TWTR with Nobias Technology: Case Study on Twitter
On Friday news broke that Elon Musk was abandoning his plans to acquire Twitter. These headlines occurred after the stock market closed on Friday, yet during the after-market trading session, shares of Twitter (TWTR) fell by nearly 5% and shares of Tesla (TSLA) rose by nearly 2.5%.
Nobias has covered the Musk/Twitter saga with several articles/updates thus far and therefore, we wanted to see what credible authors have had to say about Musk’s new plans over the weekend. Furthermore, we wanted to take a look at the sentiment being expressed by credible authors and Wall Street analysts alike, regarding shares of Twitter and Tesla, both of which have been caught up in this M&A whirlwind for months.
On Friday evening, shortly after the Musk/Twitter break-up news broke, Joshua Summers, a Nobias 4-star rated author, published a report at the Latin Post which highlighted the recent happenings. Summers wrote, “Elon Musk terminated his billion-dollar deal with Twitter on Friday, prompting the social media company to threaten the Tesla mogul with legal action.” He continued, “According to DW, Musk terminated his $44 billion bid with Twitter through a letter addressed to the company's board.”
Finally, Summers said, “In the letter, Elon Musk accused Twitter of lying about the number of bots and spam accounts on the social media platform, according to CBS News.” Regarding the alleged bot issue at Twitter, Summers said, “The letter claimed that the advisors of the Tesla mogul analyzed the number of bots on the platform, and they found a number "wildly higher than 5%". Twitter has previously claimed that fewer than 5% of its users are spam or fake accounts.”
TWTR Jul 2022
Also, Summer noted, “Musk's buyout also claimed that Twitter failed to provide Musk with the materials he asked for, including the company's methodology for calculating its user numbers and backup materials detailing its financial valuation.”
Looking at the situation from Twitter’s standpoint, Summers said, “Twitter will resort to legal actions if Musk does not push through with his deal with the social media company.” He highlighted a Tweet that went out from Twitter Chairman, Brett Taylor, who said, “The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.” According to Summers, “Musk will have to pay a $1 billion termination fee if the deal falls out.”
Kari Paul, a Nobias 4-star rated author touched upon this exit fee in an article published on Saturday, July 9th, saying, “Musk may also face a fine of $1bn to walk away, a penalty he is seeking to evade by accusing Twitter of a “breach of multiple provisions” of the agreement, according to a letter filed with the Securities and Exchange Commission announcing the dissolution of the offer.”
Paul quoted Anat Beck, a professor and business law expert at Case Western Reserve University, who said, “What Musk and his team are doing is trying to come up with an excuse so that he doesn’t have to pay the penalty fees to walk away.”
Paul noted, “In addition to the fine for the failed deal, Musk could face serious consequences from the SEC for his antics, which have had major impacts on the several public companies he manages as well as Twitter itself.”
Paul continued, “Fines against Musk, who with a $224bn net worth is now the richest man in the world, have had negligible impacts, said Beck, but the executive could face further action from the SEC – including being removed as CEO from one or more of the companies he helms.”
Furthermore, Paul wrote, “Musk’s waffling on the Twitter decision has led many to call for legislation that prevents such market chaos in the future, or enforcement from bodies outside the SEC. Meanwhile, Musk and Twitter could be battling in court for some time, and Musk will face additional class action lawsuits, Beck said.”
With that in mind, it appears that this issue is likely to be an overhang for Musk, Twitter, and the companies that Musk manages, for quite some time.
And yet, according to Liana Baker, a Nobias 5-star rated author, who recently published a piece at Bloomberg highlighting Elon Musk’s recent Twitter drama, it doesn’t appear as if Musks twitter issue is going to hurt his relationship with bankers and/or the potential of other large-scale M&A from occurring in the near-term.
Baker’s piece highlighted the fact that many bankers (via named and unnamed sources) would be happy to continue to work with much, even though, as the author said, “It isn’t the first time billionaire Tesla Inc. founder Elon Musk burned his investment bankers on deals and it may not be the last.”
She noted, “It was the second time in five years that Musk fielded an ambitious acquisition idea that got Wall Street’s hopes up, only to change his mind. In that 2018 episode, Musk tweeted about taking Tesla private with the claim “funding secured.”’
Paul touched upon this episode in her piece as well, writing, “The market-moving 2018 tweet resulted in a $40m fine from the SEC, as well as an agreement that Musk would step down as chairman of the Tesla board.”
However, as volatile and unpredictable as Musk may be, Baker highlighted the ongoing demand for business relationships with him from members of the financial industry, stating, “One banker said it’s hard to ignore the mercurial Musk, the world’s richest person, even if he shoots from the hip on mega deals. Musk’s personal wealth totals almost $227 billion, according to data compiled by Bloomberg.”
Baker quoted Mark Boidman, head of media and entertainment at Solomon Partners, who touched upon Musk’s alluring nature, saying, “He’s a once in a lifetime client. He’s created some of the most iconic companies, of course everybody wants to be his banker.”
Baker highlighted the size and scale of Musk’s business empire, writing, “Tesla, which has a market value of almost $780 billion, could also pursue transactions, whether it’s M&A or debt financing. Musk’s futuristic brain-computer interface startup Neuralink has also been in fundraising mode and has attracted more money than other companies in the field. Meanwhile, his tunneling startup, Boring Co., was valued at $6 billion in April.”
Looking at the sentiment expressed by credible authors and analysts that Nobias tracks, there is a trend developing with regard to both sides of this dispute (meaning, Twitter and Tesla). The credible authors that we follow (only individuals with 4 and 5-star Nobias ratings) are expressing bearish sentiment for both companies. 75% of recent reports published by credible authors on TWTR and 69% of reports published by credible authors on TSLA have expressed a “Bearish” bias.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
However, while the author community remains bearish on both stocks, the credible Wall Street analysts that we track appear to be much more bullish. Right now, the average price target being applied to TWTR shares by the credible analysts that Nobias tracks (once again, only those with 4 and 5-star Nobias ratings) is $50.40. The average price target that credible analysts are currently applying to TSLA is $937.50.
Today, TWTR shares trade for $36.81 (however, it’s important to note that they fell by 4.94% in the after-hours trading period of Friday and therefore, could end up trading for much lower than their closing price on Friday once markets open up next week). Therefore, the average analyst price target for TWTR implies upside potential of approximately 36.9%. TSLA shares closed the trading session on Friday at $752.29. Therefore, the average analyst price target for TSLA implies upside potential of approximately 24.6%.
While several bearish articles were posted on Twitter over the weekend by credible authors, Nobias has not seen any credible analyst update their price target for TWTR over the weekend. We expect to see that occur next week and the Musk/Twitter news could certainly have a notable impact on the consensus price target. But, for the time being, credible individuals on Wall Street remain bullish on both TWTR and TSLA.
Disclosure: Disclosure: Nicholas Ward has no position in either TWTR or TSLA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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