Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.
Twitter
In case you might have missed the news last week, Elon Musk and his team of lawyers have stated their intention to withdraw Musk’s highly publicised bid to acquire Twitter, with the prospect of a long, drawn-out legal battle now on the cards.
This decision was, however, somewhat anticipated amid speculation that he was significantly over-paying for the social network.
Musk’s original offer was a $43 billion purchase of Twitter at $54.20 per share. At the time, this was a noteworthy 38% premium above the trading price of ~$45.81 per share.
In recent weeks, the trading price has been falling, and after the news broke the price action certainly didn’t inspire confidence, plunging over 10%, trailing below the 20-day moving average, and closing right on the lows of the day at $36.78.
However, this slump in valuation is a pattern that has occurred within most US tech stocks since April. Twitter’s new share price of $33.50, down 9% in early Monday trading last week, is arguably a more accurate reflection of the social network’s prospects.
Generally speaking, Twitter’s sluggish stock performance isn’t solely in response to Elon’s whims. The economy is stalling globally and economic headwinds are becoming more severe.
Twitter is also struggling to grow its user base, and some analysts have suggested that social advertising spending is likely to be cut, which Twitter relies heavily on for a source of revenue, as companies tighten their belts to grapple with the economic environment.
But, according to the termination letter, one of the main reasons that Elon is pulling out is not due to Twitter’s recent stock performance, but instead due to the prevalence of bots on the site and doubts over Twitter’s ability to determine how many monetisable daily user accounts (mDAU) the social media network actually has. Twitter, however, insists that fewer than 5% of the stated mDAU are false or spam accounts.
On top of this, Twitter’s recent firing of two high-ranking employees and a third of the talent acquisition team are cited within the termination letter. Under the terms of the merger agreement, the company must “preserve substantially intact the material components of its current business organisation.” Musk’s team claimed that the proper process was not followed.
It’s also possible that Twitter’s valuation was ‘protected’ by Musk’s buyout price, which is important to note. Since the acquisition deal was announced, Twitter is currently trading down by roughly 20%. However, Snap is also facing similar issues, down notably more at around 57%. Investors should therefore take note of wider market movements and tech stock valuations when considering their investment strategy.
Uncertainty around Twitter’s acquisition is likely to continue for the duration of any legal battle, and against the current economic backdrop, we’d expect to see investors exercise more caution, as we await to see whether Twitter’s share price can ride out the storm.
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Not investment advice. Past performance does not guarantee or predict future performance.
In a statement to the US Securities and Exchange Commission (SEC), Musk’s representatives said Twitter had breached the terms of the agreement and “appears to have made false and misleading representations.”
They claimed the social media giant also failed to provide requested data to enable Musk to "make an independent assessment of the prevalence of fake or spam accounts" on the platform.
“Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information,” the statement read.
Musk’s withdrawal from the deal saw shares of Twitter drop by 7% in extended trading.
The deal’s terms require Musk to pay a $1 billion fee if he fails to complete the transaction. However, Twitter’s board is planning to take legal action against Musk instead of accepting the $1 billion fee.
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In a filing earlier this month, Twitter estimated that less than 5% of its monetisable daily active users during the first quarter of the year were spam accounts or bots. However, Musk believes that approximately 20% of accounts on the platform are fake or spam accounts. He has also expressed concerns that the figure could be higher still.
“My offer was based on Twitter’s SEC filings being accurate,” Musk tweeted Tuesday morning. “Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does.”
After becoming Twitter’s largest single shareholder in early April, Musk declared a takeover bid for the social media platform, offering $54.20 per Twitter share. By the end of the month, Twitter had agreed to the deal.
However, the prospective Twitter owner and Tesla CEO insisted that the platform would “always” remain free for “casual users”.
Elon Musk agreed to a $44 billion deal to acquire Twitter last month. At the time, he said that as well as improving the platform’s free speech principles, he was looking forward to “enhancing the product with new features.”
Musk has said he wants to eradicate spam bots from Twitter and “authenticate all humans.” He has also expressed support for a tool to edit tweets that have already been posted – a feature which Twitter had previously confirmed to be in development.
Musk’s takeover of the social media giant is expected to be completed later this year.
The deal was shaken upon on Monday after weeks of speculation about the social media giant’s future following Musk’s emergence as the platform’s largest single shareholder on 4 April. Ten days later, Musk then declared a takeover bid, offering $54.20 per Twitter share.
Initially, Twitter’s board appeared to be against the takeover and introduced a “poison pill” in a bid to block the sale. However, they warmed to the idea after Musk announced a funding package for the deal, which includes $21 billion of his own wealth as well as debt funding from Morgan Stanley.
In the past, Musk has criticised Twitter, claiming it does not allow free speech. In a tweet that followed confirmation of the deal being accepted, Musk wrote, “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated [...] I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating spam bots, and authenticating all humans. Twitter has tremendous potential - I look forward to working with the company and the community of users to unlock it.”
Twitter shares were up more than 5% in the premarket on Monday, following reports from Reuters and Bloomberg that a deal could be reached very shortly.
