Figure/Figure worm
On Tuesday (April 26), the three major U.S. stock indexes fell across the board, with the Dow down 2.38% at 33239.45 points; the NASDAQ down 3.95 percent at 12,490.74 points; and the S&P 500 down 2.81 percent at 4,175.21 points.
It is worth noting that the decline in the US stock futures index is still increasing after hours, with nasdaq futures finally closing with a plunge of 5.29%, and the S&P futures index plunging 3.59%.
Big tech stocks were all lower, with Apple down 3.73 percent, Microsoft down 3.74 percent, Google A down 3.04 percent, Amazon down 4.58 percent, Meta down 3.23 percent, and Nvidia down 5.60 percent.
New energy vehicle stocks also fell sharply, Tesla fell 12.18%, and the market value evaporated by more than $100 billion. In addition, Lucid fell 8.74% and Rivian fell 9.50%. Faraday Future (FF) triggered a circuit breaker several times, falling more than 41% intraday and closing down 12.92%.
In terms of Chinese stocks, the Nasdaq Golden Dragon Index fell 3.05% to close at 6030.54 points. Most of the popular Chinese stocks were lower, with Xiaopeng Automobile down 6.20%, Weilai down 5.49%, Ideal Auto down 5.20%, Baidu down 3.98%, Alibaba down 2.16%, Pinduoduo down 2.13%, Tencent Music down 1.70%, and JD.com down 0.95%.
What happened?
Investors didn't wait for Microsoft and Alphabet's first-quarter results after the opening, fearing more of what Netflix saw earlier in the earnings season could be a big reason for the sell-off in tech stocks.
The Fed may raise interest rates more aggressively
The prospect of the Fed's accelerated monetary policy tightening has heightened fears that the economy may slow.
David Folkerts-Landau, chief economist at Deutsche Bank Group, noted in a note last week that the Fed may have to raise interest rates to much higher than expected in the context of high inflation. It needs to act quickly to prevent higher inflation from being factored in expectations, forcing it to raise interest rates further and forcing the economy to slow further. He warned of the need to "prepare for a hard landing ahead."
Michael Howell, CEO of CrossBorder Capital, pointed out that historical experience, the Fed's normal tightening cycle will cause the S&P 500 to fall by about 15%; if added to the recession, it will fall by about 30%; if there is another banking crisis, it will fall by about 50%. In his view, the third case would not occur, but the actual situation may be between the first and the second, that is, from the peak to the low, there will be an adjustment of about 30% or less.
Fang Ming, director of the Global Financial Strategy Laboratory of Southwestern University of Finance and Economics, told the 21st Century Business Herald that with the Federal Reserve withdrawing from quantitative easing monetary policy, the asset bubble in the financial market was punctured, and the US stock market faced further revaluation, and it is expected that the future will continue to show a downward trend.
The U.S. economy faces the risk of stagflation
On Friday, the Fed's preferred inflation indicator, the Personal Consumption Expenditure Index, will be released before the day's opening. Previously, the US core personal consumption expenditure index rose 5.4% year-on-year in February. U.S. CPI rose 8.5 percent year-over-year in March, a 40-year high.
At present, some institutions predict that the US GDP in the first quarter of 2022 may slow down sharply to 1%.
Musk lightning $44 billion to win Twitter
On April 25, Twitter, a short-text social media twitter tweet famous for its little bluebird logo, announced that it would accept a privatization bid from elon Musk, the world's richest man, for $44 billion. It is also the second largest acquisition in the world so far in 2022.
Since 2020, acquisitions around the media, entertainment and information industries have sprung up. After Microsoft's acquisition of Activision Blizzard, Standard & Poor's acquisition of IHS Markit, Discovery Channel's acquisition of AT&T, and Amazon's acquisition of MGM Pictures, the Twitter acquisition attracted countless attention in April.
Following Microsoft's $68.7 billion acquisition of Activision Blizzard, Musk's $44 billion acquisition of Twitter is the second largest acquisition in the world so far in 2022. Adding to the drama is that from the end of January to April 25 this year, "Iron Man"'s acquisition of "Little Blue Bird" has escalated step by step, and finally showed a "brutal knock on the door" posture.
At noon on April 25, local time, unlike other large companies that distributed major news with long-form public relations press releases, Twitter's chairman of the board of directors Bret Taylor announced the huge "selling order" through only a 9-word tweet: "The board has reached an agreement with Musk. Subsequently, Twitter CEO Parag Agrawal retweeted the message.
The above acquisition proposal, proposed by Musk on April 14, has caused an uproar in the market in the past two weeks. At first, the market waited for Twitter to fight some resistance, such as releasing the "poison pill plan", but in the early morning of April 23, Musk issued a tweet announcing that "barbarians are at the door", forcing Twitter's board to the edge of making decisions.
In fact, according to Musk's acquisition plan, Twitter's board does not have much room for manoeuvre. By the end of March, Musk had quietly collected a whopping 9.1 percent stake in Twitter and would sell twitter if his takeover was rejected. Such a large amount of equity sales may dump Twitter's stock price and form a sharp decline.
On April 25, Twitter's board of directors agreed to Musk's cash acquisition of Twitter at $54.20 per share for a total consideration of $44 billion.
After the news, Twitter shares rose 5.7% to a further rise to $51.70, getting closer to Musk's purchase price. Next, Twitter will hold a shareholders' meeting to vote and accept regulatory scrutiny of the legality of the acquisition. However, mainstream market analysis believes that Musk will most likely not encounter acquisition obstacles, in other words, Twitter is basically Musk's bag.
