In one of the least surprising announcements in a long time, Elon Musk let us know on Friday that he was abandoning his proposed takeover of Twitter (TWTR). It was an unsurprising announcement because once Musk started to raise concerns about the number of bot accounts on the platform, it was pretty obvious that the deal was dead. The market, as it tends to do, recognized that truth early but now that it is all over but the shouting, what can investors expect to see from the two stocks, TWTR and TSLA?
At first, on April 4, when an SEC disclosure revealed Musk had accumulated a 9% stake in Twitter, both stocks jumped. Twitter needed a savior, it seemed, and Musk could be it, while the feeling about TSLA was that it would make no difference. Musk had already shown with SpaceX and other companies that he was quite capable of handling multiple leadership responsibilities. Even though Twitter was obviously a much bigger project in some ways than even conquering space or digging massive tunnels for futuristic transport schemes, traders initially gave the impression that Musk was up to it.
That optimism lasted one month for TWTR, and only one day for TSLA, as the chart below shows. The range is showing April 1 onwards, with TWTR in green and TSLA in blue.
With hindsight, it seems that the difference was more about human nature than solid evidence. Tesla shareholders and potential buyers quickly became nervous about anyone’s chances of turning Twitter around, and some pointed out that the proposed buyout price of $54.20 and the fact that the initial “announcement” came on Twitter were reminiscent of another Musk proposal that came to naught (that would be Musk saying he'd make Tesla a private company).
After just one night of reflection, the deal started to look like it had no upside for Musk and/or TSLA. It would be at best a distraction and probably a suck on cash, while leading to an inevitable alienation of a number of potential buyers of Tesla cars, and TSLA stock, due to the politicized nature of some of the proposed changes coming to Twitter.
From the Twitter perspective, on the other hand, even the slight chance of a knight in shining armor coming to the rescue was something to celebrate. Growth at the company in terms of users and revenue had stalled completely, and who better than someone like Elon Musk to turn their fortunes around?
The problem, though, was that as TSLA stockholders seem to have guessed early, Musk was experiencing some buyer’s remorse. Even those who believed that the proposal was serious in the first place began to see him raise possible objections, and the writing was clearly on the wall in May, once he said the deal was on hold pending a review of fake accounts. Shortly after that, TWTR shareholders sued Musk for “stock manipulation” and the outlook for TSLA became one of a long, drawn-out nuisance more than anything.
Now that we know that the deal is dead, what comes next?
For Twitter, it is not good news. The board initially saw the offer as hostile, but by April 25, they had changed their tune and accepted it. When the history of this is written, we may know whether that was a genuine recognition of value, or them calling what they saw as a bluff. Whatever it was, it was seen as an admission by Twitter’s board that there was a way to unlock potential in the company. That potential now looks as if it will stay locked, and the best that Twitter can hope for now is a legal judgement giving them some cash.
TWTR stock dropped this morning on the news, but that may be just the beginning. Even if fake accounts were just a convenient excuse for Musk and not actually as bad as he claims the problem to be, the idea that they are a problem can now be a negotiating tool for any potential advertiser on the platform and could therefore hurt revenue for a long time at a company that has always had a user monetization problem.
For TSLA, though, this is really just Elon being Elon. He has always been mercurial and gotten himself in trouble. At times, that has made him an embarrassment to Wall Street types, but his talent and vision have always made that a price that shareholders are prepared to pay. Now that the Twitter affair is over, what matters for Tesla is that, despite the market and economic challenges beyond its control, they just announced yet another record month of production in June 2022. For a company blessed with demand that outstrips their ability to meet it, that is what matters, not Musks's dalliance with a social media company. Once this current market volatility is over, that is what will drive TSLA higher again.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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