Source: PaxForex Premium Analytics Portal, Fundamental Insight
Twitter's stock price rose 27% on Monday after Elon Musk announced that he would buy a 9.2% stake in the company for about $2.9 billion. Musk's investment surpassed co-founder Jack Dorsey's 2.25 percent stake and made him the largest investor in Twitter. The next day, Twitter designated him to its board of directors.
Musk made his investment after questioning his 80.8 million followers if the platform "rigorously adheres" to free speech. More than 70% of the 2.04 million people said Twitter does not follow the principle.
Musk's questionnaire and following investment indicate a possible clash with Twitter CEO Parag Agrawal, the former chief technology officer who followed Jack Dorsey after his blunt resignation last year.
While Dorsey has continually elevated Twitter as a platform for free speech, Agrawal earlier said in an interview with the MIT Technology Review that the company's role is to "not be bound by the First Amendment."
So is it too late for investors to buy the Twitter stock after Musk's massive purchase? Or could Musk finally shake up Twitter and allow the stock to generate higher returns for its long-term investors?
Twitter went public on Nov. 7, 2013, at $26 a share. Its stock began trading at $45.10 and hit an all-time high of $77.63 last month. But today, the stock is only trading at around $50.
Twitter ultimately did not manage to surpass the S&P 500, which has risen more than 150% since its public debut, for three main reasons.
Foremost, Twitter's user growth slowed. The company originally planned to reach 400 million monthly active users (MAUs) by the end of 2013 but fell short of that goal overall. The company eventually replaced MAUs with monetizable daily active users (mDAUs) to weed out spam, bots, and inactive accounts.
By the end of 2021, Twitter had 217 million mDAUs, up 13% from a year earlier. The company believes it can reach 315 million mDAUs by the end of 2023, but that is a very uttered target that will require that annual mDAU growth again exceed 20% over the next couple of years.
Second, Twitter's growth in the domestic market has stalled. The number of mDAUs in the U.S. grew only 3% year-over-year and remained unchanged in sequential terms at 38 million in the last quarter. The company offset that slowdown with growth in the number of mDAUs overseas, which increased 15% YoY and 3% successively to 179 million, but the company still gets more than half of its revenue from its more valuable mDAUs in the US.
So Twitter's disputes in the U.S., which include banning former President Donald Trump and other contentious public figures from using the site, will still have a significant impact on the company's growth, even though it only accounts for 18% of mDAUs.
Finally, Twitter plans to increase spending on expanding its ecosystem this year. Nevertheless, previous Twitter product launches under Dorsey - including short-lived Fleets, organized themes for tweets, new polling features, and Twitter Blue subscriptions for top accounts - have not yet resulted in growth. Agrawal is slowly expanding Twitter as a "social shopping" platform, but that strategy could also disclose it to stiff competition from Meta Platform's Pinterest and Instagram.
Shortly after revealing his stake in Twitter, Musk asked his followers if they wanted to be able to edit their tweets. Almost three-quarters of the 4.4 million respondents said yes, and Twitter subsequently said it had been developing an editing feature for Twitter Blue users "since last year."
This shift appears insignificant, but it indicates that Musk will continue to poll his followers to make new decisions about Twitter's future. At this point, Musk's followers are already asking for Donald Trump's account to be reinstated and for the censorship rules to be lifted.
Before making his investment, Musk claimed that, as a "de facto town square," Twitter "fundamentally undermines democracy" by "not adhering to the principles of free speech. This statement sets the stage for an imminent confrontation between Musk and Agrawal, who revved permanent bans on controversial Twitter accounts after he took over the company.
Repealing these censorship rules could widen Twitter's "moat" against conservative-oriented challengers such as Trump-backed Truth Social or Parler-owned Digital World Acquisition Corp., but it could also make the company a much bigger target for state regulators.
Moreover, Twitter itself could still be "de-platformed" by Apple and Alphabet's Google -- which have a near duopoly in mobile app stores -- if the platform becomes a conduit for fake news, disinformation, and hate speech.
Simply put, giving the keys to Twitter to Elon Musk and his followers could be a very risky move for the company. If other members of Twitter's board fail to keep Musk in check, there is a real risk that the platform will go off the rails and alienate users, advertisers, and investors.
Dorsey and Agrawal understood that running Twitter as a sustainable business needed a fragile balance between free speech and self-censorship, as traditional media platforms like television and radio have always done. Musk's investment could upset that balance and slow the company's growth.
Therefore, it is too late to buy the Twitter stock now. Musk's investment boosted the company's stock briefly, but those gains could fade while the market assesses the long-term consequences and potential headaches.
As long as the price is above the 46.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 47.96
- Take Profit 1: 54.00
- Take Profit 2: 58.00
Alternative scenario:
If the 46.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 46.00
- Take Profit 1: 41.00
- Take Profit 2: 37.00
