The much-talked-about takeover of microblogging site Twitter (TWTR) by the world’s richest man, Elon Musk, has found another interesting angle. According to WSJ, Musk has mentioned to a group of potential private equity investors that he would take the company public again after a revamp.
Since Musk’s initial disclosure of buying the company in early April, TWTR stock has gained more than 24%.
Twitter to Re-List Post Revamp?
Musk is the CEO of electronic vehicle (EV) maker Tesla (TSLA), and his interest in Twitter has raised many questions about his motives. The billionaire has said little about how and what will change on Twitter post his buyout, except for a few critical suggestions and the advocacy of free speech.
Notably, Musk is holding talks with a few private equity investors to pitch into buying the social media platform out of the $21 billion that he has committed to putting into the acquisition. While doing so, Musk has said that he intends to take the company public in a couple of years after its successful revamp.
Musk’s step to luring private equity partners is proof that even the topmost billionaire on earth finds it rather challenging to gather the funds required to undertake an acquisition.
Typically, private equity firms list a company within five years of acquiring and revamping it. And Musk is luring them by offering the same theory. Investors hope that Musk will take up the cause quickly and effectuate a turnaround at Twitter to make it profitable.
Twitter’s buyout deal is yet to receive shareholder approval and is expected to close in 2022 subject to regulatory approval. However, not all are happy with the takeover, with Twitter witnessing mass deactivations of user accounts.
Analysts’ Take
Recently, Barron’s published an article titled “Can Elon Musk Save Twitter?” On the same note, Evercore ISI analyst Mark Mahaney shared his thoughts, stating that Twitter doesn’t need anyone to “save” it, nor is it broken, it only needs improvement.
Mahaney goes on to state how Twitter has successfully grown its revenue through advertising in both 2020 and 2021, quite the opposite to the popular belief that advertising spend is declining. Plus, the company has historically generated solid free cash flows (FCF) and is in line to earn similar levels or even higher FCF going ahead.
Moreover, even in the Q1 results, Twitter substantially surpassed earnings estimates, but marginally missed revenue expectations.
Mahaney has a Hold rating on Twitter with a price target of $60, much above the agreed takeover price, and implies 22.8% upside potential.
According to Mahaney, “Part of the problem with Twitter has been its neighborhood. As a social media or a user-generated content platform, Twitter has always been compared with Facebook (FB), Instagram, YouTube, Snap (SNAP), and now TikTok. And that is a very challenging comparison from a user and from a marketer perspective.” This is very unfair to the company as its executives also agree with the same thesis.
Overall, TWTR stock has a Hold consensus rating based on three Buys, 26 Holds, and two Sells. The average Twitter price forecast of $50.76 implies a modest 3.9% upside potential to current levels.
Concluding Thoughts
Whether or not Twitter will go public after Musk’s buyout is secondary. However, the real question is whether the buyout would even go through and how Musk would change the course of the company. It’s a wait and watch gamble.
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