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Elon Musk turned Twitter into dead money: Morning Brief

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Monday 11 July 2022

Today’s newsletter is here Brian Socian editor-at-large and Anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

Over the course of my career, I’ve come to terms with one thing: Rich, powerful people will do whatever the hell they want.

The reason for this is pretty simple – they have the money, the connections, and the ruthless aggression to foster any reality they want.

That may sound cynical, but I’ve seen it over and over again. And now everyone is seeing it firsthand as the world’s richest person, Elon Musk, walks out of his $44 billion deal for Twitter late Friday.

Musk is terminating the merger agreement with Twitter for “material” violations of several terms of the agreement, his team believes. Some of those provisions appear to include Twitter’s recent decision to lay off about a third of its recruiting team and not provide Musk with what it believes to be accurate data on “bots” or fake accounts.

Twitter Chairman Bret Taylor tweeted the company will take this to court to get Musk to close the deal or have him pay the $1 billion breakup fee. Taylor declined to comment on the unfolding series of events to me. On Sunday evening, Bloomberg reported that Twitter had hired the legal heavyweights in Watchell, Lipton, to sue Musk.

A Twitter spokesman declined to make CEO Parag Agrawal available for an interview. (A quick note aside: Agrawal has been bizarrely quiet since the merger news and it would be good for him to show some leadership outward to rally the troops as his company is essentially burning to the ground.)

“This is a ‘Code Red’ situation for Twitter and its board as the company will now face 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 emerging this time while court cases are being played out in court,” Wedbush analyst Dan Ives said in a note to clients following Friday’s news.

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

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

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

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

  1. Given the debate over fake accounts, Wall Street won’t trust Twitter’s operating metrics.

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

  3. Investors’ focus will return to Twitter’s underperforming operational performance compared to Meta (META), Snap (SNAP) and TikTok.

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

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

  6. Twitter is now locked in a costly long-term court battle with the world’s richest person, which is not a great place.

  7. No other bidders will likely appear. For years, investors believed that Twitter would eventually be acquired. That needs to be completely removed from the equation.

  8. Musk is likely to divest his nearly 10% stake in Twitter, which would weigh on the stock price. The potential for that alone could weigh on the stock.

In one fell swoop, Musk single-handedly destroyed a public company. He destroyed it because he has the money, the connections, and the ruthless aggression to do it.

The blunt truth is that Musk probably doesn’t give a damn that he left a platform used around the world in utter shambles. It comes with territory with the likes of Musk.

If this catastrophe is good news for anyone, it could be Tesla (TSLA) shareholders.

Tesla stock is down nearly 30% since Musk announced his deal to buy Twitter, and Ives believes the end of that deal could mean a recovery rally for shares. However, the looming court battle between Musk and Twitter will likely shy the street from getting too hung up on either company’s prospects in the coming months, Ives said.

Happy trading… and we wish you the best of luck trying to come back from the abyss, Twitter.

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