Quentin D. Solano
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Quentin D. Solano in Breaking news,

What might Twitter do with $1.3 billion in cash?

Debt offering could fuel further M&A in advertising technologies

Twitter continues to scoop up startups to expand its ad platform

or the first time since its stock-market debut in November, Twitter is raising money to support its growth.

The San Francisco–based company said Wednesday it is looking to raise as much as $1.3 billion through the sale of debt, taking advantage of historically low interest rates to capture a trove of relatively cheap cash. That sum would increase Twitter’s TWTR, -0.51% cash on hand to $3.5 billion — its highest level ever. In 2012, it boasted $2.2 billion in cash and short-term investments, up from $550 million in 2011.

So, what does this company have up its sleeve?

Companies typically pledge to spend the proceeds of their debt and equity offerings on “general corporate purposes,” but Robert Peck, managing director of SunTrust Robinson Humphrey, said Twitter likely has “more strategic uses for the proceeds.”

Those uses are likely to include M&A in such areas as video, advertising and analytics, as the company, which went public 10 months ago and remains unprofitable, looks to boost top- and bottom-line growth through advertising and content partnerships.

One idea is that Twitter, already a widely relied-upon news-gathering tool, could acquire Flipboard, a collection and curation app that boasts millions of users. Flipboard — which shares key investors to Twitter such as Twitter co-founder Jack Dorsey, Goldman Sachs GS, +0.63% and Rizvi Traverse Management — might help monetize Twitter’s “offline” reach into categories of people who view its content without encountering its ads, Peck said. Twitter has estimated the number of offline users at two to three times its base of 271 million monthly active users.

While a Flipboard buy is purely hypothetical, Peck said it represents a potential acquisition target that would “make sense” for Twitter. Flipboard was valued at $800 million in its most recent funding round in September 2013.

Another possible scenario is that Twitter opts to sit on the cash to optimize its flexibility, enabling it to cultivate a long-term growth strategy and execute smaller-scale deals as they present themselves.

Twitter has already used a chunk of the $1.8 billion in proceeds from its initial public offering to scoop up companies for its advertising business, including the takeover of mobile-ad retargeting startup TapCommerce in June. Re/code put an estimated price tag of $100 million on that deal.

See the chart below for a list of Twitter’s acquisitions since its IPO.

Such deals have led to improvements in Twitter’s ad platform, expanding top-line growth. In June, Twitter reported a 124% increase in second-quarter sales to $312 million, largely due to a 129% increase to $277 million in ad revenue — its highest rate of year-over-year advertising growth in six quarters. (Deep Dive: Twitter needs to treat shareholders the way Facebook does.)

Of course, Twitter has no obligation to spend all the money it rakes in, and its debt offering isn’t out of the ordinary, as it joins a number of technology-industry peers, including Google GOOGL, -0.39% and eBay EBAY, -0.82% in raising money in this fashion in 2014 alone.

Twitter declined to comment further on the debt sale or prospective uses for the proceeds.

Twitter’s acquisitions since its IPO
CompanyDate AnnouncedType of Company
Mesagraph SAS03/31/2014Search and discovery platform
SecondSync Ltd03/31/2014Social media analytics
Apps & Zerts Inc04/07/2014Android lock screen app
Gnip Inc04/15/2014Social data provider
Namo Media Inc06/05/2014Mobile ads platform
Afterlive.tv Inc06/19/2014Cloud-based live video platform
TapCommerce Inc06/30/2014Mobile ads platform
CardSpring07/16/2014App developer for payment cards
Madbits Inc07/30/2014Image search platform
Mitro Labs Inc07/31/2014Password manager
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