Following Twitter, Inc.’s TWTR deal with Google Inc. GOOG, the company is reportedly planning to acquire the news reading app, Flipboard. According to reports, the deal could be valued at around $1 billion. However, none of the parties have disclosed anything about the deal.
Launched in 2010 by Mike McCue and Evan Doll, Flipboard has a market valuation of approximately $800 million, which is half of The New York Times Company’s market cap, as per a Kara Swisher report. To-date, the company has raised around $160 million of funding from investors like Kleiner Perkins, Index Ventures, Goldman Sachs and Rizvi Traverse Management. Flipboard does not produce any content and only displays texts, photos and videos from the Internet on its platform.
Flipboard garners revenues from advertisement placed on its app which displays content recommended by social networks frequented by its users. Reportedly, the company has roughly 32 employees and has not disclosed the revenue figures so far. Despite being just an interface between content publishers and users, Flipboard has turned out to be one of the successful Silicon Valley startups leading publishing houses like McClatchy Company, which generates $1.4 billion in annual revenues. In January, Flipboard started a monetization scheme by launching promoted items, allowing brands to market their content in Flipboard magazines. Currently, the company has over 50 million monthly active readers.
Does It Make Sense for Twitter to Buy Flipboard?
The low operating cost and free content are attractive for investment. However, the business model of organizing floating content over web and packaging it into pages with advertising is not unique. Given the fact that Twitter is gearing up in digital advertising front against giants like Yahoo! YHOO and Google, which are heavily into news content, it remains imperative that the company invests in those startups that offer such opportunity.
Further, with the prospective Flipboard acquisition, this Zacks Rank #3 (Hold) company is likely to have a competitive advantage over Facebook FB, which is also entering the online publishing business. Facebook recently launched Instant Articles to allow The New York Times Company and other media companies to publish their stories directly on its platform (read more: Facebook Partners Media Houses, Launches Instant Articles). In addition, it acquired Tugboat Yards, an online media startup that offers tools for small and medium-sized web publishers to accept payments from readers (read more: Facebook to Grow in Online Publishing with Tugboat Yard).
Going forward, in the media business, where content is king, it is unclear how online ventures like Flipboard that thrive solely on free content can succeed. However, given the current boom in the online social media and rapid emergence of companies that act as online interfaces, we believe Flipboard and other such enterprises are here to stay as long as a symbiotic relationship exists between content publishers, users and advertisers.
Hence, we believe Twitter’s current strategy to branch out and foray into the online media business is likely to have a head start with Flipboard and can offer long-term prospects given the rising demand for online publishing business.
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