Twitter: The Mystery Of The Elon Musk Steamroller (NYSE:TWTR)

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The News

It’s almost certain that you’ve heard that Elon Musk has taken a position in Twitter (NYSE:TWTR). There’s some irony here considering that on March 27th, there was a head fake:

Elon Musk Head Fake

Elon Musk Head Fake (Elon Musk (Twitter))

Once the real news hit, second order effects took hold, and the follow up news started to gush:

  1. Musk was added to TWTR’s Board of Directors.
  2. Trump’s SPAC (DWAC) saw a sudden 17% decline.
  3. Several ETFs suddenly garnered extra attention.

Here’s an interesting and purely economic visual:

Twitter vs peers in price % change
Data by YCharts

This chart won’t win any beauty contests but that is kind of the point. Namely, that the news of Musk “joining the enemy” caused a serious spike in TWTR’s price, while simultaneously suppressing Trump’s DWAC SPAC. Both SNAP and META wiggled up a bit. TSLA was included, but there’s nothing to see there. In any case, the spread between TWTR and DWAC in just a few days is a whopping 58%.

Who’s Winning, Who’s Losing?

Well, the charts aren’t great. In large part, TWTR has been swept up in the same problem as all growth stocks. It hasn’t been great for the NASDAQ (QQQ) this year.

Invesco QQQ trust price % change
Data by YCharts

At the same time, “only” being down 11% isn’t catastrophic. And, if it wasn’t for the Elon Musk news, TWTR would have also been down about 11%, right along with the QQQ. That’s very clear.

Twitter price % change
Data by YCharts

So, TWTR is “good” but not great. It was acting like just another piece of the QQQ pie, until just recently. And, it was far behind the real beasts this year: (XOM), (HAL), (CF), (OXY), (ADM) and (NUE), just to name a few.

Exxon mobil vs peers in price % change
Data by YCharts

The themes are clear to me: energy, infrastructure, metals and materials. I wrote about this, to help clarify for investors. In short, I see this as a shift from growth to value, a flight to safety, and a shift from bits to atoms.

The real point is that it’s not clear if TWTR’s business has changed. After all, there’s noise via Elon Musk, but also the markets have clearly been shifting. Simply reference the charts above if there’s any feeling of ambiguity.

Has TWTR Changed?

I don’t dislike TWTR but the empirical story doesn’t inspire me.

TWTR Fundamentals

TWTR Fundamentals (FASTgraphs & Author)

In particular, the earnings are very messy. While the “blended” P/E of 51 is currently below the normal P/E of 78, it’s still not exactly a bargain. Further, just compare TWTR to Meta Platforms (FB). Here’s a quick view, so you can judge for yourself at-a-glance.

FB Fundamentals

FB Fundamentals (FASTgraphs & Author)

This isn’t meant to be a comprehensive comparison between TWTR and FB. Instead, it’s a friendly reminder that there are plenty of fish in the sea. In this case, we’re looking at social growth stocks, and specifically media behemoths.

What’s The Key?

Well, here’s a quick recap first: Until the Musk news, TWTR wasn’t doing better (or worse) than QQQ. Obviously, it’s not in the winner’s circle of energy, infrastructure, metals and materials stocks. More relevant, TWTR hasn’t been as appealing as some peers in terms of valuation, e.g., FB.

So, what we know now is that TWTR has been rather “ho hum” for a while. Therefore, the near-term catalyst is Elon Musk. In fact, this might be the critical, and defining moment for TWTR for the long haul.

As a useful reminder, Jack Dorsey stepped away from TWTR to focus on Block (SQ). While that hasn’t quite turned into the catalyst I suspected it would, nevertheless Dorsey’s eye is on Bitcoin (BTC-USD) and crypto.

In other words, the stronger of the two titans (Musk vs. Dorsey) is clearly Musk. Not just financially, but literally in terms of attention toward vs. attention away. Perhaps more to the point, Dorsey might even strongly support Musk’s attempts to shake up TWTR. After all, we have now heard that Dorsey regrets his role in centralization of the internet.

All of this reaffirms my thinking that Musk isn’t just a passive investor, nor is he merely a Board Member. No, instead, the realization ought to be that Musk is the key, or at least the pivot point for TWTR. That is, what Musk does next is of paramount importance, and I suspect we’ll see more than a nudge.

What’s more, previous critics of Musk appear to be on board. Here’s one really good example.

Michael Burry, the fund manager of “The Big Short” fame, appeared to welcome Tesla CEO Elon Musk’s purchase of a 9.2% stake in Twitter this week.

“Of course @elonmusk buying enough shares to control Twitter would be good for America,” Burry said in a now-deleted tweet. “Period.”

Ultimately, Musk and TWTR are joined at the hip. But, it’s lopsided, where Musk is the driving force. And, it’s not clear if Musk simply lacks appreciation of Parag Agrawal, or if he’s just trolling TWTR’s new CEO. In any event, I suspect Musk will steamroll TWTR’s board, and C-suite.

Wrap Up

I would be very bullish on TWTR if there was supreme clarity on Musk’s objectives. But, of course, it’s as clear as mud. That means that I am only modestly bullish, due to the prospect of high volatility, perhaps to the downside. However, I am indeed bullish, in light of Musk’s technology prowess and track record of success:

  • Tesla (TSLA)
  • PayPal (PYPL)
  • SpaceX
  • DeepMind

I wouldn’t be surprised to see TWTR reach $70 in 2022. The 52-week range is approximately $31 to $73, and at a current price of $50, we’re smack dab in the middle. It shouldn’t take more than 1-2 “events” or catalysts, or even tweets to add $5-10 somewhat rapidly. But again, I suspect there could be some serious downside. For example, the government might poke at Musk’s tweets, and the related possibility of stock manipulation. I don’t have a crystal ball here, I’m merely pointing out there when it comes to Musk, anything is possible. Putting it in a word: volatility.

Final Note

Ultimately, no one knows what Musk is planning. Some ideas include:

  • Changes to TWTR’s algorithm or even making it public.
  • Increasing the verification and validation of accounts.
  • Increasing accountability while simultaneously increasing free speech.
  • Better self-regulation of “crypto bots” and related spam.
  • Increased focus on integration of blockchain technology (e.g., NFTs)

Just remember two final things. First, Musk is just one guy on a board of 12 people. So, there’s a limit there, in an advisory role. Second, in contrast, Musk is a cult of personality, for better or worse. And, again, I think adding it all up, we’re going to see more volatility in TWTR’s technology and price. We’ll see.

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