WASHINGTON, DC — Is Google (NASDAQ: GOOG.US) (NASDAQ: GOOGL.US) planning to buy Twitter (NYSE: TWTR.US) soon? Recent rumours suggest that it’s possible, based on reports that Twitter has hired Goldman Sachs to fend off takeover attempts.

This isn’t the first time we’ve heard about Google’s interest in Twitter. Back in 2009, Google was reportedly in late-stage negotiations to buy Twitter for $250 million. In early 2011, rumors suggested that Google, Facebook (NASDAQ: FB), and several other companies offered to buy Twitter for around $10 billion. This January, new reports claimed that Google could make an even higher offer.

Source: Pixabay

The logic behind a Twitter takeover is simple. Google’s previous social networking efforts — Orkut, Buzz, and Google+ — have been dwarfed by Facebook’s 1.39 billion monthly active users (MAUs). Facebook is capitalising on that lead with its own video-hosting platform, location-based services, payments platform, and other services. It’s tethering more third party sites and apps to its ecosystem with single sign-ons, which collect data for targeted ads. Since that growth threatens Google’s ecosystem of ads and services, it desperately needs a social solution to widen its defensive moat against Facebook.

If Google acquires Twitter, which now has a market cap of $34 billion, it would be its largest acquisition ever. But in my opinion, it’s not worth that lofty price tag. Let’s take a look at three reasons the deal would be a huge waste of money for Google.

1. It’s expensive
Twitter’s revenues more than doubled year over year to $1.4 billion in 2014. However, it reported a net loss of $645 million, up slightly from a loss of $578 million in 2013.

Last quarter, Twitter reported a net loss of $125 million, which was mostly attributed to $177 million in stock-based compensation. But surprisingly, those hefty bonuses still couldn’t prevent Twitter’s chief operating officer, chief financial officer, head of news, and head of engineering from all leaving within the past 15 months.

Twitter stock is also overvalued at current prices. Twitter trades at 24 times sales, compared to Facebook and LinkedIn‘s P/S ratios of 18 and 14. This means that Twitter could be bought at a cheaper price if fundamental gravity kicks in.

2. Stagnant user growth
Twitter’s MAU growth has slowed down considerably over the past year. Back the fourth quarter of 2013, MAUs rose 30% year over year to 241 million. But in the fourth quarter of 2014, MAUs only grew 20% to 288 million.

A recent survey by Pew Research Center also found that just 23% of American adults use Twitter, placing it in fifth place behind Facebook, LinkedIn, Pinterest, and Facebook’s Instagram, in that order.

In January, Twitter disclosed that 24 million of its users have never tweeted, meaning that they could be robots, third-party apps, or spam accounts. Moreover, there’s a huge gray market for sales of fake followers, which are created by algorithms and sold by the thousands to attention-seeking Twitter users. These problems damage Twitter’s reputation as a social network and advertising platform.

3. Google already has decent access
Twitter previously prevented Google from listing tweets in its search results. But in February, Twitter signed a deal with Google to bring tweets back to Google searches. Twitter stated that the deal would encourage new users to sign up, that it could monetize the landing pages with ads, and that it would generate additional data revenues by sending the tweets to Google.

However, the deal arguably benefited Google more than Twitter. The partnership lets Google users bypass Twitter’s revenue-generating News Feed and jump straight to the tweet. Therefore, Twitter users who regularly use Twitter’s internal search engine could start using Google to simultaneously scour tweets and other websites. Google’s search results will also be enhanced by real-time tweets, which will boost the relevance of its targeted ads.

Since that deal basically gives Google access to some of Twitter’s best features, there’s no point in buying the entire site.

Twitter’s not worth it, Google
Google’s 10 largest acquisitions in history had a combined price tag of $24.5 billion. With an acquisition premium, Twitter could cost $40 billion to $65 billion. That’s a whopping price tag for a company with no profits, high valuations, and stagnant user growth. Google certainly needs to push back against Facebook in the social media space, but buying Twitter just isn’t the answer.

The post 3 Reasons Google Inc Shouldn’t Acquire Twitter Inc appeared first on The Motley Fool UK.

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Leo Sun owns shares of Facebook. The Motley Fool UK owns shares of Google (A shares) and Google (C shares).

WASHINGTON, DC — It’s been a rough year for pharmaceutical giant GlaxoSmithKline (LSE: GSK)(NYSE: GSK.US) — investors are concerned about the upcoming patent expiration of its top-selling drug Advair and bribery allegations in China.

Despite these concerns, the stock is still up 15% year-to-date, handily outperforming its closest British competitor, AstraZeneca (LSE: AZN)(NYSE: AZN.US).

Source: YCharts.

Last Wednesday, GSK reported its third-quarter earnings. On a constant exchange rate, the company reported a 1% year-over-year increase in revenue to 6.51 billion pounds, or $10.6 billion, as core earnings rose 10% to 28.9 pence, or $0.47 per share.

