Now we know what Apple is going to do with some of their $100B cash pile: Pay a dividend and buy back stock.

Facebook’s IPO is rumored to go out at about the same amount as Apple’s cash pile: $100 billion dollars. No, I am not suggesting Apple buy Facebook. (Zuckerberg has his own path to travel, and it does not go through Cupertino).

But today’s dividend announcement did start me thinking about what else Apple could do with that money. The short answer is to buy Twitter for about $10 billion dollars. And if they could make the purchase with a combination of appreciated equity and cash, even better.

Let me state upfront that I believe M&A to be wildly overrated (IPOs as well); most companies do these very poorly and end up unwinding big acquisitions at great cost eventually. (See AOL Time Warner as the poster child). They pay huge iBank fees to conglomerize, and even bigger fees to de-conglomerize. Outside of big resource mergers in oil or minerals, major mergers rarely work out well. So no, I am not a fan of  most of these deals.

There are a few exceptions. A handful of firms have made strategic acquisitions an art form. Cisco Systems (CSCO) may be the best tech firm at this; GE may be the best industrial making strategic acquisitions (forget that attempted Honeywell thingie). Oracle makes larger acquisitions that has helped grow their revenues over the years (of BEA, PeopleSoft, Siebel Systems, Hyperion and SunMicro).

And Apple? They primarily do small, almost tactical purchases. Even their biggest buy, the 1997 purchase of NeXT Computer that brought the prodigal son back to Apple, was “only” $400m.

Why Twitter?

Apple does software and hardware really well; they do the integration between the two outstandingly. But they haven’t really done Social particularly well. In fact, Apple may be the only Tech company without a Twitter account. Go ahead, check out @Apple0 Tweets / 0 Following / 6067 Followers. Sure, iTunes software is terrific, but the “Ping” social network simply never caught on. Twitter automagically makes Apple a defacto player in social.

Apple’s biggest competitors over the next decade are not HP or Dell or even Microsoft – they are more likely to be Google and Facebook. Which leads us back to Social Networking and that leads to Twitter.

In the last mobile operating system (iOS) upgrade, Apple tightly integrated “Tweet This” in their mobile products. Apple could do a strategic investment in Twitter — a $1 billion or more — and lock in an inside track with Twitter. But why? For less than 10% of Cash on hand, they can acquire an enormous strategic product. They could continue to let Twitter operate as a stand alone entity. They then build in Twitter more tightly into their products as their social network. And it gives them an advantage versus competitors.

Ping gets replaced with Twitter for Tunes; Various photo services (like Flickr) get new competition from Apple Photos; there are innumerable ways a tighter integration can be had between the two companies.

The question is should it? Can Apple achieve its goals without Twitter? Sure it can. But buying some (or all) of Twitter gets Apple 3 things:

1. They become a competitive player in Social Networking instantly;
2. They fix Ping, and begin to monetize it;
3. Most importantly, Twitter is kept from the hands of Google, Facebook and Microsoft.

