Elon Musk Buying Twitter Stock Changes Everything (NYSE:TWTR)

Will Elon Musk Take Over Twitter?

Elon Musk, CEO of Tesla Motors (TSLA) (and the richest man in Texas) disclosed this week that he has acquired 9.2% ownership of Twitter (NYSE:TWTR) after taking a poll last week about Twitter’s protection of free speech. Musk filed a 13-G form rather than a traditional 13-D form, which Bloomberg indicates that the stake is classified as “passive” rather than “active”. The filing also appears to be late (because of course it is).

From Bloomberg:

“Twitter is particularly vulnerable to outside pressure because unlike Google, Facebook, Amazon and Snap, the company’s founders don’t have special voting control over its future.”

Considering that Musk previously tweeted a meme of Twitter CEO Parag Agrawal face-swapped on the body of Joseph Stalin, there is likely to be some entertaining times ahead. Musk’s stake in Twitter has led some to believe this might be “just the start“.

• Twitter lacks many legal protections against activists that other high-profile tech companies have. Unlike companies like Google (GOOG) and Facebook (FB) which have dual-class shares that make it extremely difficult to wrest control of the company from the founders, Twitter has a more traditional share structure. At first glance, Twitter management appears severely overmatched should Elon Musk and his followers launch an activist campaign. If you can control 50.001% of the votes, you can control the whole company. Most shareholders don’t vote, so Musk has pocket aces here given his social media power and current 9.2% stake.
• This is interesting from a political perspective because Twitter is so controversial yet so vulnerable to the world’s richest people if they decide to launch an activist campaign against the company. Donald Trump might not have had enough money to do this, but Musk could personally buy Twitter almost 7 times over at yesterday’s closing price.
• Could Twitter be in play as an acquisition target? Musk is known for his libertarian politics and his disdain for government overregulation. These might influence how he’d run Twitter, but he’s not the only billionaire in the world. Imagine if left-leaning billionaires like George Soros or Michael Bloomberg started buying Twitter shares as well to contest control of the company. An ideological battle over free speech between billionaires or even other corporate bidders could make a lot of money for ordinary Twitter shareholders. Other corporate bidders too are surely getting calls from investment bankers looking to pitch a potential sale. Like sports teams, media companies have a long history of being bought by billionaires due to the power, influence, and intrigue they provide.
• Musk has previously pushed for Twitter’s algorithm to be open-source rather than secret-I would expect him to continue to push for this. A resounding majority of Musk’s followers backed this up when polled. It bears to ask the question-is the current Twitter algorithm being used to manipulate public opinion? It could go either way, and previous Twitter algorithms were known to be problematic. The mainstream media is effectively an oligopoly with 90% owned by 6 corporations that unsurprisingly favors themselves. Censorship by algorithm was used to quell dissent against policies such as pandemic lockdowns in various countries. And tech whistleblowers increasingly have shown how algorithms are manipulated to serve the interests of their creators. Some of this sounds like it should be illegal, but as private companies, Big Tech currently has near impunity to censor, influence politics, and generally do whatever they please. Musk could act as an important check on these powers.
• The meme stock potential for Twitter stock comes clearly into focus now with Elon Musk buying shares in the company. This is pure supply and demand. Demand increases due to Musk’s followers, and supply decreases due to sellers wanting to HODL. The market cap of Twitter isn’t that big either, increasing the potential for a squeeze of some kind.

What Does Musk Want With Twitter?

Elon Musk is one of the most followed users on Twitter, so owning part of the company gives him many practical benefits. Twitter’s terms and conditions are ambiguous and selectively enforced, so any attempt to “cancel” Musk from Twitter becomes exponentially harder the more ownership he gains. Musk also stands to make a lot of money as his followers pile into Twitter stock.

Twitter has roughly broken even over the last decade while diluting shareholders. The stock has not performed like Apple (AAPL) or Facebook (FB), but has rather traded in a range. Twitter traded as high as $70 in 2021, and even after Musk’s stake only trades for about $50. Musk seems to have a genius for finding creative ways for companies to make money, whether it’s Starlink or buying Bitcoin (BTC-USD) with Tesla’s balance sheet. Tesla is conventionally overvalued despite Musk being a master tactician with these sorts of things, but Twitter really isn’t that expensive. If Twitter starts to become a meme stock or to trade for even close to the kind of valuation that Tesla trades for, then all sorts of possibilities open up. A higher stock price reduces dilution from employee RSUs, it offers the potential to issue stock for acquisitions, and it offers the potential for Twitter to get an investment-grade credit rating. All of these have the potential to start a virtuous circle where higher valuations become a self-fulfilling prophecy.

Twitter Stock Is A Buy

I think TWTR stock is a steal here considering the potential for a bidding war between warring billionaires or TMT companies advised by investment banks. Musk can solve many of Twitter’s problems just by being Elon and using his massive following to help him. The long-term strategic vision for the company can be improved by having cheaper access to capital, even if Twitter doesn’t completely turn into a meme stock. Musk already is at work on making Twitter better, suggesting an edit button for the platform. Twitter stock is now a tinder box with a reasonably low market cap, with Reddit and Elon Musk’s following being potential matches to light it. I’m going to go ahead and issue a $100 price target on Twitter due to these factors, implying roughly 100% upside. I’m buying a bit of TWTR stock as a speculative play here. Good luck to all!