According to New York-based Hindenburg Research, there is a significant repricing risk to Elon Musk’s $44 billion offer to buy Twitter, Inc. (NYSE: TWTR) as the deal is overpriced, stated a report published by The Wall Street Journal.
Hindenburg Research is an investment research firm that is focused on activist short-selling. It said that the $54.20 per share offer has artificially inflated Twitter’s stock price.
The research firm is of the opinion that Musk’s purchase offer could decline in price following the recent release of the social media company’s disappointing first-quarter results, TWTR stock performing better than the market, and the potential for the Tesla (NASDAQ: TSLA) CEO to back off from the deal.
In a research note, Hindenburg Research said it is short-selling Twitter stock but did not reveal the details. When short selling, people/firms sell shares (that they don’t own) at a higher price with the intention of buying them back at a lower price later.
“As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower,” the research firm said in its note.
Wall Street’s Take
Last week, Evercore ISI analyst Mark Mahaney assigned a Hold rating on Twitter with a $60 price target (26.5% upside potential).
Commenting on Musk’s offer, the analyst said, “We’ve been surprised by how little mention of marketers there has been in the coverage of Musk’s bid for Twitter. Marketers are the ones who pay the bills @ Twitter, generating well over 90% of the company’s revenue. Marketers are the ones who help generate that FCF (free cash flow) for Twitter. So they might be worth some focus, especially since that FCF will be needed to cover those upcoming material interest payments.”
Overall, the stock has a Hold consensus rating based on three Buys, 27 Holds, and one Sell. The average Twitter price target of $51.63 implies 8.8% upside potential from current levels.
Website Traffic
TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (NYSE: SEMR), the world’s biggest website usage monitoring service, offers insight into Twitter’s performance.
According to the tool, Twitter’s website traffic registered a 24.1% decline in global visits in April compared to March. However, the footfall on the company’s website has grown almost 90% year-to-date against the same period last year.
Conclusion
If Hindenburg Research’s concerns turn out to be true, it could result in a major decline in the price of TWTR stock, which has gained about 25% over the past three months.
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