Twitter is an IPO candidate in its own. I suspect Google might be the better fit – infrastructure expertise, monetizing search, etc. – but there seems to be some estrangement between Google and Twitter for reasons I am not familiar with.

~~~

What do you think? Does this deal make any sense?

Category: M&A, Technology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “Why Apple Should Grab Twitter”

  1. b_thunder says:

    Disclaimer: I don’t use twitter, i don’t care for twitter, i don’t “get” twitter.

    All I know is that Steve Jobs was a brilliant marketer and a greedy s.o.b. who went all the way to China to keep profit margins much higher than anyone else in the industry. Oh, and he didn’t like to part with his (or Apple’s ) cash. I don’t think he’d spend an obscene amount of money on a maker of **freeware.**

    But Steve is gone and now wee see the investment banker sharks swimming closer and closer… they had snowball’s chance in hell to pitch something like this to Steve Jobs.

    ~~~

    BR: Steve went to China with the rest of the industry — all electronic makers are thee

  2. Johnny99 says:

    I usually would never take the opposite side of any trade that Barry is on – but Apple’s small & strategic acquisitions seem to have served it well. It’s hard to get behind an idea that strays from such a successful philosophy. The company clearly has never tried to be all things to all people, and it’s hard to make a case for why they should try.

    Besides, if they do anything socially (a big “if” it seems to me), it will be on their terms. They will take their time and learn from the costly mistakes of others, then blow us all away with something truly unique. That worked pretty well for their entry into the mobile phone biz.

    (Full disclosure: I’m way, way out of the demo of people who find value in Twitter, much less $10 billion worth of value.)

    ~~~

    BR: They want to be in Social — see the failed Ping. This gets them there quickly

  3. “…The short answer is to buy Twitter for about $10 billion dollars…”

    Better than the ‘Value’ they’re going to get for the “announced” ‘Stock Buy-back’ …
    ~~

    “…GE may be the best industrial making strategic acquisitions (forget that attempted Honeywell thingie)…”

    It was, only, the ‘Politicians’/’Regulators’ that had an ‘Issue’ with that tie-up, no?

    past that, Honeywell was worth every ‘penny’, yes?

    ~~~

    BR: Anti-trust concerns stopped the deal. After it fell apart, I bought HON. Worked out very well.

  4. [...] Why Apple should buy Twitter.  (Big Picture) [...]

  5. Bob A says:

    how about they invest in bringing some of those manufacturing jobs to the Americas. how? just tell Foxconn that’s the way it has to be and let them figure it out.

  6. nofoulsontheplayground says:

    Buying Twitter is better than the brain-dead stock buyback idea.

    Furthermore, anyone who thinks some dividends are coming from Apples overseas cash is likely to be disappointed. That is not going to happen in this environment.

  7. DMR says:

    Barry, if you had seen Steve Jobs’s 1984 speech, you would never have suggested this :)

    ~~~

    BR: The 1984 Mac speech? I read it.

  8. kaleberg says:

    I’m missing a step. How exactly could Apple use Twitter to make money? They can get all the benefits of Twitter by using the API and integrating it into their system. It’s not as if Twitter is raking in piles of money like some other company I can name. It would make more sense for Twitter to use some of that $10B they are raising and buying Apple stock.

    Apple is issuing a dividend and buying back stock to discourage a hostile take over and liquidation now that Steve Jobs is dead and can no longer use his resignation as a threat. You know this business. Run the numbers. Apple has $100B in cash on hand and a huge cash flow. Interest rates are in the cellar. It’s a perfect liquidation target, and one that can be milked over a period of years while basically destroying the company.

    ~~~

    BR: Good question:

    1) Drive traffic for Music Twitter to iTunes
    2) Integrate ITMS payment systems into Twitter (They should also turn iPhones into a mobile credit card payments system competing with Paypal.
    3) Keep Twitter from competitors

  9. orangesauce says:

    I’m not a fan of Apple buying Twitter simply because it would taint the service for all the fandroids and those who want to whinge that OS X is not complicated enough to support their lack of domain skills in anything but operating systems. They are a little like teatards that troll with an exponentially low S/N, making it appear that there are a lot of them, when in fact there are very few.

    Even though they don’t ever have much of anything valuable to say, they do keep the race interesting, and like Mike Daisey, tend to help inoculate Apple from bigger fails down the road. It would be a shame if they felt like they had to find some other inferior mouthpiece to froth on, because then we would have to either a) watch them with those inferior tools, or b) that their defection might actually bifurcate the microblog universe, which would equally suck for everyone.

  10. dsawy says:

    As a guy who has seen cisco’s acquisition process up close and personally, they’re not all that smart about M&A. Tons of cash have been wasted there on acquisitions that went nowhere and were worse than useless a year later.

    Apple should not bother touching Twitter. There’s no barrier to entry and no unique tie-in to Apple’s product line.

    Apple would be better served buying into a chip company for custom silicon. This would give them a better return on their hardware, both in design turn-around times as well as margins.

  11. jaymaster says:

    Not much sense to me. But I admit, I still don’t get twitter. It seems like 95% vanity.

    Yeah, I like it when there is a breaking news story, and there is someone tweeting from the scene. But that’s it. The rest can wait for a more sensible and detailed blog post, say, maybe 15 minutes later.

    I’d rather see them buy Amazon. Hostile if need be. They can pull it off with cash on hand (or at least could have before their announcement today).

