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Weekly Investment Idea
There seems to be no love lost between billionaires. Elon Musk, arguably the richest person on earth took a swipe at a previous rich list #1 when he used the platform du jour, announcing that he was “moving on”. At the time though, the message was so cryptic that the internet went crazy trying to work out what Mr. Musk was moving on from?
The consensus quickly gathered around the recent bid for Twitter, and in my conspiratorial aligned mind, the tweet may have been enough to drop the price of the company. So as not to get into trouble with the SEC, Mr. Musk did a follow-up tweet saying, “(from making fun of gates for shorting Tesla while claiming to support climate change action)”. Whether the baiting of Gates was really the initial intention of the first tweet on April 24th, we will never know. However, if we see more pregnant transgender emojis side by side with images of Bill, I will defer to my initial thought that Elon was trying to scare the board on Twitter.
Within 24 hours, Bloomberg, Reuters and the financial media are reporting that Twitter is understood to be nearing a deal to sell the social media platform to billionaire Elon Musk, sending the price of Twitter shares soaring.
Twitter (TWTR) shares jumped more than 5% in the premarket on Monday after reports from both Bloomberg and Reuters that the two sides could reach an agreement as soon as today.
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Looking at a chart of the Twitter share price from 2013 to the present day, the Friday close lays in line with the 50% level from all-time low to an all-time high. So, from a value perspective, if I were Elon Musk or part of the consortium providing financing, I wouldn’t really want to be paying much more than $47 per share. Musk however has offered $54.20. The 5% rise pre-market open today has already sent the share price above $51.
Analysts place the true value of Twitter at $89.17, so if Elon was able to add value by removing the “Twitter Bots and verifying all real humans” for a starter, his ROI could be 82% within the year. And for anyone that can be the head of a company that manufacturers and launches reusable spacecraft, doubling the ROI in the investment of Twitter should be within reach.
In the last 24 hours, Elon tweeted “If you’ve engineered or manufactured smartwatches or phones, please join Neuralink! Your skills are directly applicable.” Now some may say software engineers would have a lot of skills that could cross over into what was demonstrated to be a health implant. However, if Elon Musk could own one of the ways the world decides to communicate and can onboard that to our brains directly, doing away with devices, I can’t imagine where the future merges from fantasy into reality. The Minority Report, Ai, Terminator are all wrapped up in one no doubt. And this isn’t an unrealistic proposition. The first tweet in reply to the call for engineers said, “First trial application of @neuralink in human by year-end? 🤞” to which Elon replied “Yes”. If Neuralink comes with an App store Twitter may be the first thing we get to try. My question would be, is that now a Telepathy workaround?
This may all come undone rather quickly as the Twitter board on the 15th of April adopted publicly a “poison pill” strategy to resist a hostile takeover. The strategy is designed to be used by the targeted company to prevent hostile takeovers. The crux of the strategy is to dilute the market cap and make investing less attractive and harder to gain a significant share of the available shares. The board would be allowed to purchase additional shares at a discount compared to Elon Musk. The usual share manipulation we hear about is where the company buys back its shares to make the price per share more attractive and keep the share price high. The conclusion therefore would be a Poison Pill tactic would reduce the share price for the average investor.
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The poison pill announcement has kept the share price within the daily range from the 14th of April, so today’s announcement of a probable acceptance of Elon’s offer takes the share price back outside of this range to the upside.
There is still however a gap from the $40 level which needs to be filled in my opinion, so I’ll not be chasing price higher until we get a test of that level first or some decent levels in the future.
Twitter. is expected to report earnings on the 28th of April before the market open. The report will be for the fiscal Quarter (Q1) ending Mar 2022. According to 7 analysts’ forecasts, the consensus EPS forecast for the quarter is $-0.19. The reported EPS for the same quarter last year was $0.06. If we see a drop in the EPS as expected, this could be the catalyst for the drop back to $40, regardless of the buyout offer from Elon.
There is no compelling reason to believe Twitter can beat earnings. Investors should consider the other factors as well before betting on this stock or avoiding it.
