Twitter accepted an offer from Elon Musk to go private.
David Paul Morris/Bloomberg
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Twitter it is being bought by Elon Musk, and for a price that seems too low. It could be a sign that the problem is as much with the stock market as it is with Twitter itself.
Over the weekend, Twitter (ticker: TWTR) and the CEO of
Tesla (TSLA) met to discuss Musk’s recent offer to buy the company. Now the deal, which Twitter was expected to reject, is done. Twitter agreed to a deal at $54.20 a share, or a valuation of roughly $44 billion, on Monday afternoon.
The deal itself isn’t exactly a vote of high confidence on Twitter. The price represents a 20% premium over the $45.08 a share the stock closed at before Musk made the offer for him. But it’s also 30% below the stock’s all-time high of $77.06, hit in February 2021. When the rumor mill of a Musk takeover began, few thought the deal would go through. Brian Quinn, a professor at Boston University School of Law, recently said Barron’s that Twitter’s directory would probably push for a better price, and he wasn’t the only one. Still, the parties eventually agreed on the original offer price.
The low trust on Twitter could be deserved. The company reported a profit of $0.33 per share for the fourth quarter of 2021, below expectations of $0.34, while the company posted a net loss in the third quarter instead of the $0.17 per share it reported. analysts expected. Twitter will report first quarter earnings on Thursday and analysts expect adjusted earnings of 5 cents a share on sales of $1.226 billion, and few would be surprised if it didn’t.
But what looks like low trust in Twitter could also reflect limited trust in social media stocks, and even the stock market itself. Twitter shares are down 22% in the last 12 months, although that is helped by the 31% rise since just before Musk’s involvement was revealed, while the
Global X Social Media ETF
(SOCL) is down 47%. “We see this as a turning point and it was likely due to the Board realizing that an alternative ‘white knight’ offer may be hard to come by, especially after the drop in corporate asset prices. of social networks in the last weeks/months”. writes CFRA analyst Angelo Zino.
The stock market is not doing so well. The
S&P 500
it is already down about 12% on the year as the Federal Reserve begins to tighten monetary policy to combat inflation. And there may be more downsides to come. Morgan Stanley’s chief US equity strategist Mike Wilson wrote on Monday that the index could soon slip into bear market territory, defined as a 20% drop.
Twitter stock is not immune to such a drop, which could be part of why Musk’s offer is possibly low. For the year to April 1, just before Twitter’s stock surged when news broke that Musk owned 9% of the shares, shares had fallen 9%. That was roughly double the S&P 500’s decline for the year to April 1.
And if recent market volatility is a sign of looming economic turmoil, Twitter’s profits and sales could take a hit as well. The company gets a lot of its money from advertising, and brands typically reduce their ad spend when their own sales expectations are lowered.
“If the ad economy is slowing down, you would think that Twitter is the worst positioned social media company,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management, which does not own Twitter stock.
The point is that confidence in the stock market is so low that no one should be surprised to see a Twitter bid also low.
Email Jacob Sonenshine at jacob.sonenshine@barrons.com