    Then put Bezos in charge of it all.

  12. Pantmaker says:

    GE got bailed out. Should have been forced to deal with it on their own via equity/bond holders or whatever. Not our problem. Make a crappy investment take your lumps. Sorry can’t focus on anything else about them but this sad fact. It’s Pavlovian.

  13. bman says:

    You know,
    This smells like a bubble to me, I listened to a whole weekend of talk radio all about how Ira Glass was shocked that an investigative reporter outright lied in an expose about Apple factories in China… Ok lying in investigative journalism is bad. Still I don’t believe most of the news stories I hear on TV or radio.
    Why? because everyone has an axe to grind.
    Tie all that weekend talk radio nausea in with an public announcement from apple about paying dividends and buying back stock, and I’m like what is this, how much money did they pay to Ira Glass?
    Could this all be some major Apple fan-boy push back? In either case I’m seeing a bubble ready to burst.
    Flee young padawan.

  14. bman says:

    You know,
    I listened to a whole weekend of talk radio all about how Ira Glass was shocked that an investigative reporter outright lied in an expose about Apple factories in China… Ok lying in investigative journalism is bad. Still I don’t believe most of the news stories I hear on TV or radio.
    Why? because everyone has an axe to grind.
    Tie all that weekend talk radio nausea in with an public announcement from apple about paying dividends and buying back stock, and I’m like what is this, how much money did they pay to Ira Glass?
    Could this all be some major Apple fan-boy push back? In either case I’m seeing a bubble ready to burst.
    Flee young padawan.

  15. JimRino says:

    A Dividend, when they have to compete with Microsoft?
    I think this is a mistake.
    They need to hire more developers.
    The OS isn’t getting any of the development it deserves.

  16. bman says:

    You know,
    This smells like a bubble to me, I listened to a whole weekend of talk radio all about how Ira Glass was shocked that an investigative reporter outright lied in an expose about Apple factories in China… Ok lying in investigative journalism is bad. Still I don’t believe most of the news stories I hear on TV or radio.
    Why? because everyone has an axe to grind.
    Tie all that weekend talk radio nausea in with an public announcement from apple about paying dividends and buying back stock, and I’m like what is this, how much money did they pay to Ira Glass?
    Could this all be some major Apple fan-boy push back? In either case I’m seeing a bubble ready to burst.
    Flee young censored

  17. bman says:

    Neet apparently word press calls in the moderator anytime one references the term for a jedi apprentice from The Star Wars universe.

  18. bman says:

    Isn’t buying back stock an effort to regain control of your own board of directors?

    Basically doesn’t that mean that you’re in a bad position to start with?

  19. jaymaster says:

    Bman,

    I was off moderation for months until I went back on for some unknown reason.

    My theory is that my comments are so insightful that Barry wants to read them first so he can act on them before he allows them to go public!

  20. Joe Friday says:

    Twitter is one of the dumbest things to ever come along on the internet. The platform is interesting and has potential, but the current implementation blows chunks.

  21. constantnormal says:

    kaleberg has it right.

    And twitter APIs were brought into iOS 5 and are already embedded in iMessage.

    How does Ywitter make money, and how would that fit into Apple’s way of making money?

    I see no fit at all here.

  22. TacomaHighlands says:

    @Joe Friday (above) is right. You use it for a while then you drop it. Its utility and significance drop with use. Over-rated. The massive amount of tweeting means all noise, no meaning. Stock buy-back? Well, I agree with @dsawy (above)

  23. formerlawyer says:

    What about Apple buying a telco instead of Twitter?

  24. Outlier says:

    The big hole here is assuming that Twitter could actually help Apple in social media. It can’t because they don’t particularly get it. They got one huge thing right way early. From then on in the only smart things they’ve done are keeping the servers up and staying out of the way. Anytime they try to do more they trip and stumble. If Apple wants a company that gets social they should buy Path. Implement Path at the iOS level and they could gut Facebook within a year or two…

  25. V says:

    @formerlawyer

    Yes vertical intergration could be interesting, capital intensive, but hey they have the money and in return the US gets top quality mobile data technologies etc

  26. [...] Barry on why Apple should buy Twitter.  (TBP) [...]

  27. Mike in Nola says:

    I’d be happy if they grabbed it. They would wall it off, like everything else and I wouldn’t be tempted into periodic time-wasting forays to try to see what’s so great about it.

    I do agree that just about anything is better that a stock buyback. Yes, pay peak valuation for your stock instead of getting other people to.

  28. Robert M says:

    I have no opinion on this issue.
    What I do want to do is thank the authors/posters for writing posts that discuss/explore issues. BR your website is very different that way.

  29. on the Tangent..

    “…I’d rather see them buy Amazon. Hostile if need be. They can pull it off with cash on hand (or at least could have before their announcement today).

    Then put Bezos in charge of it all…”
    ~~

    SEATTLE (AP) — Amazon.com Inc. has agreed to buy Kiva Systems, which makes robots and software to help companies fulfill orders, for $775 million in cash.

    Privately held Kiva says its technology helps companies lower costs and simplify orders and shipping operations. The North Reading, Mass., company’s customers include Staples, the Gap and Crate and Barrel.

    Amazon said it has been using automation in its order fulfillment centers for a long time.

