Is Elon Musk trolling the world via a multibillion dollar investment to create a meme stock? Or is his investment in social media company Twitter a canny value play for a stock down nearly 40 per cent in the past year?
On Monday, a filing revealed that the Tesla boss had acquired almost a tenth of Twitter. The filing type he chose is for passive owners. Musk’s own Twitter account is known for both its popularity and for landing him in regulatory hot water. So far, he has not tweeted about the investment.
Upon announcement of the stake, Tesla shares rocketed 26 per cent. There has been no shortage of drama at Twitter in recent years. Jack Dorsey, the mercurial company founder, ceded the chief executive job late last year. The company had settled with Elliott Management in 2020, a compromise that put the hedge fund on the board and brought in a $1bn investment from Silver Lake Partners.
The hope was that together, these bright minds could jump-start Twitter’s advertising business and revenue growth. In 2021, Twitter generated $5bn of revenue and had 217mn “monetisable” daily users. By 2023, the company promises that these will hit 315mn and $7.5bn, respectively. Wall Street is sceptical. Since the start of 2020, Twitter has traded at a median forward revenue multiple of 7.5 times. Rival Snapchat’s valuation has been double that.
Musk’s company is far more popular with investors. Over the past two years, Tesla shares are up more than 10 times. By contrast, Twitter’s are up 70 per cent. This is below the broad S&P 500 increase. Musk’s 17 per cent stake in Tesla is worth $187bn, six times bigger than Twitter’s overall market capitalisation.
Silver Lake and Elliott have previously contemplated a Twitter acquisition. Musk could now join such a group — rolling over his existing Twitter stake and putting more capital in a deal. Washington should set a Twitter alert.