Turn Elon Musk Twitter into dead money: Morning Brief

Turn Elon Musk Twitter into dead money: Morning Brief

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Monday 11 July 2022

Today’s newsletter by Brian Suzyitinerant editor and Announcer at Yahoo Finance. Follow Suzy on Twitter Tweet embed and on LinkedIn.

As my career went on, I’ve realized one thing: the rich and powerful will do whatever they like.

The reason for this is very simple – they have money, connections, and ruthless aggression to enhance the reality they desire.

This may sound ironic, but I’ve seen it over and over again. And now everyone is seeing it firsthand with the world’s richest person, Elon Musk, backing away from his $44 billion deal to Twitter late Friday.

Musk terminated the merger agreement with Twitter over what his team believes are “material” violations of several provisions in the agreement. Some of these judgments appear to include Twitter’s recent decision to provide nearly a third of its recruiting team and not provide Musk with what he sees as accurate data on “bots” or fake accounts.

Twitter Chairman Brett Taylor tweeted that the company would take this to the courts to convince Musk to close the deal or have him pay a $1 billion breakup fee. Taylor declined to comment on the ongoing series of events. On Sunday evening, Bloomberg reported that Twitter had hired legal heavyweights Wachel and Lipton to sue Musk.

A Twitter spokesperson declined to make CEO Parag Agrawal available for an interview. (Quick aside: Agrawal has been oddly quiet since news of the merger came out and it would be good for him to show some outside leadership to mobilize forces since his company is basically burning to the ground.)

“This put a ‘code red’ for Twitter and its board of directors as the company will now fight Musk in a protracted court battle to recover the deal and/or the minimum $1 billion breakup fee. We don’t see any other bidders appearing at this time while the legal process in the courts takes place,” Wedbush analyst Dan Ives said in a note to clients following Friday’s news.

Elon Musk arrives at the exhibition In America: An Anthology of Fashion titled Met Gala at the Metropolitan Museum of Art in New York City, New York, US, May 2, 2022. REUTERS/Brendan Mcdermid

Ives lowered his price target on Twitter to $30, and we expect other analysts on the street to make similar moves this week.

To that end, here are eight reasons why Twitter stock is likely to be dead money for the foreseeable future after Musk’s iron fist was criticized on the social media platform:

  1. Wall Street will not trust Twitter’s operating metrics in light of the fake controversy over the accounts.

  2. Twitter’s advertising business will be hit for a while by Musk’s involvement.

  3. Investor focus will return to Twitter’s subpar operational performance versus Meta (META), Snap (SNAP), and TikTok.

  4. The talent drain on Twitter has opened up amid the Musk debacle, affecting future product development.

  5. There is a growing lack of confidence in the unproven new CEO Agrawal.

  6. Now locked in a protracted and costly court battle with the world’s richest person, Twitter is not a great place to be.

  7. It is unlikely that any other bidders will appear. For years, there has been an opinion from investors that Twitter will eventually be acquired. It should be completely removed from the equation.

  8. Musk is likely to give up his 10% stake in Twitter, which will put pressure on the stock price. The mere possibility of this happening could affect the stock.

In one fell swoop, Musk destroyed a public company. He destroyed it because he had the money, connections, and cruel aggression to do so.

The honest truth is that Musk probably doesn’t care that he left a platform in use around the world in complete disarray. Comes with the area with people like Musk.

Now, if this disaster is good news for anyone, it could be Tesla (TSLA) shareholders.

Tesla stock has lost nearly 30% since Musk announced his deal to buy Twitter, and Ives believes that canceling that deal could provide a rebound for the shares. However, the looming court battle between Musk and Twitter is likely to make the street anxious about getting too excited about either company’s prospects in the coming months, Ives says.

Happy trading…and good luck trying to get back from the Twitter cliff.

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