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Why Salesforce might be interested in Twitter

If a rumored deal materialized, Salesforce.com could roll Twitter into its chat product — but that would be an expensive choice, experts told CNBC.

Sources told CNBC that the ailing social media company had fielded expressions of interest from several companies, which include Google and Salesforce.com. While any potential deal is far from imminent, the revelation had some scratching their heads on why enterprise tech company Salesforce would be interested in Twitter.

Cons

On the surface, Salesforce would seem like a highly unlikely buyer. After all, CEO Marc Benioff's company generates more than $8 billion a year selling cloud software and services to other businesses, while Twitter's $2.4 billion in annual revenue comes from advertisers targeting consumers.

Not to mention Salesforce's $48.2 billion market capitalization is just above the reportedly $30 billion Twitter could ask for, according to Recode.

"I don't know why anybody would pay a big premium for it because I think the revenue numbers may be challenged going forward and I don't see a big growth story there going forward," Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds, told CNBC's "Power Lunch" on Friday.

Plus, inheriting a large, money-losing consumer-focused advertising business with about 4,000 employees would create all sorts of cultural and business challenges for Salesforce. Twitter's recent plunges into media, like live streams, don't really fit into Saleforce's current strategy, said Crawford Del Prete, chief research officer at IDC, who compared the rumor to similar reports about Saleforce's interest in LinkedIn.

"When you look at a LinkedIn asset in the context of Salesforce it makes a lot more logical sense," Del Prete said. "When you join LinkedIn you're giving contact information, that's all incredibly valuable in business-to-business sales. The logic of Salesforce wanting that in their cloud offering makes perfect sense. Outside of the verification process [on Twitter], you really don't even know who these people are."

Twitter has other offerings, like real-time sentiment analysis and analytics on brands, but Del Prete said an acquisition would be a very expensive way to get that data, compared to a licensing deal. Plus, he said, Twitter's future in media might be limited if its role as an instant read of events is rolled into Saleforce's social network-like tool, Chatter.

Pros

But there are a few reasons to take Salesforce seriously. For one, we know the company was highly interested in buying LinkedIn, which would have cost significantly more than Twitter. After Microsoft ultimately won the bid, Benioff acknowledged that it was a good time to pursue LinkedIn because the stock sank in the first half of the year. Twitter, even after Friday's jump, is down more than 15 percent over the past year.

"The fact that they went after LinkedIn opens a Pandora's box to the fact that they're interested in internet assets," said Neil Doshi, an analyst at Mizuho Securities, who has a neutral rating and $15 price target on Twitter. "This seems one degree further from the LinkedIn business, which has a real enterprise solution."

Chatter, a social platform offered by Salesforce, is already essentially a combination of Facebook and Twitter, said Jeremy Roche, president and CEO of FinancialForce.


"Salesforce has got big plans," Roche said. "If you look at the way the Chatter application works, you can start to see how that could become externalized thru something like Twitter ... I think about Salesforce as out there doing things that are focused on customers and selling and marketing, [and] if you incorporated the Twitter engine into that then you could see a really unusual aspect to it I think. "

Then there's the data play. Twitter is a treasure trove of information on what consumers like and don't like, what's trending and who the influencers are on any given topic. Salesforce's marketing cloud relies on mounds of data to help customers create smart and targeted campaigns.

And there is some overlap between the two companies. Salesforce recently acquired collaboration software developer Quip, whose founder Bret Taylor joined the Twitter board in July. Taylor is a former Facebook executive.

Other options

Google-Twitter speculation, on the other hand, has been a regular topic since the early days of the microblogging site. TechCrunch reported in 2009 that Google was in "late stage negotiations" to acquire Twitter, citing sources close to the negotiations, and in early 2011, then-CEO Dick Costolo was batting down rumors of a potential $10 billion buyout. In the first half of 2015, Twitter's stock popped at least twice on Google's presumed takeover interest.

"At a certain price, an Alphabet acquisition could make sense," wrote Scott Devitt, an analyst at Stifel, in a report on Friday. "Twitter would help the core Google platform become more competitive with Facebook in social / real-time news and potentially strengthen Google's leadership position in ad-supported streaming video."

Devitt recommends selling the stock because of "deteriorating fundamentals."

Other than Salesforce and Google, the only potential acquirer on Doshi's radar would be from the private equity world, because of the possibility of spinning out Twitter's data unit from the core ad business.

— CNBC's Michelle Fox contributed to this report.