Breaking News: Twitter Shares Plummet as Elon Musk’s Deal Gets Put on Hold
Shares in Twitter (TWTR) are down 18% in pre-market trading and falling fast. The culprit? No prizes for guessing here — Elon Musk is once again sparking significant volatility in the social media platform’s stock.
But what’s happened this time?
Musk has announced that the lucrative deal is now definitively on hold until he gets more information on the number of fake accounts currently on the platform. Musk tweeted, quoting a Reuters article, that these accounts represent fewer than 5% of the entire platform's user base according to Twitter. Musk seems skeptical and wants definitive proof on the calculations.
Twitter had, up until now, been avoiding some of the widespread tech sell-off, but this new revelation could damage the stock significantly. Rumors had already been swirling around Wall Street of Elon getting cold feet on the deal, with Twitter’s price sliding slowly further away from the $54.20 per share he had agreed to pay. Musk will incur a $1 billion breakup fee should he walk away fully.
In order to get a better understanding of exactly what’s going on, we turned to our MyWallSt financial analyst, Michael O’Mahony, for his views on the latest development in this deal:
“As an Elon-skeptic, part of me wants to put a cynical twist on this move. Twitter is one of the few tech stocks that has retained any sort of value over the past month thanks to the proposed acquisition. Is Elon ruing his timing? Even with a $1 billion break-up fee incurred if he walks away, Musk could easily get a better deal if he leaves the table now and comes back with a new offer. It's not a very realistic outcome, and he'll have to traverse a lot of broken bridges, but when did reality have anything to do with this story?
We must also consider the fact that Tesla stock is down over 30% in the past month, which could have a huge part to play. Part of the financing of this deal was based on a margin loan using Elon's Tesla shares as collateral. The recent dip will force him to either put up more shares as collateral, or try and renegotiate a deal at a lower price. In fact, famed short seller Hindenburg Research wrote a short report citing a significant risk that the acquisition gets repriced because of this, along with the market's recent volatility. Could this be the real reason for the cold feet?
The other, less cynical part of me thinks the Tesla CEO might have a point. If there are any question marks around user numbers, then that will have a huge impact on the purported value of the company. At Twitter's estimation, less than 5% of its 229 million monetizable daily active users were false or spam accounts. That's still roughly 11 million. With a valuation tied directly to its user base, this admission raises some interesting questions. If management knew there were millions of fake accounts, why didn't they delete them? Is Twitter under-reporting this number, and does that constitute fraud? Were these accounts left alone to juice subscriber numbers, a key goal for the company? Many fake accounts are used for nefarious purposes, if the company knew about them, has it basically endorsed this behaviour?
However, the most pertinent question should be, why is this only coming to the fore now? Surely this type of due diligence should be done before a $44 billion acquisition. Whatever the outcome, it is sure to be another wrinkle in this frustratingly bizarre saga. With Elon, it was never going to be simple, was it?”
Keep an eye on the MyWallSt app and our social media accounts for any further developments in this story.