In the first half of 2017, we’ve already seen some compelling acqusitions: Amazon’s purchase of Whole Foods, of course, but also Walmart buying Bonobos and Airbnb scooping up Tilt. But we still have six months to go before 2018, and there’s little sign that M&A mania will cool off. So who’s next?
In a new report by Goldman Sachs Global Investment Research, Etsy and Twitter top the list of companies that are likely to see M&A activity soon. That’s not much of a surprise. But Goldman’s list also included some companies you probably haven’t thought about in years (remember Zynga?) in addition to some whose products you might use all the time. Below are five notable companies included in the report—along with some of our thoughts on why they made the list.
In the last two months, Etsy has seen major management upheaval: Chad Dickerson, the company’s CEO of nearly six years, was ousted in favor of new board member Josh Silverman. Dickerson was also replaced as chairman by fellow board member and prominent VC Fred Wilson.
“It has been an honor to lead Etsy as CEO for the past six years and the three years before that as CTO,” Dickerson said in a statement at the time. “The Board decided that it was time for new leadership to take Etsy forward and I support that decision.”
In other words, the board is desperate for Etsy to try something new. Since its IPO in April 2015, its stock has been halved; the news of Dickerson’s ouster was accompanied by the announcement that 80 employees—8% of Etsy’s workforce—would be let go. One of Etsy’s shareholders, hedge fund Black and White Capital LP, wrote a letter recommending that the company cut back on costs and consider a sale; also included was the suggestion that Etsy remove Dickerson as chairman. “The company’s historical pattern of ill-advised spending has completely obfuscated the extremely attractive underlying marketplace business model,” Black and White wrote in a letter obtained by Bloomberg.
Etsy prides itself on its ethics—it is one of the only publicly traded B corporations, after all—but perhaps investing heavily in that was to the detriment of its finances and growth as a company. As Bloomberg wrote last month:
“Etsy had been hiring like crazy, having increased its staff 55 percent since the end of 2014, and doling out all manner of perks: an elegant Brooklyn headquarters with Manhattan views, art installations, and a “breathing room,” along with salaries and benefits common at much, much more profitable tech companies.”
So it’s little surprise that Etsy tops Goldman’s forecast. Etsy has found itself in a catch-22: What will make it more money is bringing more buyers to the site, which means sellers need to be able to scale up and produce more. (This is why Etsy has introduced updates that grant sellers more room to expand their teams and products.) But what made Etsy Etsy, once upon a time, was its handmade, one-of-a-kind wares and tight-knit community of sellers.
According to Goldman, Twitter is right up there with Etsy. Twitter has been struggling for years now, grappling with stagnant user growth, harassment and abuse on its platform, and repeated layoffs. Jack Dorsey’s return to the CEO post hasn’t quite had the impact some may have anticipated, perhaps in part because Dorsey is also running Square. (Last week I wrote about Dorsey’s performance as CEO and why I was surprised he hasn’t gotten the boot.) The company’s stock has fallen by over 50% since its IPO in late 2013.
But Twitter has been here before. Last fall, the company was very publicly considering a sale. Disney, Salesforce, Alphabet, and Microsoft all reportedly considered making a bid on Twitter, ultimately opting not to because the price was just not right. Google makes the most sense to us, though Alphabet eventually withdrew its interest.
So is Twitter an easier sell now? That depends. In the past year or so, Twitter has made incremental progress acquiring new users. It also made a lot of noise when it debuted Moments, but the feature—yet another appeal to prospective users—hasn’t found the success Dorsey and company had hoped for. On the plus side, Twitter’s live-streaming efforts have proven a better investment.
Whether all that will endear the company to potential buyers, well, that still remains to be seen.
You might recall Yelp considered a sale in May 2015. But a few months later, CEO Jeremy Stoppelman decided against it, reportedly because the offers weren’t high enough. In fact Yelp mulled over a sale back in 2009, too, when it famously turned down an acquisition offer by Google. I imagine Yelp might regret that decision: Perhaps you’ve seen Stoppelman’s tirades on Twitter about Google suppressing Yelp listings in search results.
Google has proven a formidable competitor, so much so that Yelp joined the chorus of companies accusing Google of manipulating search results in the EU’s antitrust case. (Earlier this week, the European Commission ruled against Google and slapped the company with a $2.7 billion fine.)
A few years back, Yelp seemed to have successfully made the jump from desktop to mobile and was even optimistic about local advertising. (Chances are you use Yelp’s mobile app more than you do its desktop platform.) But things are different now, in part due to Google and Facebook’s dominance in digital advertising. In Yelp’s most recent earnings report, revenue was down and the company’s stock fell significantly. Its outlook for the rest of the year doesn’t exactly inspire confidence either. Goldman understandably doesn’t rank Yelp as high as Twitter or Etsy. According to the firm, Yelp has only a medium probability of M&A activity.
We can’t help but wonder: Could eBay make a play for Etsy? Silverman, Etsy’s newly appointed CEO, is in fact an eBay alum. But eBay itself seems to be on the M&A docket. PayPal being spun out into a separate company in 2015 was a blow to eBay’s revenue growth: PayPal was reportedly bringing in nearly 50% of eBay’s total revenue. (The PayPal spinoff also took with it Venmo, which PayPal scooped up when it acquired Braintree in 2013.)
Despite that loss, eBay’s sales numbers have inched up over the past year, in no small part thanks to StubHub. The company has been bulking up its ad sales efforts. Its buyer growth has been anemic over the past couple of years, but eBay’s most recent earnings report saw buyers increase by two million. Perhaps things are looking up for eBay.
Still, one question remains: What exactly is eBay’s mission? It was once positioned as a marketplace for used goods, but now the number of used goods sold on the platform has decreased dramatically. Auctions, too, no longer make up much of eBay’s overall sales. So what differentiates eBay from the likes of Amazon?
If the recent sale of eBay’s India arm to Flipkart–Amazon’s leading competitor in India–is any indication, eBay might be open to more sweeping acquisition offers.
That’s right: The website you consult when you have a weird mole has reportedly piqued the interest of a few potential buyers. WebMD first said it was exploring “strategic alternatives”—usually code for a sale—back in February. The company’s earnings outlook for the year isn’t great, which lends credence to the theory. With a potential offer from media and internet company IAC/InterActiveCorp reportedly on the table, WebMD’s stock is the highest it’s been in almost a year.
This could, of course, just be a rumor: One analyst said buying WebMD didn’t really align with IAC’s acquisition strategy. Reports from early last year also claimed WebMD was considering a sale, but the company denied it; WebMD was said to be in talks with Walgreens and UnitedHealth.
But a few months back, Bloomberg Gadfly noted that while it didn’t seem like investors were convinced a sale would happen, analysts said WebMD could appeal to a variety of companies, “not just buyout firms but also health care companies, owners of digital content such as Time Inc., or even drugstore chain Walgreens Boots Alliance Inc.” And Goldman’s outlook puts the likelihood of a WebMD sale on par with the potential acquisitions of Twitter and Etsy—so stay tuned.