Would Snap Merger With Twitter Solve Many Problems?

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The two also-rans of social media are in deep trouble. Neither Snap Inc. (NYSE: SNAP) nor Twitter Inc. (NYSE: TWTR) has shown major user growth in recent quarters. Both have posted earnings dismal enough to sink their shares. Very few expert observers believe their future prospects are good. A merger of the two could bring some level of benefit. Among those is the cross-promotion of products and platforms. Another is to cut some costs.

The two companies share an unpleasant distinction. In the past month, Twitter’s stock has declined 17% to $19. Snap shares are off 22% to $12. Twitter’s market cap is down to $12 billion, and Snap’s has dropped to $14 billion. In a shocking contrast, social media leader Facebook Inc. (NASDAQ: FB) has a market cap of $488 billion.

Snap’s largest single problem is competition from Facebook’s Instagram. Based on several measures, Instagram is larger, and its rising success relies to some extent on its relationship to Facebook, which includes development teams, marketing and distribution. No matter what its future holds, Snap cannot match that.

Twitter also has major problems with Facebook. Facebook features such as real-time sharing, video streams and Messenger each undermine Twitter’s features to some extent. As Facebook adds more features, Twitter’s ability to allow people to communicate with large groups publicly is bound to be a target.

Twitter has tried to get into Snap’s business with a product called Moments, which did not do well. Twitter would be better off promoting Snap’s products and getting them much needed distribution, assuming the two companies were aligned. Certainly, Twitter could benefit from some of Snapchat’s features. Some of these features could be combined to create breadth for advertisers and save development and marketing dollars.

Some of the costs to run a social media company are common. Among these, for Snap and Twitter, are the cost of being public, senior management, research and development, product development, and marketing and ad sales. Both Snap and Twitter could benefit from substantial costs cuts that would not undermine the future of either company if they were combined.

Both companies could benefit from combined scale. Snap’s most revenue quarterly revenue was $181 million. Snapchat has 173 million daily active users. Twitter’s revenue was $574 million, but its daily active user numbers are hard to pin down. Monthly active users are 328 million. Each company has lost ground by standing still as competition grows.

The argument against a merger of the two companies is that one loser would marry another. However, with combined resources and product cross-promotion, one plus one might be slightly more than two. In a world where Facebook is a 10, neither company has a future alone.