Musk sold $8.5 billion worth of Tesla stock within 3 days of the Twitter takeover deal. Additional sales would further weaken Tesla.
A lot has happened since Elon Musk offered to take Twitter private for $44 billion. Tesla investors fear the deal will cloud the automaker’s future, at a time when the billionaire’s attention may be essential to help it navigate the current crisis. What are the major changes Musk is planning for Twitter, and could Musk’s involvement with Twitter hurt Tesla shareholders?
The serial entrepreneur’s Twitter adventures began on January 31, when he quietly began accumulating shares, revealing a 9% stake in Twitter on April 4. On April 14, Musk offered to buy Twitter for $54.2 per share and “unleash” its potential.
In May, after the board accepted the offer and markets continued to fall, Musk threatened to walk away from the deal, believing that there are a huge number of bots (fake users) on the platform, which is not publicly disclosed and which would significantly reduce the number of genuine “users”, which advertisers pay for.
On June 6, Twitter received a letter from Musk asking him to provide Twitter’s spambot data or he could terminate the agreement. Some analysts think it could be a negotiation method to bring down the acquisition price after the market turmoil.
This trend is seen across the industry. Just recently, private equity firm Thomas Bravo slashed the takeover price of software maker Anaplan by 3%. Instead of engaging in a long trial, the buyer often has an interest in accepting a small reduction. For Twitter, the story may be different, as there may be a problem with fake users and Musk may be looking for a steep discount.
What changes does Musk plan for Twitter?
The Tesla CEO has made it clear that free speech is a top priority, with a vision to take steps to limit offensive content to make the platform as engaging as possible.
During a virtual Q&A with Twitter employees in mid-June, Musk outlined his desire to make Twitter a super-app, like WeChat, a Chinese messaging, socializing app. and leading payment.
He also shared Twitter’s goal of attracting one billion users, about 770 million more than today, and plans to charge for account verification. The blue “Verified” badge on Twitter lets people know that an account is authentic. He plans to make it a site closer to TikTok, serving as a place for entertainment. News is also a focus, with some users broadcasting news in real time.
Adding payments is also a top priority. In this regard, Musk is also a strong supporter of the Dogecoin cryptocurrency, which he often talks about on Twitter. Musk is being sued by an investor in Dogecoin, who claims it is a “pyramid scheme”. Cryptocurrency enthusiasts continued to speculate that Elon Musk is going to integrate cryptocurrency and specifically Dogecoin into the Twitter platform.
Could this hurt Tesla shareholders?
Filings show the billionaire businessman sold $8.5 billion worth of Tesla stock within three days of the Twitter board’s approval. Tesla stock has fallen sharply since Musk sold shares at an average price of $883 per share, reportedly in a bid to raise cash to buy Twitter. Since then, investors have continued to fear that the CEO of Tesla will sell more shares in order to raise funds for the purchase of Twitter. Tesla shares are down 46% since April 4, when Musk revealed his stake on Twitter.
There’s no doubt that Tesla’s fundamentals are strong, with robust earnings and solid growth.
What’s more worrisome for Tesla shareholders is Musk’s obsession with Twitter and the distraction it creates by preventing some of Tesla’s real problems and challenges from being addressed. He’s also very active on Twitter, going back and forth with the Twitter team a lot, sharing memes, calling out politicians, and making jokes about his critics. In the meantime, Tesla shareholders are concerned that the time Musk spends on efforts to lower the deal price and monetize Twitter will weigh on Tesla’s stock performance.
Asked if he will become the CEO of Twitter, he replied that he doesn’t care about titles, suggesting that he may be able to manage or co-manage Twitter, in addition to being CEO of Tesla and SpaceX.
SpaceX employees are also taking note of Musk’s new distraction. SpaceX staff reportedly shared a letter internally complaining about Musk’s behavior on Twitter being a distraction for SpaceX.
Like many companies, Tesla has been overhiring during the pandemic and the rollback has begun with layoffs, creating frustration as Musk sends a contradictory message with “disastrous” economic forecasts.
There’s no doubt that Tesla’s fundamentals are strong, with robust earnings and solid growth. However, it is sailing in a storm with lockdowns in China, a decelerating economy that involves inventory and capacity management to manage costs, expansion with factories in Berlin and Austin, as well as plans to build a second factory in Shanghai.
The picture is blurry for Tesla investors as Twitter retains much of Elon Musk’s attention. On the positive side, in a scenario where Musk pulls off the acquisition of Twitter, puts in place a charismatic CEO, and keeps some distance from social media, sentiment for Tesla should recover. In the meantime, it’s increasingly likely that the high-profile billionaire will stay in the limelight to lead both Tesla, SpaceX and possibly Twitter at some point. With multiple factors at play influencing Tesla’s growth, Musk’s involvement with Twitter may prove to be nothing but a distraction, but in the meantime, the effect it is having on shareholder concerns appears serious.