Twitter/Elon Musk: Social media star becomes social media owner

Is Elon Musk trolling the world with a multi-billion dollar investment to create a meme stock? Or is his investment in social media company Twitter a smart value play for a stock that’s down nearly 40 percent over the past year?

On Monday, a submission revealed that the Tesla boss had acquired nearly a tenth of Twitter. The type of filing he has chosen is for passive owners. Musk’s own Twitter account is known both for its popularity and for having run into regulatory troubles. So far, he has not tweeted about the investment.

After the announcement of the stake, Twitter shares rose by 26 percent. There has been no lack of drama on Twitter in recent years. Jack Dorsey, the founder of the Mercurial company, stepped down as chief executive late last year. The company had agreed to a compromise with Elliott Management in 2020 that put the hedge fund on the board and brought it in $1 billion Investment by Silver Lake Partners.*

The hope was that together, these bright minds could boost Twitter’s advertising business and revenue growth. In 2021, Twitter generated revenue of $5 billion and had 217mn “monetizable” daily users. By 2023, the company promises that this will reach 315 million $7.5 billion, or Wall Street is skeptical. As of early 2020, Twitter trades at a median forward revenue multiple of 7.5. Competitor Snapchat’s rating was twice as high.

Musk’s company is far more popular with investors. Over the past two years, Tesla shares have risen more than 10 times. In contrast, Twitter’s are up 70 percent. That’s below the broad rise of the S&P 500. Musk’s 17% stake in Tesla is worth $187 billion, six times the total market cap of Twitter.

Silver Lake and Elliott have already considered a takeover of Twitter. Musk could now join such a group — extending his existing Twitter stake and putting more capital into a deal. Washington should issue a Twitter warning.

*This article has been amended to reflect that Twitter’s stock is up 26 percent Twitter/Elon Musk: Social media star becomes social media owner

Adam Bradshaw

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