Dealbook: For would-be Twitter Acquirers - Beware of Buyers' Remorse

What were they thinking? AOL’s $4.2 billion acquisition of Netscape, and eBay’s $4.1 billion acquisition of Skype.

From Dealbook:
Whoever buys Twitter, they wrote, “will likely have to operate it at a loss in perpetuity, or until the next cool Web 2.0 social networking concept comes along and Twitter tweets no more.”


All That Twitters May Not Be Gold, Analysts Say
Twitter seems to have gone from obscure to mainstream in about the same time it takes to send a “tweet” over the network.

Despite the fact that the three-year-old microblogging service doesn’t generate revenue — never mind profits — there is already chatter about who might want to buy it.

However, analysts at Sanford Bernstein believe that potential acquirers for Twitter should think twice.

In a research note published late last week, the analysts argued that the Web 2.0 model of building a product and then figuring out how to monetize it has been largely debunked.

The Web is littered with examples of promising but ultimately value-destroying acquisitions, they wrote, citing deals such as AOL’s $4.2 billion acquisition of Netscape, and eBay’s $4.1 billion acquisition of Skype.

The analysts said that monetizing Twitter “would be difficult at best and likely unsuccessful.” People who sign up for free services tend to resent a company for trying to wring revenue from the business later. Subscription fees are out of the question, they said, and advertising-based revenues don’t seem to have yielded enough cash flow to make a Web 2.0 property viable.

Speculation about Twitter has been echoing in the yellow hills surrounding Silicon Valley lately. The chief executive of Google has been peppered with questions about whether the Web search giant might have its eye on Twitter.

But the Sanford Bernstein analysts think Google would do best to steer clear, as it is still struggling to make money from YouTube, a previous takeover target, and the social networking site Orkut, which it created in-house.

Whoever buys Twitter, they wrote, “will likely have to operate it at a loss in perpetuity, or until the next cool Web 2.0 social networking concept comes along and Twitter tweets no more.”

Last fall, reports surfaced that Facebook offered Twitter 3.33 percent of its privately held stock, which it had determined was worth $500 million, based on a $15 billion valuation for Facebook that was set when Microsoft invested in the company a year ago.

Twitter balked, and raised funds on its own instead.

How will Twitter make a profit? The company freely acknowledges that it’s not quite sure:

“Twitter has many appealing opportunities for generating revenue but we are holding off on implementation for now because we don’t want to distract ourselves from the more important work at hand which is to create a compelling service and great user experience for millions of people around the world,” Twitter says on its “about” page. “While our business model is in a research phase, we spend more money than we make.”

Yahoo/US News: 10 Winners in the Recession

10 Winners in the Recession
1. Home Gardening
Research by Atlee Burpee, the world's biggest seed company, found that $50 of seeds and fertilizer can yield $1,250 worth of produce. Green thumbs agree: Sales at Burpee are expected to jump 25 percent in 2009, while veggie seed sales at Park Seed are up 20 percent this year from 2008. And a National Gardening Association poll shows that the number of households planning to grow their own food in 2009 has increased by 19 percent from 2008. The trade-off? Fewer flowers. With garden space—and budgets—squeezed, flower seed sales are down.
2. Hollywood
The number of subscribers to Netflix, the DVD delivery service, climbed 26 percent in the fourth quarter from the same time last year. That helped put the company's revenue up 19 percent from the previous year. And according to industry researcher Media by Numbers, 2009's box office sales are tracking 16.5 percent higher than the year before—at this rate, theaters will make $1.9 billion, versus last year's $1.6 billion—with attendance up nearly 15 percent.
3. Bodice Rippers
Harlequin, the world's biggest publisher of series romance, saw North American sales rise $3 million in 2008's fourth quarter from a year earlier. Other escapist literature also has done well: Although most book sales were flat or down in February 2009 from the year before, a spokesperson for the Borders book chain says that science fiction and fantasy were up—as were humor titles.
4. Condom Makers
Whether for at-home entertainment or to try to stave off the cost of a baby in trying times, condom sales rose 6 percent in January from the year before. "If people don't have the money to go out to a fancy dinner or are looking to cut back, Trojan gives them some real affordable ways to stay in and make some great memories together," Jim Daniels, Trojan's vice president of marketing, told USA Today.
5. Résumé Editing
Résumé writer Jerry Bills, who has worked on nearly 30,000 résumés since 1986, says his sales numbers are up 46 percent from last winter. "I'm way too busy to bother to even track it all," he says. "All I know is I don't even have a life anymore." One poll by the National Résumé Writers Association found that 54 percent of respondents had seen an increase in clients as economic conditions worsened. And at her own business, says Feldberg, December and January orders had jumped 300 percent over the same time last year. But résumés for certain industries are being submitted more than others. While résumés for the restaurant industry, healthcare, and tourism are up at Peterson's ResumeEdge, those for financial services are, unsurprisingly, down.
6. Public Universities
The recession may be hurting public colleges' budgets, but it's boosting their appeal to students. The Connecticut State University System expects an 11 percent rise in applications this year, while Oregon State University's applications have grown by 12 percent. And in a record-breaking year at the University of Texas, numbers are up 6 percent.
7. Chocolate
Hershey's, the largest North American chocolate manufacturer, increased earnings by 51.4 percent in the fourth quarter. That's partly because of cost cutting and ad campaigns, but it helped that sales rose 2.6 percent. Overall, sinful sweets seem to be faring well in the recession. The British Cadbury company, which sells both chocolate and goodies like Trident gum, found its annual profits up 30 percent in 2008. And market research firm Mintel predicts that the chocolate market will keep growing throughout the recession. Analysts say that, like the oft-quoted "lipstick index," rising chocolate sales show that when Americans are cutting their spending elsewhere, they feel more entitled to small indulgences.
8. McDonald's
Waistlines won't thin along with wallets if sales figures at the nation's biggest fast-food chain are any indication. McDonald's same-store sales in the United States rose 6.8 percent in February 2009. But not all cheap eats have prospered. Sales at the pricier Arby's dropped by 8.5 percent in the fourth quarter, slamming the Wendy's/Arby's Group with a $393.2 million loss. Pizza chains also have been hit, with same-store sales falling 3 percent in the fourth quarter at Domino's and 1 percent at Pizza Hut.
9. Career Development Websites
Traffic to job sites increased 20 percent in January 2009 from the year before, according to Nielsen Online. That was driven not only by the unemployed but by people who still had jobs. People are seeking out information in more old-fashioned ways, too. Borders says its sales of career guides are up from last year.
10. At-Home Coffee Brews
The economy must be bad when even Starbucks, purveyor of $4 lattes, introduces its first value menu. But while the powerhouse's profits fell 69 percent in the fourth quarter of last year, revenue at Vermont's Green Mountain Coffee Roasters, which ships gourmet blends to the door, climbed 56 percent. And retailers have been selling Mr. Coffee's coffee makers faster than the company can ship them, says Matt Ragland, vice president of marketing, with sales of coffee makers and accessories rising almost 5 percent from last year.