Twitter Pays More For SoundCloud.

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In today’s latest 10-Q, Twitter reported its current investments in privately held companies, or its corporate venture capital investments made through Twitter Ventures.

Investors may be interested due to the size and timing of the investments; especially given Twitter Ventures recent activity.

At the end of last year, Twitter Ventures had investments in private companies totaling $14.2 million. A modest amount considering the corporate venture capital units of other tech companies such as Intel Capital and GV (Google Ventures).

By the end of June 2016, Twitter Ventures had invested $76 million and now its portfolio totals $90.2 million. In the last six months, Twitter Ventures  had only one major investment: SoundCloud.

Now based on Twitter’s recent disclosure, the actual SoundCloud investment was $76 million; which is higher than the $70 million reported last month by numerous news outlets.


Twitter Adds More Characters, M and A

Twitter wants to grow, maybe up, by doing more acquisitions. On the April 26, 2016 conference call, Chief Financial Officer, Anthony Noto said as much given Twitter’s more than $3.5 billion in cash. Acquisitions would be in the vane of Fabric, Vine, and Periscope.  Mr. Noto said he would also consider acquisitions which expanded the Twitter platform and involved ad-technology.  

Unlike, Alphabet or Facebook, Twitter has not used merger and acquisitions as part of its growth strategy, so that could be changing.  In addition to Mr. Noto’s statements, Jessica Verrilli tweeted the question – Want to work on acquisitions at Twitter? – on May 6th and then linked to a job posting for a Corporate Development Associate. Ms. Verrilli is senior director of corporate development at Twitter.

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Twitter may be increasing the size and/or pace of future acquisitions by adding more staff. The recent job posting required that candidates have experience with “large and/or complex” deals such as cross border transactions or transactions involving public companies.  The position is advertised  as an “unique opportunity” to be part of “broader strategic efforts at Twitter”.

Twitter Ventures may also be part of that broader strategy.  Twitter Ventures was started last year by former Twitter CFO and employee, Mike Gupta.  There has been four known investments so far – Cyanogen, Swirl Networks, VenueNext, and Muzik. Of these four, VenueNext, which does technology for live events, is noteworthy given Twitter recent deal with the NFL.

Twitter Venture invested an estimated $18 to $21 million last year and $5 million in the first quarter of 2016. Twitter does not disclose separately its investments; instead the amounts show up on its statement of cash flows and its balance sheet as other assets. For example, in the first quarter of last year, it appears Twitter Ventures spent $2 million. That was the same quarter  of the Cyanogen investment.

Until recently, Twitter deal size has been modest when compared to its peers (Facebook, Apple, Alphabet etc). Vine was purchased for $30 million and Periscope purchased for $100 million. Fabric came together from the purchase of MoPub for $219 million and Crashlytics for $38 million.  One of largest transaction so far has been the digital ad platform, TellApart, for $479 million. Twitter used mostly stock, not cash, for purchase of TellApart in 2015.

Mr. Noto and his team need to move quickly. Of the $3.5 billion cash quoted in the conference call, $2.0 billion is on loan. The loan come from two convertible notes sold to institutional investors in 2014. The first note of $1 billion is due in 2019 and the remainder, $1 billion, is due in 2021.  Since notes are convertible, Twitter may get away with paying stock instead of cash, assuming the planned acquisition prove to be successful and increase Twitter’s stock price.