Twitter: Can Elon Musk Bring Sustained Share Price Growth?
2022.04.08 10:41
- Twitter stock will be highly volatile
- Pressure is on Twitter to move faster in building new products
- Musk plans to make significant improvements to the site in the coming months.
Shares of Twitter (NYSE:TWTR) went on a remarkable run earlier this week after the news broke that Elon Musk, the world’s richest man, had purchased a 9.2% stake in the microblogging company. The move makes the Tesla (NASDAQ:TSLA) founder Twitter’s largest shareholder.
The San Francisco-based social media behemoth soared 27% Monday—its best day on record—and maintained the bullish momentum on Tuesday, gaining another 2% on the announcement that Musk will join Twitter’s board of directors. However, it lost some of the excitement in the upcoming days, falling 5.7%. TWTR closed Thursday at $48.03.
Twitter Weekly Chart
The two-day rally that followed Musk’s purchase attracted $348 million of inflows from retail investors, marking the biggest two-day purchase ever, according to data from VandaTrack. Many of those investors are likely from Musk’s fan club.
While positive in the short run, this activity suggests that Twitter stock is likely to become highly volatile moving forward, especially as the company’s shares are now vulnerable to Musk’s tweets and abrupt communication style.
VandaTrack analysts said in a note:
“As he’s [Musk] quite the personality, particularly among retail (and crypto) investors, we can easily imagine that TWTR will be heavily susceptible to buying/selling in the future based on Elon’s communications (just as with Tesla shares).”
Significant Improvements
Musk, the co-founder of ventures including SpaceX and The Boring Company, tweeted Tuesday to his more than 80 million followers that he plans to be working with Twitter CEO Parag Agrawal and the board to make significant improvements to the site in the coming months.
It’s tough to predict how Musk’s active participation in Twitter’s affairs will benefit the social media company, which is struggling to convince skeptical investors that it was serious about expanding its business after the abrupt departure of then CEO and co-founder Jack Dorsey in November.
Furthermore, pressure is mounting on Twitter to move quickly in building new products when it’s becoming challenging to attract new users after the pandemic-driven surge. Social media companies face strict regulatory scrutiny as part of a global push to curb misinformation and misuse of users’ data.
In February, Agrawal and Chief Financial Officer Ned Segal told investors that the company is sticking to the goals set last year, including increasing annual revenue to $7.5 billion and getting to 315 million daily users by the end of 2023.
But that goal looks ambitious, and some analysts believe even with Musk’s active involvement, these targets will be hard to achieve.
MKM Partners downgraded Twitter this week, saying the social media platform’s user growth targets are too “lofty” to justify current valuations following this week’s pop.
The note adds:
“While we are excited and intrigued at the prospect of Elon Musk taking a potentially active role at growing Twitter, we believe the near-term risk/reward is fairly balanced at current levels.
We continue to believe that a 2023 mDAU [monetizable daily average users] target of 315m is particularly lofty (we are modeling ~290m mDAUs), and Europe/Russia might weigh on the near-term outlook.”
Likewise, according to several financial models like those that value companies based on P/E or P/S multiples or terminal values, the average fair value for Twitter on InvestingPro implies a 5.2% downside risk.
Twitter Fair Value Estimates
