Twitter's market value increased by more than $10 billion in two days (April 4-5) as Elon Musk, who has more than 80 million followers, bought a large number of shares and joined the board.
Taking a stake in Twitter does seem to eliminate a small risk for Twitter after Musk tweeted "Need a new social platform?" People might have thought he was going to start a new company, but now it seems like he wants to "reinvent" Twitter.
Why did Musk help Twitter take off?
Musk is the "Warren Buffett" of retail traders on Reddit, and just because he mentions an asset, let alone his investment in an asset, it will make other investors rush to buy it.
So far, most of his analysis has focused on meme stocks and some digital currencies.
A little over a year ago, he tweeted "GameStonk!" After that, GME shares rose 92% in one day. The next day, it rose another 134 percent.
In addition, compliance documents filed with the SEC of the U.S. Securities and Exchange Commission show that Musk's term as a director will end in 2024, and musk cannot be the beneficial owner of more than 14.9% of Twitter's issued common stock for the entire director's term or for 90 days after the end of the director's term.
From Twitter's point of view, inviting Musk to join the board can prevent him from taking a controlling stake in Twitter and becoming a "barbarian at the door" in the short term.
Maybe he'll add an edit button, maybe he'll try to "rescue" former President Trump from Twitter. But the most important thing for investors is that no matter what he does, he could make Twitter shares rise.
Twitter executives were pleased
"I am pleased to share with you our appointment of @elonmusk as a member of the Board of Directors!" Twitter CEO Parag Agrawal tweeted, "Through conversations with Elon in recent weeks, it is clear to us that he will bring tremendous value to our board. ”
Agrawal added: "He is both a passionate believer in service and a strong critic, which is exactly what we need in @Twitter and on the board to make us stronger in the long run." ”
Musk responded by saying, "Looking forward to working with parag & Twitter's board of directors to make significant improvements to Twitter in the coming months!"
"I'm really excited to have Elon on Twitter's board! He cares deeply about our world and the role of Twitter in it," Dorsey wrote on Twitter on Tuesday.
Wedbush analyst Daniel Ives wrote on Tuesday: "This is a friendly move by Twitter's board of directors to embrace Musk with open arms, and it is believed that Musk's joining Twitter will bring a series of strategic initiatives, which may include a series of near- and long-term possibilities." ”
What changes will Musk bring?
As the largest shareholder and board member, Musk could have a significant impact on the company's business.
In the past, Musk has criticized Twitter's interference in user speech, leading some to believe he may want to influence the company's policies on speech control. But all in all, investors are happy with Musk's arrival.
Bank of America Securities' Justin Post insisted on Twitter's buy rating, saying the valuation of 5.5 times its expected revenue for next year was attractive. "While Musk's stake may not bring any changes to execution and performance, it highlights the value of the platform for potential acquirers, or that Twitter can gain more value through changes," he wrote.
Analysts at Bespoke Investment Group said, "Twitter has long been criticized for failing to reach its full potential, and Twitter's shareholders hope musk will push the company in that direction." ”
Musk has been focused on Twitter, he said, "expecting Musk's stake to be just the beginning of a broader conversation with Twitter's management that could eventually lead to an increase in its holdings and potentially becoming a more active controller of Twitter." ”
Pilsen noted that Musk has a partnership with private equity firm Silver Lake Partners. A few years ago, Silver Lake acquired a large stake in Twitter. Still, "no one should get carried away with the idea that Musk and Silver Lake might take Twitter private."
There may be a lot going on in the future, and that will determine whether Twitter's rally will last.
Is Musk busy coming over?
Musk runs Tesla, SpaceX, Neuralink, and a company called Boring Company. Now, he's Twitter's largest shareholder.
Tesla plunged nearly 5 percent on Tuesday, are investors worried about Tesla's attention falling?
Gary Black, portfolio manager at Future Fund Active ETF, said: "The worst-case scenario is that he will be distracted and lose focus by Twitter. ”
Ross Gerber, CEO of Gerber Kawasaki, is not worried, "I think he'll be fine, he won't spend much time on the board, he'll be a good fit for Twitter." ”
Pierre Ferragu, an analyst at New Street Research, believes that one of Musk's biggest strengths is "unleashing the potential of its employees."
Ferragu believes Musk is a problem solver, and struggling Twitter has a lot of problems to solve.
"Musk's criticism of the Twitter platform is justified," Truist analyst Youssef Squali said, "And we believe that the main driver of this investment is Musk's desire to reinvent the platform to make it more open source and less controlled." ”