    “Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” said Dave Clark, vice president of global customer fulfillment, in a statement.

    The deal has been approved by Kiva’s shareholders and is expected to close in the second quarter.”
    http://www.actionnewsjax.com/business/story/Amazon-to-buy-Kiva-Systems/SmvCILrl6Umft4AozS3Ohw.cspx?rss=5
    ~~
    now, that looks like a ‘sensible’ Acquisition.. ~

  30. streeteye says:

    Google needs Twitter more than Apple to fend off the clear and present danger from Facebook.

    If Apple can get all the Twitter integration they want without shelling out $10+B for zero earnings that seems like a pretty good alternative. Twitter should be pretty happy to lock in all those iPhone and Mac users.

    On the other hand identity and social are important enough to Apple’s platform that depending on a third party may not make sense in the long run, even if they get a long-term deal that couldn’t be broken if say Google bought Twitter.

    Sort of boils down to whether Apple has a vision for Twitter and needs to own Twitter to make it work or lock other platform vendors out of it.

  31. constantnormal says:

    An OT comment … I have to say, I am very impressed by the discussion here. Many different perspectives, no rancor, and what I find MOST amazing, many, many comments that second somebody else’s, indicating to me that people are actually reading others’ comments and not merely venting or blindly expressing their own POV.

    This is why TBP is a rarity in the blogosphere. A mixing pot of opinion, rather than a distillation process.

  32. znmeb says:

    I don’t think buying Twitter makes strategic sense for Apple for a number of reasons. It would be great for *Twitter* and it would make some investors hugely rich, but what does it get *Apple*? I don’t have any numbers, but it seems to me just off the top of my head that Twitter is not number one or a strong number two in anything except number of signed-up users. Apple is about *profits*, not just big numbers.

    There are some things I think Apple *should* be doing with their free cash.

    1. Drop Safari and donate funds to the Mozilla Foundation to get Firefox and Thunderbird ported to iOS.
    2. Donate to Wikipedia and Open Street Map.
    3. Start a new foundation in memory of Steve Jobs promoting education in poor communities in the USA and China.

  33. drrty says:

    “Apple does software and hardware really well”… on their tightly controlled platform and small device offering.

    Apple has yet to offer a standalone software product that people really want. Final Cut is great, but can I run it on Windows? Linux? Off-mac Safari has limited appeal; I only use iTunes because Apple forces it.

    If it doesn’t prop up the Apple brand, which is primarily a hardware brand — Apple doesn’t want a part of it.

  34. Given I just gained 25% of my followers on twitter in 3 promotions, this increases the # of “social media expert” followers to probably around 50%. In other words, the user-base is mostly advertisers. The activity is dominated by only a few. Maybe the value of twitter for investors is stocktwits – to get a gauge of the speculator activity at any given second.

  35. V says:

    Also after reading this post:
    http://www.zerohedge.com/news/apple-succumbs-battery-chemistry

    Perhaps signifiance investment in battery technology should be a priority to keep them ahead of the game for time to come.

  36. krulwich says:

    I think the idea is, frankly, silly. Just look at the two companies.

    Apple exists to make money from devices. Store sales, even iTunes, are a minimal percentage of their profits that are there to get people to buy iDevices. I haven’t seen a single move they’ve made that hasn’t been around the business model of selling devices.

    Twitter exists to be a platform for information and links. They have very little ecosystem or stickiness or advertising potential, since people use 3rd-party apps. Their profit will come from feeds and analysis of tweets:
    http://grizzlyanalytics.blogspot.com/2012/03/15-million-apps-using-twitter-does-not.html
    Maybe a bit from advertising from anyone who actually uses their site. But owning it won’t give Apple a leg up in driving people to music or to iTunes or whatever, and it certainly won’t help them sell devices.

    Want acquisition predictions that make sense? For big ones, try STMicroElectronics (market cap $7B). For smaller ones like Apple’s traditionally done, try Glopos (location), P2i or HzO (waterproofing), and SoftKinetic or Omek Interactive or EyeSight (gestures).

  37. [...] Ritholtz wrote Why Apple Should Grab Twitter over at The Big [...]

  38. [...] goes on to say that the purchase of Twitter does 3 [...]

  39. [...] help them sell more devices right now? The notion that Twitter as an acquisition target has to be “kept from the hands Google, Facebook and Microsoft” doesn’t scan. Never mind that Twitter has given no indication of being up for sale — even [...]

  40. [...] help them sell more devices right now? The notion that Twitter as an acquisition target has to be “kept from the hands Google, Facebook and Microsoft” doesn’t scan. Never mind that Twitter has given no indication of being up for sale — even [...]

  41. spmsnk says:

    Been putting off reading this piece. Good thought but frankly At this point I don’t see how tighter integration between Apple’s software and Twitter can be had Apple owned Twitter.

    It would make more sense if Twitter buys Ping or even if Apple donates Ping to Twitter and make Twitter maintain and enhance it for Apple for free.

    That would fit in the current path that the two companies elected to take of a cooperation model whose aim is benefiting both parties.

    Giving Ping to Twitter would bolster twitter and make it the go-to for music social interaction which would bring some Rdio and Spotify users to Twitter. It would also make iTunes more appealing to those users. Would also help music consumers by defragmenting the various different fragmented music social networks out there