Prior to the US stock market opening, share trading in Twitter’s stock sent the price up 5.1% to $51.57. However, this figure is still below Musk’s offer price.
Per share, Musk offered $54.20 — $43 billion in total for the social media giant, which he has previously accused of failing to uphold free speech.
While Twitter recently adopted a “poison pill” strategy in a bid to resist a hostile takeover, some investors want to see the social media giant take Musk’s offer into serious consideration.
Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should buy this week.
Twitter
The Musk effect on markets is a trend we’ve increasingly seen over the past year and it’s no different with the recent news around Twitter.
Last week Elon Musk announced he was purchasing Twitter shares and joining the company’s Board of Directors and, despite the latter not materialising, Twitter’s share price surged.
However, as the news flow became less supportive, the price also retreated – proof that traders should never just follow the zeitgeist. In fact, if we look at Twitter, the app has consistently been outperformed by social media competitors such as Facebook.
Despite this, new additions such as CEO Parag Agrawal and the introduction of new premium services including Twitter Blue in the US, Canada, Australia and New Zealand will hopefully bring in more revenue for the app.
Whilst celebrities and magnates like Elon Musk make the headlines, increasing publicity around Twitter, it is crucial investors don’t rely on the noise.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Not investment advice.
The multi-billionaire entrepreneur has said he will “acquire all of the outstanding Common Stock of the Issuer not owned by the Reporting Person for all cash consideration valuing the Common Stock at $54.20 per share.”
The proposal was delivered via a letter to Twitter on 13 April, with Musk saying that Twitter needs to go private in order for necessary changes at the company to occur.
Musk has said that he would need to reconsider his position as a shareholder if Twitter does not accept his offer.
Following the news, Twitter shares are up over 13%.
According to filings made to the US Securities and Exchange Commission (SEC), Musk, who regularly puts out controversial Tweets, has taken a 9.2% stake in Twitter at the cost of $2.89 billion on Friday.
Following the news, Twitter shares soared as much as 26% in pre-market trading, adding over $8 billion to its $31.5 billion market value prior to Musk’s interest being made public. Following the stock price jump, Musk’s shares are now worth approximately $3.6 billion.
At the end of last month, Musk had said he was giving “serious thought” to creating a new social media platform after remarking that Twitter doesn’t allow for free speech. In a Tweet, the billionaire said, “Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?”
Some analysts predict that Musk’s shareholding could lead to him taking an active interest in the social media platform which may result in a buyout.
“We would expect this passive stake as just the start of broader conversations with the Twitter board/management that could ultimately lead to an active stake and a potential more aggressive ownership role of Twitter,” said Dan Ives, an analyst at Wedbush Securities.
Musk has been selling off chunks of Tesla stock since asking his Twitter followers in a November Twitter poll whether he should sell some of his stake in the company. “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” Musk wrote, causing Tesla shares to drop by 24%.
3.5 million Twitter users voted 57.9% in favour of the move by Musk. He later said he would exercise options toward the end of the year.
According to regulatory filings, the billionaire has now sold around 13.5 million shares for approximately $14.1 billion. However, to fully meet his 10% pledge, Musk still needs to offload some 17 million shares.
According to Forbes, Musk’s net worth currently sits at $245.6 billion.
In an announcement, Square said that its new name, effective December 10, “acknowledges the company’s growth” and “creates room for further growth.”
In a statement, Square CEO and co-founder Jack Dorsey said, “We built the Square brand for our Seller business, which is where it belongs [...] Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy.”
Dorsey founded Square in 2009 alongside Jim McKelvey with a focus on in-person payments and its smartphone-friendly card readers. Since, Square has added a peer-to-peer digital banking app and small business lending and started to offer crypto and stock trading.
Under the rebrand, there will also be a name change for Square Crypto, a separate part of the company focused on the advancement of bitcoin, which will soon become “Spiral”.
In a statement, Dorsey's company said that the name Block “has many associated meanings for the company — building blocks, neighborhood blocks and their local businesses, communities coming together at block parties full of music, a blockchain, a section of code, and obstacles to overcome.”
The announcement follows Dorsey’s resignation from his role as CEO at Twitter on Monday. He had served as the CEO for both Twitter and Square since 2015.
Tess Rinearson, who has led engineering teams at cryptocurrency startups such as Interchains, Chain, and Tendermint, has been brought in by Twitter to lead the effort. Rinearson will report to Twitter CTO Parag Agrawal, who will help set the direction of the newly-formed team which will explore three primary areas of interest. Firstly, the team will look at how Twitter can continue to support cryptocurrencies as a payment form for creators. Secondly, the team will explore how blockchain technologies can create a new way for creators to earn a living. And, lastly, they will lead Twitter’s efforts to decentralise social media with the support of Bluesky.
“There’s massive and growing interest among creators to use decentralized apps to manage virtual goods and currencies,” Twitter said. “Tess will focus here, with a long term goal of exploring how ideas from crypto can help us push the boundaries of what’s possible with identity, community and more.”
