Evercore ISI Senior Managing Director & Head of Internet Mark Mahaney joins Yahoo Finance Live to discuss what Elon Musk’s Twitter takeover could mean for the platform’s competitors.
Video Transcript
BRIAN SOZZI: All right, more on the big news we are still following this morning. Elon Musk officially pens a deal to take over Twitter. Evercore ISI senior managing director Mark Mahaney joins us now with more. Mark, just wow. One angle we have not explored here this morning, I would think, is, what does this acquisition mean for a Meta and a Snap? Does this make Twitter, a private Twitter, is it more competitive with those larger social media platforms?
MARK MAHANEY: OK, that's an interesting question. I don't think so, Brian. I think also, Twitter's use case has always been fundamentally different than that of Snap and Facebook, Meta, TikTok, et cetera. It's kind of a monopoly, real news, newsfeed, discussion, town hall, town square, feature app-- put all that together. So I don't think it does. The one thing I think we need to focus on is, what happens to the ad dollars? So Twitter did about $5 billion in ad revenue last year. That's only 1% to 2% of the entire ad spend out there.
I do wonder whether marketers at the margin probably pause or slow down their advertising commitments to Twitter. I don't think that improving the tools for marketers is a top priority for Musk. I don't think that-- I can't tell that it's a priority at all for him. He seemed to be focused much more on the user side. And I agree that there should be better user innovation.
But the people who pay the bills at Twitter, the advertisers, I think they're going to, at some level, likely shift some of that ad spend back to some of the other platforms, whether that's Google, Facebook, Snap, Reddit, TikTok. And we're talking small numbers here, again, 1% to 2% of total internet ad spend. But my guess is that that's going to likely happen. And so there's a very small positive in here for some of the other platforms.
JULIE HYMAN: Mark, it's Julie here. And you talked about the people who pay the bills being the advertisers. Maybe going forward, the people who pay the bills will be us, the users of Twitter, right? Do you think that going further into a subscription model would be a good idea for Twitter? Will it get enough subscribers if it does that?
MARK MAHANEY: I think the idea of having some sort-- I mean, Twitter does have a subscription service now. I don't think it's that widely popular. So we did survey work. I've surveyed Twitter over the last eight years, every three, six months or so. The last couple of times we have asked, we have tried to sense what level of interest that really was in the subscription service. Not surprisingly, it's only about 10% of users that would be interested in a paid subscription service. And we've seen the subscription service that Twitter now has kind of ramp out relatively slowly.
So, yeah, I think spending more time, building out a better subscription service, I think makes a lot of sense. Lowering the price, oh, I don't think that's a big issue. We're talking, like, the difference between $2 and $3 a month. I just don't think that's a game changer one way or the other. So I don't think there's any downside to emphasizing more of the subscription business, I think. And it probably doesn't matter. It's a private company now.
The question is, what do you want to do about that $5 billion in ad spend? And do you want to try to encourage that or not? And I just don't think that that's a major priority for Musk. And I think marketers will probably react to that by kind of cooling off the growth in their spend with Twitter. And Twitter is always a small part of advertisers', marketers' internet spend. My guess is that the margin becomes a smaller part.
JULIE HYMAN: Right, that makes sense, Mark. And you're in an interesting spot as an analyst here, covering this company, because you won't be covering it anymore, once it goes private, of course. And we're all talking as though now the deal is agreed upon, and it's going to happen. Are there any sort of obstacles that are still there either from a regulatory perspective or financing perspective that might still prevent the deal from getting closed?
MARK MAHANEY: I'm sure there is. I'm sure there's some small risk. I think it's relatively small, single digit percentage chance that the deal doesn't get passed. Something would have to come up that would really ensnare Musk, or some sort of detail would have to come up that would have regulators step in here. And it's unclear to me what that is. So I think it's a very, very strong probability that this deal goes through.
And I think about it from a shareholder perspective. I think what the shareholders-- I think there's two interesting reads here. One is that I think Musk is doing something I think a lot of investors should do, which is that there's a lot of really good tech assets out there that are at fire sale prices.
Yes, Elon Musk offered a 50% premium, but it was on a stock that was off 50% since its highs, and as we're part of a bear market here in tech stocks. So there are a lot of very interesting valuations. And you can-- I think it's a reasonable-- I'd follow Elon Musk. I think you should be buying some of these names. I like Facebook here. I like Google here. Amazon stock sort of traded off.
The second thing is, I find interesting that the largest shareholders decided, hey, we'll take $54.20. I'm sure a lot of them had internal models that had the stock worth a lot more than that within a 12-month perspective. But we all have to be reasonable here. We're in a bear market. It's uncertain whether things are going to get better anytime soon. They probably deteriorate as inflation rises as the risk of recession rises.
We got negative readthroughs from Snap. I don't think we're going to have great results out of Google or Facebook this week either. So take that $54.20, take your winnings, and declare victory. And don't wait around to see whether the stock by itself could actually have gotten there over the next 12 months. I think there's some interesting readthroughs on both of that side, from Musk's perspective and from the market's perspective as to, I think those are the interesting implications of this deal.
BRIAN SOZZI: Mark, if you're Evan Spiegel over at Snap, founder, you're Mark Zuckerberg over at Facebook/Meta, founder, and you see this deal happen for Twitter a premium, are you inclined to ramp up stock buybacks to help support your stock price? Are you thinking about taking your company private?
MARK MAHANEY: I don't think so. I think both of those are founders with very long-term perspectives. I absolutely think that's the case. Spiegel has been clear about that from the beginning. Zuckerberg has got a 5 to 10-year plan for the Metaverse. So I mean, these are the kind of entrepreneurs that have been enormously successful because they've operated well near term, and they've had great long-term vision.
You've got great long-term vision, there's no way in heck you're reacting to a bear market. We're going to have them every five years or whatever. I mean, don't let the markets determine what your corporate strategy is. Maybe your financing strategy, but not your corporate strategy. So I'd be shocked if Spiegel or Zuckerberg really reacted materially to this. And then the multiple on Twitter, they sold for about seven times sales, which is actually the average multiple that Twitter has traded at in the past.
So if you-- I don't think this deal would have occurred last year. I think Musk's timing was genius. Step in with a big premium offer when the stock had been dramatically traded off and as part of a bear market in tech stocks. And I think-- my guess is that Zuckerberg and Spiegel both realize that. And there's no way in heck that they're going to give up their company to somebody who just comes in with a nice offer during a bear market.
JULIE HYMAN: Makes sense, Mark. Thank you so much, Mark Mahaney. Always great to get your perspective on these big tech stories. Really appreciate it. Mark is the Evercore ISI senior managing director and head of internet research.