- Elon Musk wants to give up the purchase Twitter (TWTR) or lower the price.
- The board says it will stick to the original deal.
- Credibility on all sides has taken a hit.
Apologies are in order. I really believed Elon Musk would shut down Twitter (NASDAQ:TWTR) when I wrote about the deal two weeks ago.
He had a firm offer on the table. He had prepared the financing. Twitter’s board had agreed to the deal.
Twitter’s board is still in favor of the deal, but it’s now more of a threat than a promise. Since my story was published, TWTR stock is down 25%, while Nasdaq is down just 6%.
Even Saudi Prince Alwaleed, a longtime Twitter investor, took a dip, buying a week ago, selling for less three trading days later. At $37.25/share, Twitter stock is now selling for less than when Musk first announced his efforts to buy it.
Twitter investors aren’t the only ones having trouble here. Elon Musk has regained his lack of credibility.
If you use Twitter, and I do, Musk’s reputation has gone from Henry Ford to Charles Ponzi faster than you can tell Bernie Madoff.
His own net worth dropped by $49 billion, more than his bid for the social networking company.
Twitter’s board says they have a sale deal at $54.20 and intend to enforce it, despite Musk’s efforts to back down, saying many Twitter handles are bots.
Meanwhile share You’re here (NASDAQ:TSLA), which Musk used as collateral, also plunged, down a third last month. Musk is still the richest person in the world. Forbes lists his fortune at $214 billion. But that’s “only” $71 billion ahead of the luxury conglomerate’s new number two, Bernard Arnault LVMH (OTCMKTS:LVMUY).
Musk’s own tweet thread, meanwhile, feels despair. He trolled critics, presented himself as a Republican and sought to laugh it all off. (He thinks “Elongate” a big name for his latest personal scandal.)
What about Twitter and TWTR Stock?
Meanwhile, five senior executives quit Twitter and one even poked fun at Musk’s Asperger syndrome.
Twitter CEO Parag Agrawal tried to pretend nothing had happened. He announced a crisis disinformation policy aimed at stopping the amplification of lies in times of crisis. He fired two executives, saying the company wanted “a different direction”. He tried to improve Twitter’s reputation in his native India. He tried to project a reassuring picturedespite reports that he has already been fired.
Twitter’s finances are lost in all of this. Twitter earned $513 million, 61 cents/share fully diluted, on revenue of $1.2 billion in the first quarter. Sounds good, but the revenue all comes from the sale of MoPub, a monetization system, for $1.2 billion. Without that one-time gain, Twitter lost $127 million in operations.
Twitter is then due to report results on July 28, with just 6 cents/share expected profit on revenue of $1.33 billion. This means that at the company’s $28.5 billion market cap on May 20, you’re paying 5.5 times the estimated $5.2 billion in 2022 revenue to own TWTR stock, which doesn’t is only marginally profitable. (At the bid price, Musk pays 8.5 times his earnings.)
The Basics of TWTR Stock
I have no idea at this point if the Twitter-Musk deal will close.
It should. Both parties had a firm agreement. The $1 billion termination fee may seem cheap, but it’s conditional. Twitter could probably get a lot more out of him by suing him.
As an investment, TWTR stock is overvalued in the current environment. But Agrawal has shown he is a talented executive. If he stays, he could justify the company’s current price in time. Especially with a few billion dollars of Musk money in corporate coffers.
As of the date of publication, Dana Blankenhorn does not hold any positions in the stories mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.