| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3454 Registered: 05-2011 Posted From: 65.35.45.47 Rating: N/A |
TWTR Twitter is trending today on a Bloomberg report that it had been in talks to acquire Clubhouse (70.21 +1.15) Twitter (TWTR +2%) is trending today following a Bloomberg report that the social media giant had been in talks regarding an acquisition of Clubhouse, an audio-based social network, for roughly $4 bln. Discussions are no longer ongoing, but it was intriguing to hear that Twitter showed interest. Right now, Twitter makes most of its money from ads. However, advertising can be lumpy depending on the state of the economy. Also, ads are subject to event-driven up-and-down swings, as seen during election seasons. As such, Twitter has been looking to add non-advertising revenue streams. Twitter ideally would like revenue streams with a high recurring revenue component, which would help to reduce the lumpiness of overall results and increase predictability. As an example of the unpredictability of its current model, Twitter had five consecutive earnings misses before posting back-to-back solid EPS beats in Q3 and Q4 when the election provided a tailwind. Specifically, Twitter has been looking at possibly adding subscription-based services and possibly getting more into online commerce. On its last earnings call, the company did not go into details, but management reiterated that it's looking increasingly at non-advertising subscription-based revenue streams and that it will experiment with some ideas in a more meaningful way in 2021. Audio-based social media apps are still very new but are gaining in popularity. Clubhouse lets users host their own online radio shows and panel discussions. Topics can run the gamut from sports to politics to friends chatting to a celebrity being interviewed. Listeners are allowed to raise their hands to speak, but it's up to the moderator to permit interaction. There is also an air of exclusivity to the app, as it's invite-only, like a real club. Also, it's only available on iPhone, not on Android. Why would Twitter want to buy Clubhouse? Twitter's interest in Clubhouse is a bit surprising considering that it just launched a similar service in late 2020 called Spaces. It's still in beta testing, but we wonder if maybe the early results have been a bit underwhelming if Twitter is already looking to buy a more established name like Clubhouse. The other aspect to this is that Twitter would need to figure out the best way to monetize a service like Clubhouse. It currently has no advertising, but maybe users would pay a monthly fee or pay extra to chat with a celebrity. In sum, we think buying Clubhouse would make sense, as we see all kinds of ways that Twitter could link its core service to Clubhouse chats. A deal would also show that Twitter is serious about expanding beyond its advertising base. We do not have the financials on Clubhouse, but $4 bln seems pretty reasonable and easy to swallow. Audio social media is still an emerging trend, but maybe this early period is the best time for Twitter to strike and buy a category leader before the space gets too big. |