Twitter (TWTR) Shares Explode on Elon Musk’s Investment

Shares of Twitter (NYSE: TWTR) soared over 30% in the first week of April after Tesla CEO Elon Musk acquired a significant stake in the social media company. This way, the Tesla CEO became the largest outside shareholder of Twitter. 

Huge Bet by Musk

Following the purchase, Musk now holds a 9.2% stake in Twitter, or 73,486,938 shares, according to the Securities and Exchange Commission (SEC) 13G filing published on Monday. 

Musk’s stake in Twitter is worth roughly $2.89 billion based on Twitter’s closing share price on Friday. The purchase comes nearly two weeks after Musk slammed Twitter, accusing the company of failing to comply with free speech principles.

“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy,” Musk said in a tweet. “What should be done?”

Despite initial reports about the “passive” stake, Twitter named Musk a Board Director a day later. 

“Musk could try to take a more aggressive stance here on Twitter,” said Dan Ives, an analyst at Wedbush. “This eventually could lead to some sort of buyout.”

“This makes sense given what Musk has at least been talking about, at least from a social media perspective,” he said.

Musk said in March that he is exploring the idea of building his own social media platform. He currently has over 80 million followers on Twitter and has been fairly active on the platform over the past years. It is still unclear whether he seeks to take control of Twitter.

“The type of form used (13G) often indicates the investor isn’t seeking to acquire control, or to influence who controls it. Twitter is more vulnerable than some of its Internet peers to outside pressure because its founders don’t have special voting control,” Bank of America analyst Justin Post said in a memo to clients.

Focus Remains on Performance

Although Musk’s involvement will definitely help Twitter shares in the near term, investors are likely to keep their focus on revenue and the number of active users on the platform.

In February, Twitter reported Q4 2021 financial results that completely missed analysts’ expectations on earnings, revenue, and growth.

The social media company reported earnings per share (EPS) of 33 cents in the quarter, short of the analyst consensus of 35 cents per share, according to Refinitiv. Revenue came in at $1.57 billion in the period, just below the analyst estimates of $1.58 billion.

Twitter reported 217 million Monetizable Daily Active Users (mDAUs) in the fourth quarter,  missing the expected 218.6 million.

The company expects revenue in the range of $1.17 billion to $1.27 billion in Q1 2022, compared with the analysts’ expectations of $1.26 billion, as per Refinitiv.
 

Furthermore, Twitter also announced a fresh $4 billion stock buyback plan, half of which will be an accelerated share repurchase while the other half will be bought back over time. 

While it missed growth expectations for the fourth quarter, Twitter Chief Financial Officer Ned Segal said the company’s previously set goals of acquiring 315 million mDAUs in Q4 2023 and a minimum of $7.5 billion in 2023 revenue remain unchanged. Some analysts argue that these goals are too ambitious.

He noted that the lower-than-expected Q4 revenue was affected by weaker advertiser spending in the last weeks of the quarter. However, the spending continues to recover in Q1, Segal added.  

On a more positive note, Twitter said the number of new account sign-ups or reactivated accounts grew 25% year-over-year, while daily sign-ups recorded a 35% year-over-year growth, helped by the company’s strategies including encouraging users to sign in when they access Twitter from a different platform.

Summary

Twitter stock price is trading sharply higher in April after Elon Musk acquired a 9.2% stake in the company. Twitter embraced Musk and named him a Board Director, a move that is likely to be seen as evidence that Musk won’t push for leadership changes at Twitter.

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