Ok so straight into it the question is: What is going to happen to Twitter’s stock in the medium term?
And the main mechanism here is obviously Elon Musk. Financials, longevity, and strategy don’t matter so much because that’s left to the long term. Remember, we’re focused on the medium term.
So what is this mechanism? It’s how intense the battle between Elon Musk and Twitter will get. Right because Musk wants to supposedly take over Twitter, and Twitter itself doesn’t want that. So the more competition there is, the higher the stock price will be. And the moment one side gives up, then there’s really no need to bid up the prices anymore.
So this means we want to know, one: how much either side wants to win, and two: how credible their threats are.
So on Elon’s side for credibility he needs propose about 40bn in cash to take Twitter private. And he just did!
We’ll check later if this makes sense for him. But for now all we need to know is that he can probably back up his claims on a practical-cash-focused level.
But the other factor to credibility is how believable he is to other people.
Right we care about what other people think of Elon, because if people believe he’s serious, they’re likely to pile into the stock as well - and then drive the price up. So that’s what we mean by credibility.
And right now he has a history of acting about sometimes. I mean it’s fun but whether he’s serious is another matter. More on this later.
Now on Twitter’s side of practical firepower, they can take a poison-pill, which they also just did!
Practically speaking, Musk will be forced to pay out more cash. Technically this could still go through if he pays out even more cash, but this seems unlikely.
And do people think Twitter is serious? Yes, it seems so. Twitter is also made up of the institutional shareholders who own it. Think heavy hitters like big funds and a Saudi prince, who are invested in keeping their stake valuable. And that means not handing Twitter over for too little.
Will to fight
Twitter is easy to sort, I think it probably just wants to keep itself away from Musk. At least for now, which is the only timeline we’re concerned about.
And I think Musk will do whatever that is more fun. Because this follows exactly what his behaviour is.
Sure, some can say that it’s not feasible or that it’ll cost too much for Musk to buy out Twitter. And they’re right, but they’re missing the point! Remember, we’re talking about the medium term of months not years.
So while I also accept that this deal won’t make sense in a strictly rational way – it doesn’t matter! The only possible impact is that this dulls a bit of Elon’s credibility for whatever threats he wants to make, but it’s still not the key issue.
So then what’s fun for him to do?
I think it’s to escalate. To take part in this game and really just drive it harder. Think proxy fights, more management meetings, or just straight up a hostile takeover.
My argument is then that threatening this takeover, is more fun for him than to just tweet about it.
I’m not saying he’s going to actually takeover Twitter, I think that he’s just going to escalate threats to do so. Which is a bit of a distinction.
Ok so what is the bottom line on how we can make use of this?
If Elon Musk escalates this fight, then I think prices will rise somewhat, not a lot, from today’s $45.
This is all conjecture, but I’d call that maybe in a fortnight, maybe a week, there’ll be some price hike based on whatever it is that Elon decides to do.
Very soon after that the price will probably collapse again. Because again, this is not a long-term analysis. It’s just unsustainable for the firm to really exist at that level once you think about the financials or actual business.
And you can guess how to act if you believe this is what is going to happen. Which, disclaimer, it might not!
But this was fun to think about. Stay safe and don’t gamble your lifesavings away.
Is investing in Twitter a meme too far for Elon Musk? | The Economist
Elon Musk wants to buy Twitter for over $40bn | The Economist
Will Elon Musk Buy More Twitter? - Bloomberg
Sure Elon Musk Might Buy Twitter - Bloomberg
Elon Musk Chides Twitter for NFT-Linked Profile Pictures - Bloomberg
Elon Musk Tweets He's Thinking of Creating Social Media Platform - Bloomberg
Elon Musk Buys 9.2% Twitter Shares in Passive Stake; TWTR Stock Rises - Bloomberg
Twitter Adopts ‘Poison Pill’ to Ward Off Musk Takeover - Bloomberg
TWTR: Twitter Inc Stock Price Quote - New York - Bloomberg
TWTR | Twitter Inc. Analyst Estimates & Rating – WSJ
TWTR - Twitter Inc Shareholders - CNNMoney.com