On Monday, April 4, social media giant Twitter unexpectedly surged nearly 27 percent, its biggest intraday gain in more than four years, largely due to Tesla CEO Musk disclosing a huge passive stake in Twitter.
According to 13G filings released by the SEC, Musk held 73,486,938 shares of Twitter on March 14 through the Elon Musk Revocable Trust, equivalent to 9.2% of the company's issued common stock.
That makes Musk Twitter's largest outside shareholder. While it's unclear how much Musk spent on the shares, the stakes are worth nearly $2.9 billion based on Friday's Twitter closing price, pushing up equity values to $3.5 billion after Monday's surge.
The compliance documents did not reveal the purpose of Musk's large stake in Twitter and what plans he had to intervene in the operation of the social media. The SEC-filed Form 13G is sent to report a party's ownership of more than 5% of the Company's total offering. A holding of less than 10% is often interpreted by Wall Street as "passive holding," in which the shareholder does not seek control of the company or influence who will run the company.
But Musk, as a "heavy Twitter user", has a huge influence of more than 80 million fans on the platform, and he criticized some of Twitter's content control policies 10 days before disclosing the large holding, and even jokingly asked netizens "Do you want a new social media", all of which have opened up a huge imagination space to the outside world and become the main reason for Twitter's surge today.
Dan Ives, an analyst at Wedbush, a well-known brokerage in Tesla's analytics community, said that suggesting Musk's enthusiasm for reforming social media may try to take a more aggressive (or radical) stance on Twitter, which could eventually lead to some form of acquisition:
Although the net worth of Musk, the world's richest man, may be as high as $288 billion, far exceeding Twitter's market capitalization of $31.5 billion before Monday's surge, most of Musk's wealth is linked to tesla and SpaceX stock, so he can't buy Twitter on his own.
Still, accumulating passive equity could be the beginning of a broader dialogue between Musk and Twitter's board/management, which could eventually lead to a potentially more aggressive ownership role for the latter. At the same time, investing in Twitter does not mean that Musk is no longer interested in Tesla.
The above analysts believe that Musk will intend to actively push twitter for change, because anyone trying to create a new social media from scratch is not realistic, Musk decided to buy an existing social media platform to transform, which will obviously be easier.
Moreover, Musk's decision to invest heavily in Twitter may prompt other activist investors to join in. Twitter has just recovered from the pressure of 2020 aggressive hedge fund Elliot Management to demand corporate change, which may have led to the surprise of co-founder Jack Dorsey's abrupt announcement of his resignation as CEO of Twitter last November and his replacement by the CTO.
In short, the outside world now generally believes that "in any case, Musk will change the direction of Twitter's development", which seems to be the main driving force for Twitter's stock price to rise. Since February 2021, Twitter's stock price has been slashed and outperformed social media competitors.
Market Commentary Gathering Media Vital Knowledge said Musk may try to use the stake to push for changes to Twitter's content rules. Bloomberg Intelligence believes Twitter's business positioning, and ultimately its credit profile, could be boosted by Maas's stake, despite the recent lever buyout concerns that could temporarily widen Twitter's corporate bond spreads.