Twitter backs off the SoundCloud deal "the numbers didn't add up"
Just 24 hours after the first rumours surfaced around a potential acquisition of SoundCloud by Twitter, reported by Re/Code, the deal is now said to have been called off as Twitter ran some figure and people familiar with the deal reported that “the numbers didn’t add up”.
Twitter has reportedly let a deadline expire for exclusivity on the talks which means it’s back to square one for SoundCloud. Twitter backing off makes sense in light of the numbers behind the company, which were ran by Billboard and show a company with around $1 billion in cash, $1.2 in short term investments and a $18.4 billion market cap.
As SoundCloud’s last round of funding was based on a $700m valuation and investors would have probably liked to see at least a 20% premium on that - especially if the purchase was stock-heavy - the price tag was probably more than Twitter can handle right now.
On top of that, Twitter is already under pressure from investors because of its engagement figures and its monetisation, so buying a company like SoundCloud that is still in high seas when it comes to developing a viable business model for its B2C component and that would face non-trivial licensing issues right off the bat would have been a bold move.
Much has been said about Mark Zuckerberg’s hastiness in buying companies like Instagram, but the fact is that in today’s media environment - especially for a public company - timing is of the essence and Facebook is quite good at keeping talks hushed until there’s a deal.
Like in the Beats-Apple reports, the very fact that the potential acquisition leaked caused a storm of blog posts and commentaries about the pros and cons of the deal and I would be surprised if it didn’t constitute a spanner in the works for its completion.
Where does this leave SoundCloud? Well the fact that the news leaked was not good for either company but if we have to put a positive spin on it at least it showed that SoundCloud is open to acquisition talks. That could pique the interest of other players that have the cash to deal with the licensing situation and are prepared to invest for the long term of the company. Apple would not be a far-fetched potential buyer as it looks for new ways to engage music users, but the company would also make sense as an acquisition from the likes of Google or Samsung.
Then again, if SoundCloud has a solid plan for its future in place given its user base it could still raise more VC money and go it alone.
(Andrea Leonelli)