In a Thursday report, SunTrust Robinson Humphrey analyst Bob Peck talked about Twitter Inc (NYSE:TWTR)‘s acquisition of TellApart. He said that he was a bit astonished at the firm’s absence of the initial revelation given the scale of the deal.
Peck said that Twitter’s 8-K filing indicated the deal was assessed at $533 million, which makes it Twitter’s biggest acquisition till now. The deal comprised of 12.6 million shares of Twitter’s stock at a rate of $42.27 with no further particulars regarding management contract, earn-outs, cash component or cash acquired being divulged.
Peck wrote about feelings of astonishment on the absence of disclosure on the earnings call that Twitter had made such a substantial acquisition. Additionally, how does the acquisition affect the present state of Twitter’s ad tech stack. Finally, he opines that the sheer size adversely affects the Twitter management. It would be no shock to experience shareholder frustration articulated regarding implementation and disclosure.
Peck stated that the most current revenue metric he was able to find on TellApart was an article in TechCrunch from December 2013 which gave a rough $100 million revenue rate.
The analyst’s intuition is that TellApart probably generated roughly $100 million in gross revenues in 2014 suggesting a trailing EV/Revs multiple of roughly 5.5x. The multiple Twitter spent is higher than the 3x trailing revenue The Rubicon Project, Inc (NYSE:RUBI) spent for Chango while leading retargeter Criteo SA (NASDAQ:CRTO) is trading at roughly 2.5x trailing gross revenue.
Peck gave three reasons to explain Twitter’s acquisition. First advertising was the weakness in Twitter’s earnings report and guidance. TellApart has expertise specifically in advertising. Second Twitter articulated a need to better targeting, measurement and content. Thirdly retargeting assets are being merged by big ad tech players.
According to Peck, TellApart is a solid asset for Twitter but calls into question how the acquisition affects the standard and development of the TapCommerce asset and internal ad tech stack at Twitter.
Shares stand neutral rated with a price target decreased to $44 from an earlier $45 taken into consideration the share dilution from the acquisition.
