The much talked about Musk and Twitter (TWTR) saga continues to gather prominence with each passing day. Speculation was rife that Twitter’s “bot issue” was simply one of Musk’s tactics to lower the bid price. Now, it comes directly from the horse’s mouth! Amid chaos, TWTR stock has lost more than 25% since Musk’s initial stake news.
In his latest tweet replying to Teslarati, Musk stated his offer of $44 billion was based on Twitter’s SEC filings portraying an accurate picture of the company. However, Twitter CEO Parag Agrawal’s hesitance to that spam is less than 5% of the monetized daily active users (mDAUs) has led him to believe otherwise.
“This deal cannot move forward until he does,” Musk tweeted. At an “All In” tech conference in Miami held on Monday, Musk noted that he believes 20% of users are fake/spam accounts, which implies a four-times higher claim than what Twitter claimed. As a result, Musk noted that the $54.20 per share deal is too high for such a low actual mDAU base.
Twitter Risk Analysis
Notably, if anyone, including Musk or his team, has thoroughly read through the risk factors section of Twitter’s quarterly report, it clearly states that “Spam and fake accounts could diminish the experience on our platform, which could damage our reputation and deter people from using our products and services.”
“Although we continue to invest resources to reduce spam and fake accounts on Twitter, which includes our investments to improve the health of the public conversation on Twitter, we expect spammers will continue to seek ways to act inappropriately on our platform,” the company stated in its first quarter fiscal 2022 report.
Moreover, the company states that higher growth in user accounts on Twitter results in “increased efforts by spammers to misuse our platform.” Twitter also mentions that the increase in spam could result in a lower mDAU growth rate and engagement, leading to higher operational costs for the company.
TipRanks too offers the Risk Analysis of listed companies, and if we read through its Cyber Security risks (under Tech & Innovation segment), we can see the risk regarding the fake/spam accounts mentioned in Twitter’s 10Q.
According to the TipRanks Risk Factors tool, Twitter stock is at risk mainly from two factors: Finance & Corporate and Tech & Innovation, which contribute 35% and 24%, respectively, to the total 37 risks identified for the stock.
Wall Street’s Take
Yesterday, Citigroup analyst Ronald Josey noted that he does not believe the Twitter deal could halt because of the spam review. Yes, Musk’s hesitation to review the mDAU count effectively will delay the process, but Josey believes that it will not materially impact the deal structure in any way.
Josey maintained a Hold rating on the TWTR stock with a price target of $54.20, which implies almost 45% upside potential to current levels.
Overall, the TWTR stock has a Hold consensus rating based on one Buy and 27 Holds. The average Twitter price target of $51.71 implies 38.3% upside potential to current levels.
Concluding Thoughts
The microblogging site’s performance depends on the number of actual users on its platform. However, Musk should have undertaken proper due diligence before signing any deal or takeover. Pointing out issues at this stage indicates Musk’s refusal to go ahead with the deal or to move the agreed-upon takeover price to his advantage, a view that several critics have been echoing for a long time.
It remains to be seen when and how the deal moves forward, with the company’s resistance to offering clarity and Musk’s hesitation over the obvious.
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