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Twitter: Can Elon Musk Bring Sustained Share Price Growth?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsApr 08, 2022 03:29AM ET
www.investing.com/analysis/twitter-can-elon-musk-bring-sustained-share-price-growth-200621783
Twitter: Can Elon Musk Bring Sustained Share Price Growth?
By Investing.com (Haris Anwar/Investing.com)   |  Apr 08, 2022 03:29AM ET
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  • Twitter stock will be highly volatile
  • Pressure is on Twitter to move faster in building new products
  • Musk plans to make significant improvements to the site in the coming months.

Shares of Twitter (NYSE:TWTR) went on a remarkable run earlier this week after the news broke that Elon Musk, the world's richest man, had purchased a 9.2% stake in the microblogging company. The move makes the Tesla (NASDAQ:TSLA) founder Twitter's largest shareholder.

The San Francisco-based social media behemoth soared 27% Monday—its best day on record—and maintained the bullish momentum on Tuesday, gaining another 2% on the announcement that Musk will join Twitter's board of directors. However, it lost some of the excitement in the upcoming days, falling 5.7%. TWTR closed Thursday at $48.03.

Twitter Weekly Chart
Twitter Weekly Chart

The two-day rally that followed Musk's purchase attracted $348 million of inflows from retail investors, marking the biggest two-day purchase ever, according to data from VandaTrack. Many of those investors are likely from Musk's fan club.

While positive in the short run, this activity suggests that Twitter stock is likely to become highly volatile moving forward, especially as the company's shares are now vulnerable to Musk's tweets and abrupt communication style.

VandaTrack analysts said in a note:

"As he's [Musk] quite the personality, particularly among retail (and crypto) investors, we can easily imagine that TWTR will be heavily susceptible to buying/selling in the future based on Elon's communications (just as with Tesla shares)."

Significant Improvements

Musk, the co-founder of ventures including SpaceX and The Boring Company, tweeted Tuesday to his more than 80 million followers that he plans to be working with Twitter CEO Parag Agrawal and the board to make significant improvements to the site in the coming months.

It's tough to predict how Musk's active participation in Twitter's affairs will benefit the social media company, which is struggling to convince skeptical investors that it was serious about expanding its business after the abrupt departure of then CEO and co-founder Jack Dorsey in November.

Furthermore, pressure is mounting on Twitter to move quickly in building new products when it's becoming challenging to attract new users after the pandemic-driven surge. Social media companies face strict regulatory scrutiny as part of a global push to curb misinformation and misuse of users' data.

In February, Agrawal and Chief Financial Officer Ned Segal told investors that the company is sticking to the goals set last year, including increasing annual revenue to $7.5 billion and getting to 315 million daily users by the end of 2023.

But that goal looks ambitious, and some analysts believe even with Musk's active involvement, these targets will be hard to achieve.

MKM Partners downgraded Twitter this week, saying the social media platform's user growth targets are too "lofty" to justify current valuations following this week's pop.

The note adds:

"While we are excited and intrigued at the prospect of Elon Musk taking a potentially active role at growing Twitter, we believe the near-term risk/reward is fairly balanced at current levels.

We continue to believe that a 2023 mDAU [monetizable daily average users] target of 315m is particularly lofty (we are modeling ~290m mDAUs), and Europe/Russia might weigh on the near-term outlook."

Likewise, according to several financial models like those that value companies based on P/E or P/S multiples or terminal values, the average fair value for Twitter on InvestingPro implies a 5.2% downside risk.

Twitter Fair Value Estimates
Twitter Fair Value Estimates

Source: InvestingPro

Twitter: Can Elon Musk Bring Sustained Share Price Growth?
 

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Twitter: Can Elon Musk Bring Sustained Share Price Growth?

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Comments (9)
Mike Thomas
Texasstockman1 Apr 09, 2022 12:41PM ET
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Musk does nothing without a reason or plan. What that is only he knows bur I believe the plan will be revieled over time. Tesla was not built in day - twitter will not fully rebound in a day either. Bying the dips as i did tesla.
Erikke Evans
Erikke Apr 08, 2022 2:42PM ET
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Kevin Watkins
Kevin Watkins Apr 08, 2022 1:00PM ET
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The best thing to ever happen to this company. Maybe now all opinions will be heard.
Hasmukh Patel
Hasmukh Patel Apr 08, 2022 12:47PM ET
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really good news
Mohd Izhar Muslim
Mohd Izhar Muslim Apr 08, 2022 10:37AM ET
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Thanks for the article 👍
Fred Diebold
Iscuba11 Apr 08, 2022 7:36AM ET
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If Elon can get rid the Lib trash ....twitter will skyrocket.
John Smith
John Smith Apr 08, 2022 7:34AM ET
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It’s become a pattern of behavior for the world’s richest man to use the Twitter platform to question its own value. Elon Musk joins Twitter’s board of directors after becoming the biggest shareholder with a 9.2% stake after this news Twitter shares rallied more than 2% in the afternoon as the news broke. Hopefully he'll be surely doing something great for twitter fraternity.
Ron Love
Ron Love Apr 08, 2022 6:54AM ET
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Just ramping Texas and Berlin will bring share price growth. 🤷‍♂️
Robert Cox
Robert Cox Apr 08, 2022 6:54AM ET
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What do Tesla factories have to do with Twitter?
Lawrenti Berija
Lawrenti Berija Apr 08, 2022 6:08AM ET
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Share price Growth? I bet he will, as the genius he's been recognized (by the mainstream)
Robert Cox
Robert Cox Apr 08, 2022 6:08AM ET
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He'll use Twitter to tweet vague statements about some great future that will never materialize and his fanboys will eat it up.
 
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