Twitter – The price of free speech pt. V.

The mercurial Mr Musk takes the story on a rollercoaster.

  • The acquisition of Twitter was never going to be straightforward, but Mr Musk is taking the story on a rollercoaster quite possibly due to the price he offered and the drubbing the sector has taken since.
  • In the last week, Mr Musk has put the deal on hold and raised concerns about Twitter bots which he seems to think are above 20% of active users and could be as high as 90%.
  • At the same time, Twitter’s board has done a complete about-face.
  • Three weeks ago, the board was more than ready to reject Mr Musk’s offer but was forced to grudgingly accept after intense pressure from shareholders (see here).
  • Faced with the prospect of Mr Musk walking away and getting $1bn for doing nothing, the board is now saying that it will sue to enforce the deal.
  • I suspect that this is because deep down the board has always known that Mr Musk’s offer was very generous which has now become a gift horse following the pummelling that the technology sector has taken in the last month.
  • The last three weeks have seen the mood of the market do an about-face from fear-of-missing-out (FOMO) to abject terror meaning that almost anything with a high multiple has been badly hit.
  • Even Tesla has not been immune and has seen its market capitalisation cut by over 30% in three weeks.
  • This is what I suspect has got Mr Musk rattled because the bot concern is pretty old hat.
  • Twitter, Facebook and others have made this disclosure with regard to bots and fake accounts for over 8 years and RFM Research examined the issue a long time ago.
  • The problem is that it is quite tricky to work out with complete certainty who is human and who is a bot which has become even more difficult as AI has improved which is why this is included in the risk warnings.
  • RFM Research’s conclusion was that the estimates of Twitter and Facebook at the time were not too far wide of the mark and the revenues that they were reporting at the time and have continued to report generally support this view.
  • Consequently, I suspect that the argument that the deal should be halted or renegotiated because Twitter is substantially understating its bot problem will not hold water.
  • The real issue seems to be that because the sector has gone into a meltdown since he made the offer, he is now paying an even more inflated price than what he originally agreed to.
  • This has probably been further exacerbated by both his co-investors getting nervous and the fact that he is already much closer to the margin call for the loan he will be taking out on his Tesla shares in order to buy Twitter.
  • The price of free speech has just increased materially, and Mr Musk seems to be less willing to pay it than he was just a few weeks ago.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.