Elon Musk Can’t Change the Fundamental Value of Twitter. Don’t Buy In.

Stocks to sell
  • Elon Musk sent Twitter (TWTR) stock up 20%, buying 9.2% and joining the board.
  • Twitter has been trying to collect cash from users for months, with limited success.
  • Fundamentals say sell.
Source: Worawee Meepian / Shutterstock.com

Elon Musk sent Twitter (NYSE:TWTR) stock up by about 25% by the end of April 2 by buying 9.2% of it. The stake, which probably cost about $3.2 billion, was already worth $3.67 billion as trading opened April 6.

Musk wants some changes made. The company brought him onto the board to keep him from attempting a complete takeover.

Given that he’s now the world’s wealthiest person, a fortune Forbes estimates at $290 billion, the move made the world’s media explode. It also brought a lot of traffic to Twitter.

But did it make the stock a buy? Twitter has lost over $1.35 billion during the pandemic, although revenue grew 36% last year to over $5 billion. For that, investors were paying $50/share, a market cap of nearly $41 billion.

In the current market it makes no sense.

Cashing In

Under Parag Agrawal, who became CEO late last year after co-founder Jack Dorsey decided to focus on Block (NYSE:SQ), Twitter has tried squeezing cash from its users.

A paid version of the app, called Twitter Blue, costs $3.50/month. There’s a Substack competitor called Revue and an audio feature called Twitter Spaces. The site is reportedly working on a Collabs feature that would let people co-author tweets with companies. Celebrities could then bring ads into their own tweet stream, sharing the revenue with the site.

The revenue-sharing apps aren’t yet creating profit. The company is expected to report another loss of about $130 million, 17 cents per share, on revenue of $1.23 billion when it reports late this month.

Twitter may then turn up the heat. Tweetdeck, an app now pushed toward “power users,” may soon become part of Twitter Blue. Before Musk raised the stock’s price, Twitter’s monetization moves were drawing interest from analysts seeking an alternative investment to Meta Platforms (NASDAQ:FB).

Beyond the Money

Reports on Musk’s move don’t talk about the money.

Instead, they talk about Musk’s demands. These start with an edit button. Twitter says it’s been working on the feature since last year. Former CEO Dorsey worried users could use the feature to change the meaning of a tweet after it got traffic. Musk “polled” his own followers in support of the button and it may come first to Twitter Blue.

Then there’s “free speech.” Musk has been trumpeting the issue, which some take to mean support for bringing former President Trump back onto the platform. The value of Trump’s own financial network, Digital World Acquisition (NASDAQ:DWAC), fell in the wake of Musk’s move.

What Musk really means by free speech is unclear. One thing he seems to want is for the Securities and Exchange Commission to back off its fight over his tweets, like one threatening to take the company private. But if CEOs can move markets with a tweet then take the profit and run, does corporate governance have any meaning?

Critics say Musk doesn’t want free speech so much as the power to control speech. And if Musk decides what freedom is on Twitter, folks who don’t like him are unlikely to stick around.

The Bottom Line on TWTR Stock

If I owned Twitter stock, I’d sell it.

It’s far beyond its fundamental value. The company doesn’t make money. No matter which political direction it goes in, it’s going to anger people.

The issue of online speech has been a bugbear since I came online in 1985. Governments insist on limits, each government’s limit is different and content moderation has become an industry. On a global network, it’s a square you can’t circle.

Forget the noise. If you’re interested in profit, Twitter is not the drone you’re looking for.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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