Social media website Twitter is "betting its future" on live-streamed, mobile-focused video -- and if its strategy fails, the company could become an acquisition target.
That's according to BTIG analyst Rich Greenfield, who pointed out that traditional media companies are looking for ways to address their "mobile shortcomings" and likely see Twitter, with its social media base and owned-and-operated OTT video platform, as a solution.
Speculation around a sale of Twitter to a larger company is hardly new. Back in January, Fortune listed a few companies rumored to be sniffing around the social media giant, including News Corp., Google and even its biggest live-streaming rival, Facebook.
But nothing came of the rumors back then, and perhaps for a good reason. "Here's what an acquirer would be buying: A company with an estimated 300 million users and revenues of about $2 billion annually -- but one that is losing about $125 million every quarter (although some note that the losses are primarily due to stock-based compensation)," the Fortune article said.
Twitter has since landed a few live-streaming coups, changing the dynamic of its video service, once seen as a great place to catch sports highlights, cinéma vérité in the form of user-generated Periscope streams, and little else. This fall it will live-stream 10 NFL Thursday Night Football games; currently, it's also live-streaming the Democratic National Convention (as it did at last week's Republican convention). The company also inked streaming deals with Pac-12 Networks, the NHL, Major League Baseball and the NBA, as well as Campus Insiders and Bloomberg TV.
But besides its video successes, Twitter could still be on the block -- although at least one analyst for The Street doesn't think it's going to attract any interest. While shares have surged 29 percent since early May, "Twitter has not shown that it can generate profit at all, and there is zero line of sight as to when it may make money. So you don't even know if Twitter has a viable model," wrote Brian Sozzi. Further, "…Leadership at Twitter is in bad need of a top-to-bottom overhaul."
Twitter said in a shareholder letter on Tuesday that it is working to integrate Periscope even more deeply with Twitter. More importantly, it's continuing to build revenue through its advertising efforts, noting that it is currently the number-three display ad player in the online industry. However, "we're still priced at a premium CPE relative to others. This has proven to be a headwind in growing Twitter's share of overall social budgets and in our ability to grow faster in both video and performance advertising," the letter said.
That need to accelerate its advertising strategy continues to be an issue for Twitter. Regardless of whether it goes up for sale or not, its ability to make money could be a concern to potential buyers.
"The question for legacy media companies is whether Twitter is actually a fix for their mobile challenges or whether Twitter has enough problems of its own as competition grows from Facebook, Snapchat and an array of global messaging platforms that are focused on expanding their own content offerings," Greenfield said.
Twitter pulled in $602 million in revenue for the second quarter, up 20 percent year over year and within its forecast range of $590 to $610 million. However, analysts had predicted it would see $606 million in revenue. The company saw non-GAAP diluted EPS of 13 cents on net income of $93 million.
The company's Q3 revenue forecast remained in the $590 to $610 million range.
Shares of Twitter fell to around $16.37 in after-hours trading, a drop of about 11.4 percent.
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