Monday Grok: Twitter surges, Apple/Facebook merger chatter begins

Tagline: Groupon tanks as early investors rush to the exits

The fortunes of the world’s two largest and most successful social networks have headlined the debate over the weekend.

On the one hand, Bloomberg says Twitter is on its way to $1 billion in revenue. Not bad for a company that had no appreciable business model only 18 months ago.

On the other hand, Business Insider kicks off the speculation that with Facebook’s value tumbling and Apple cashed up the max, maybe a deal would make some sense. It’s such an obvious leap to make that it’s interesting that no one has been willing to make it until now.

But first Twitter. Gigaom.com, referring to the original Bloomberg article, quoted our old friend "sources" saying that the company is set to make a billion in sales by 2014. The story noted that if the predictions are right, Twitter will have taken eight years to get to a billion in revenues, compared to Google which took five years and Facebook which took six.

CNN, however, rings a cautionary note, quoting from Pew Center Research suggesting only 8 per cent of people in the United States check Twitter every day, a figure which compares unfavourably with other social networks. Earlier research by Pew suggested 66 per cent of people in the US hop onto Facebook, LinkedIn or Google+ every day.

Next then to Facebook. The company has had a rough trot of let, some of its big corporate advertisers have voted with their money and gone elsewhere. Its IPO was badly handled and tarred the brand somewhat with the kind of acrimony usually reserved for Wall Street bankers. And to rub salt into the wounds, the site that never crashes has been experiencing some significant accessibility problems in the last week.

Facebook has lost almost a third of its value since it floated last week and that correction to its price has led some — including Business Insider editor-in-chief and long-time tech stock watcher Henry Blodget to speculate on the merits of a possible move by Apple — the world’s most cashed up company to buy it.

Under the heading the “If Facebook Gets Any Cheaper Apple Needs To Buy It” Blodget wrote, “So at what point does Facebook look too attractive for Apple not to make an offer? The logic is obvious: Apple sucks at building social Web services, as CEO Tim Cook acknowledged earlier this week at the D10 conference.”

The author gives his reasons why he thinks it’s a good idea (and in fairness to BI if you’re interested you should go to their site and read) and he noted that whether or not Mark Zuckerberg thought it a good idea, he would have a fiduciary responsibility to the other shareholders to consider any such bid.

Blodget is certainly not the first person to speculate on the idea. The Street carried a similar opinion by investor and contributor Eric Jackson back in February. But Blodget is one of the most high profile commentators, willing to attach his brand to the idea, and with his Business Insider website, also one of the most influential.

Groupon tanks and early investors bail

Finally, Groupon stock came out of its protected lock down period, and as expected, pre IPO holders rushed to the exit. The stock was down almost 10 per cent on a day when the NASDAQ was down 2.5 per cent.

The graph in this <i>Chicago Times</i> story pretty much tells the story. Most of the losses occurred in the first few seconds after the markets opened, then it drifted lower through the day. And trading was very heavy on the sock — almost five times the daily average of the last month.

Followers of Grok will be well aware of our long-term scepticism around this company and more particularly its daily deal business model which reminds us of cartel in a reverse. This is a stock that was up 50 per cent on its first day, but which is now trading more than 50 per cent below its list price. And all those uncomfortable questions about its business, its model and its future remain unanswered.

Business Insider makes the interesting observation that Groupon is now worth only the price that Google was willing to pay for it, when its overtures where rejected. Soon it will be worth even less.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.

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