GSK’s sales fell short of the Thomson Reuters’ estimate of 6.65 billion pounds, but earnings topped the consensus estimate of 27.2 pence per share.

Two big problems for GSK’s pharma business

GSK faced two major problems during the quarter in its pharmaceuticals and vaccines business, which accounts for 80% of its total sales.

Sales of the segment’s top-selling asthma drug, Advair (also known as Seretide), posted across the board declines in most global regions, and a worsening scandal in China took a huge bite out of its emerging market sales.

Let’s take a closer look at these two key problems.

Problem No. 1: The importance of Advair

Advair, one of the top selling drugs in the world, generated $8.1 billion in sales last year. During the third quarter, Advair sales of $1.96 billion accounted for 18.6% of GSK’s total sales and 71% of the respiratory segment’s revenue. GSK’s respiratory portfolio accounts for 26% of GSK’s total sales.

GSK is trying to squeeze out every last bit of revenue from Advair before it faces generic competition, since the U.S. patent for the medication expired in 2010 and will expire in Europe later this year. However, Advair hasn’t faced generic competition yet due to the complexity of its proprietary Diskus inhaler, which is patent protected until 2016. However, once companies successfully replicate the Diskus or create an alternative inhalation device, Advair sales are expected to plummet.

The most widely used alternative treatment to Advair is AstraZeneca’s Symbicort, which generated $3.2 billion in sales in 2012. Symbicort’s patents will last slightly longer than Advair — the first patent for its medication expired last December, but the patent on its inhalation device runs out in 2018.

During the third quarter, Advair sales growth was mediocre across the globe, as seen in the following chart.

Sources: Company earnings release, author’s conversions and calculations

That global 1% year-over-year decline from the previous year hints that GSK might not be able to post higher sales of Advair in 2013 than 2012. The major culprit is a steep 12% sales decline in the EMAP region due to its ongoing bribery scandal in China, which brings us to GSK’s second problem.

Problem No. 2: China

Investigators in China claim that GSK used local travel agencies as fronts to funnel illegal kickbacks to doctors and government officials to boost drug sales. The government is also investigating Sanofi, Eli Lilly, Merck, Roche, Novartis and AstraZeneca on similar charges, but charges against GSK are by far the most damaging.

Those problems took a bite out of GSK’s EMAP pharmaceuticals and vaccines revenue during the third quarter. A 61% year-over-year decline in overall sales in China caused the EMAP pharmaceutical and vaccine segment’s sales to slump 9%. Excluding China, EMAP sales would have risen 5%.

Sources: Company earnings release, author’s calculations

GSK stated that it would “continue to co-operate with the authorities,” but that it was still too early to “quantify the longer-term impact of the investigation on our performance in China,” as stated in the company’s third quarter earnings release.

Growth opportunities and challenges ahead

Despite these problems, GSK still has some positive growth catalysts on the horizon. During the quarter, the company achieved two new approvals in the U.S (Tivicay for HIV and a flu vaccine), one in Europe (Tafinlar for metastatic melanoma), and another in Japan (Revlar/Breo Ellipta).

Revlar/Breo Ellipta and Anoro Ellipta, two new treatments for COPD (chronic obstructive pulmonary disease) co-developed with Theravance, could help fill the eventual gap left by Advair.

Breo Ellipta has been approved in the U.S. and Japan, and could achieve peak sales of $1.3 billion, according to analysts. Anoro Ellipta has been recommended for approval by an FDA advisory panel, and is forecast to generate peak sales of $1.4 billion. Neither product has been launched yet.

However, GSK will have to contend with Novartis, which is also fighting for a piece of the COPD market with three treatments — the Arcapta (Onbrez) Neohaler, which is approved in the U.S., Japan, and Europe; the Seebri Breezhaler, which is approved in the U.S. and Europe; and the Ultibro Breezhaler, which is approved in Europe and Japan.

Beyond COPD, GSK also made three new FDA filings during the quarter — a first-line treatment for chronic lymphocytic leukemia, an HIV treatment, and an asthma treatment.

The company has also sold non-core assets such as its beverage business and its blood thinners, for $2.16 billion and $1.1 billion, respectively, to reinvest in research and development.

The Foolish bottom line

Although GSK’s earnings weren’t terrible, the company’s recent missteps have certainly been disappointing. Investing in GSK comes down to two main considerations:

• Will GSK pull out of its slump in China in a timely manner?

• Will new drugs, such as its COPD treatments, be approved in time to replace Advair?

If the company can achieve these two goals, there might be further upside for the stock, which is currently at a five-year high. Otherwise, investors should expect some stagnation ahead in the near term.

The post 2 Big Problems For GlaxoSmithKline Plc appeared first on The Motley Fool UK.

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> Leo does not own shares in any company mentioned in this article. The Motley Fool has recommended shares in GlaxoSmithKline.