Will Social Media dominate the M&A deals this year?

There's been a fair amount of coverage of social media companies recently after a number of the big players reported quarterly number updates to market with the odd management shake up to add some flavour to the mix. It would seem as if 2016 will be a big year for these companies as a divergence between the good and bad is starting to emerge that could lead to some interesting developments in the months to come.

We've seen the likes of Facebook charm the market by presenting upbeat results coupled with an optimistic yet feasible plan to flex its muscles and remain the dominate force in social media with fresh ideas on the way it sees itself influencing the shape of the industry over the next 5 years.

On the counter the likes of Yahoo's Tumblr, Twitter and LinkedIn's respective management teams have really had a tough time getting to grips with market expectations after failing to deliver the desired results needed to attract attention that would distinguish their business from other competitors.

Focusing on LinkedIn's earnings update yesterday that sent the company's stock price plummeting 45% , one does get the sense that the creed on the Street at present is shape up or shift out. Management forecasted earnings and revenues for the year 2016 came in far below what the market was expecting pointing to a weaker economy, currency fluctuations and the shutdown of Lead Accelerator all acting as a drag on the outlook of the company.

The kind of treatment received by LinkedIn's stock price shows that Wall Street allows no margin for error when it comes to delivering earnings and no discrimination when it comes to a selloff with the likes of this particular company once being a much loved favourite amongst stock pickers.

LinkedIn shares drop 43% as weak forecast spooks investors https://t.co/wXPsxqLqKy {no longer the blue eyed network in investors eyes}

— Michael de Groot (@stayingaliveuk) February 6, 2016

Also making waves within the social media sector is reports indicating that Twitter will be changing the way users see tweets in their timelines from the current reverse chronological order to a new format whereby algorithms pick the tweets it thinks people most want to see. The suggested move has ironically created outrage on social media with many calling this the end of Twitter.

This isn't the first major change that's been implemented since Jack Dorsey took over as CEO last year October that has so far been met with outcry from avid users of the social media outlet. There is also a proposed change to the limitation of 140 characters per tweet which may be extended to 10 000 characters.

But as the restructuring of these businesses take centre stage to how the market responds , the drop in valuations open up the possibilities to potential merger and acquisitions within the space. Rumours have been abound that Rupert Murdoch's News Corp has been flirting with the idea of buying a significant stake in Twitter as it seeks to diversify the form of entertainment it provides.

Considering the amount of new social media companies that have popped up over the past decade following the early success of Facebook, one could be tempted to think that perhaps the oversaturated market currently being experienced may be a turning point where the battle over the little scraps leftover after the bigger players have taken their share of revenue may start to be getting thinly spread amongst the many fighting for revenue.

I think the way in which these companies generate revenue has become so much more complex than the original streams that fanned the market's desire to see these enterprises become sustainable over the long term and survival will depend on who is able to come up with inventive ways of renewing the way revenue can be raised. If these companies succeed in this respect they half way done in forming a business worth investing in.

With the likes of companies such as Twitter, I think as much as the market may have put them on the back foot by drastically devaluing their business model, they also have provided them a lifeline by opening the synergistic advantages to their bigger competitors who may see value lessening the number of firms within the industry but in the same breathe using a combined edge to maximize profitability by branching into sub categories of the social media sphere effectively diversifying the business.  

I bet an algorithmic timeline will think we want to see more advertising #RIPTwitter
https://t.co/ggIK1FVssO via @kantrowitz @buzzfeednews

— Kat Meringue (@Izianikapani) February 6, 2016