob Enderle Sean Udall twitterTech Best of Benzinga

 

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