It is known that Musk hired Morgan Stanley to lead a financing package related to the acquisition. Currently, Musk has secured $25.5 billion in debt and margin loan financing and $21 billion from equity financing, for a total of $46.5 billion. That's enough for Musk to pay in cash to Twitter's current shareholders, and enough to pay for investment banks and lawyers.
Vague economic interests
Founded in March 2006, Twitter is two years behind Facebook and is the progenitor of short-text social media and "microblogs." However, since the continuous disclosure of financial information after the listing in 2013, the market has found that the company's ability to make money is limited, and the capital aura is gradually declining. The focus on Musk's acquisition also includes many doubts about the market.
According to the acquisition plan, after Musk's acquisition, Twitter will be delisted as a "privatization company". This means that it will no longer be obligated to disclose to the public financial reports, major business plans, management's interpretation of operations, and much more. However, the public still can't help but wonder, what is Musk's plan to reshape Twitter?
As of April 25, Twitter's market capitalization at the day's closing price reached 39.477 billion, while Facebook, renamed Meta, had a market capitalization of $507.59 billion. It can be seen that Twitter, which follows the concept of "social media" to go public, has less than one-tenth of the value assessment of leading enterprises in the capital market.
A simple number can explain the above differences. The average number of daily active users (DAU) is one of the most commonly used benchmarks in the capital markets to evaluate the value of social media, with Twitter currently exceeding 200 million and Facebook reaching nearly 2 billion.
In the 16 years since its inception, Twitter's user growth seems to have lost its strength. The market had to doubt how it was played, with even Musk himself tweeting in March questioning "Twitter is dead?" "Because many people have empty accounts, but rarely send content."
So far, the company has not developed a profit model that satisfies the market. In addition to the lack of bright results, the company has also faced tremendous regulatory pressure, and controversy has emerged in the online world.
It wasn't until February last year that Twitter suddenly announced an "innovation" program. The latest business goal is to increase DAU from its current approximately $200 million to $315 million by the end of 2023, doubling annual revenue to $7.5 billion. The company's management also ambitiously said it would change the management style of the past few years that was "slow to act, lacked innovation, and was not trusted."
Twitter expects to release its latest results for the first quarter of this year on April 28. The growth of daily active users and advertising revenue will become the focus of the market's revaluation of the company's value.
Is the acquisition of Twitter a "good deal" in economic sense? In this regard, Musk himself seems to have given the answer. In a public statement in mid-April, he noted that his acquisition of Twitter "did not consider the economy", but merely considered the public significance of Twitter in playing a platform for speech.
But the market can't ignore Musk's economic gains and losses, because it's about the larger industry. Musk is one of the most well-known serial entrepreneurs in recent years, and his companies include Tesla, a new energy vehicle manufacturer, SpaceX, a spacecraft developer and manufacturer, and even Neuralink, a company that studies brain-computer interface technology. At a time when he is involved in so many cutting-edge technologies and urgently needs to "burn money", is Musk rich enough to buy Twitter with a questionable profit model?
Currency broker OANDA analyst Edward Moya pointed out that at least Tesla's shareholders will not be happy about the acquisition, because "Musk will have to divert attention from winning the electric car race."
Rebalancing of influence
Musk's companies aren't always profitable, but they usually leave a lot of voice in their respective fields. Now, he seems to want to review this business "routine" on Twitter, forming a delicate balance of influence value and economic interests, so as to justify the acquisition. But as social media regulations in Europe and the United States tighten, how exactly does Twitter exert its influence?
First of all, it has to be mentioned that europe and the United States currently tend to strictly regulate social media. The White House has paid attention to Musk's acquisition of Twitter. On April 25, the White House, while declining to comment on the acquisition, said U.S. President Joe Biden had long been concerned about the power of social media platforms. White House spokesman Jen Psaki also said social media platforms need to take responsibility.
Europe has also been following suit for regulation of the digital economy. On April 23, the European Union agreed on a new Digital Services Law that would force tech giants such as Google, Meta and Twitter to more aggressively regulate illegal content on their platforms or face billions of dollars in fines.
Second, Musk himself has commented on the function of social media many times, but can Twitter really realize Musk's ideas in a real-world operation?
Many of the super-rich in the West have acquired large media outlets to create a field of opinion that benefits them. However, Twitter is different from newspapers and TELEVISION stations. According to Musk's recent statement on his personal Twitter platform, he intends to build Twitter into a "new platform".
Musk said earlier that he hoped Twitter would continue to provide a platform for people to express themselves. He also pointed out that Twitter's algorithms should be public, such as why the logic of recommending or blocking some content should be transparent.
Tesla evaporated 3 tweets overnight
It is worth noting that at the opening of the market on Tuesday, April 26, Eastern Time, Tesla opened low and went low, and by the close, Tesla's stock price fell by more than 12%, and the market value evaporated by $125.626 billion (about 823.7 billion yuan). As of Tuesday's close of EST, Twitter's market value was $37.935 billion, which means that Tesla's market value has evaporated more than 3 Tweets in one day.
Since Musk announced his increase in Twitter, Tesla's market value has evaporated by $250 billion. Musk's 17 percent stake in Tesla also shrank by about $42 billion, a loss that is close to his subscription price for Twitter.
Source | 21st Century Business Herald (reporters: Jiang Yue, Li Yinong), public information
This issue is edited by Xueying Liu