Taylor Swift's social app, The Swift Life has moved ahead of the Microsoft Corporation's (NASDAQ: MSFT) social app. Last year, Microsoft paid $26 billion for LinkedIn, which had 450 million users. The Swift Life is owned by Glu Mobile Inc (NASDAQ: GLUU) and launched last week on Taylor's birthday.
There hasn't been talk of a Microsoft buyout of the small-cap (approx. $600m) gaming company. However, Tencent Holdings (OTC: TCEHY) has picked up shares of Glu Mobile in the past and is rumored to have been interested. In the DIY Stock Market world, its hard to obtain an insider leak, thus we're left to a little curious speculation.
Microsoft has an offsetting fiscal year. Although last quarter was Q3 for most, September 30, 2017 was the completion of the first quarter for Microsoft. At the end of their first quarter, Microsoft had nearly $7 billion in cash and equivalents. Another $138 billion was also obtainable in short term investments that could quickly liquidate. Either way, the company continues to have more than enough cash to buyout Glu Mobile for its current market capitalization of $600 million at nearly $5 price per share (PPS).
It's unlikely that Glu Mobile would sell for such a valuation as Tencent Holdings made its first, 2015 stake at a $6 PPS valuation. With another buy in 2016, Tencent owns 21.5% of The Swift Life creator. At $6 PPS, the market capitalization for Glu Mobile would be closer to $810 million.
LinkedIn was reported to be making approximately $1 billion in revenue per quarter for Microsoft. That is a projected $4 billion per year based on 450 million users, in other words, $8.90 spent per LinkedIn user.
The lowest in-app purchase for The Swift Life user is $1.99 and the most expensive offer is the "Large Pick Pack" for about twenty dollars. With the full range, the average purchase cost is $5.50. On Facebook, 70 million people follow Taylor Swift. Twitter has a higher count of 86 million and Instagram the highest at 105 million. At first glance, taking her highest following, Taylor Swift has 1/4 the amount of users than LinkedIn. Her new app, The Swift Life has 1/2 the potential in user revenue than LinkedIn. It's unlikely that The Swift Life would match or overtake the revenues of Microsoft's social app, however if replicated with multiple fandoms, it could be worth the buyout.
Microsoft's Q1 financial statement shows a modest FCF yield, but nothing of bargain value. They had approximately $12.5b in Operating Cash Flow (OCF) at the Q1 mark. They had about $2b in CapEx for an estimated free cash flow (FCF) of $10b. The FCF Yield for MSFT was approximately 1.54% (Market Capital). The yield in relation to Enterprise Value was 1.94%.
Free Cash Flow is obtained by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.
Disclosure: I/we have no positions in MSFT, TCEHY and no plans to initiate any positions within the next 72 hours. I/we are long GLUU.