Musk’s Bid For Twitter Could Be About To Lift The Lid On Tech Sector Valuations – And Not In A Good Way

Elon Musk’s bid to buy Twitter is on the rocks, largely thanks to the maverick entrepreneur putting it there himself. His newfound passion for thorough due diligence on the terms of the deal contrasts heavily with his initial approach, which involved Tweeting one-line bids and updates on social media. The question for the wider market is whether this is classic brinkmanship and part of an effort to reduce the offer price or a lifting of the lid on the tech sector’s true value. It’s a high stakes game with important ramifications for Musk and Twitter shareholders and the wider market.

Twitter Inc – Daily Price Chart –2019 – June 2022

Source: IG

How Many Genuine Users Does Twitter Have?

The proposed $44bn buyout of Twitter by Musk has stalled due to both parties taking a different view of how many of the firm’s accounts are genuine users. Twitter puts the number at under 5%, whereas Musk thinks as many as 20% of the accounts could be bots.

Establishing the actual state of the firm’s user base is obviously vital for Musk. After all, advertisers won’t want to spend cash promoting their products to farmed accounts. For shareholders in other firms such as Meta (Facebook), Snap, and Alphabet (Google), there is a risk of the questions being asked of Twitter rolling over to the platforms they have invested in.

The timing couldn’t be worse; this year, Meta, Snap, and Alphabet stock prices have already lost 42.58%, 68.27%, and 14.52%, respectively. But several high profile thought-leaders think the 2022 sell-off is only half-baked. A revelation that social media stock valuations are massively off could act as a catalyst for further downward momentum.

Musk Has The Least To Lose

The alternative view is that Musk is just shaking down the Twitter shareholders until they agree to a lower deal price. The truth is that he has little to lose from standing his ground. If Twitter gives him extensive access to its user database and it is found to be overinflating the number of genuine users, he can decide whether to proceed or not. He’d be buying in at a price which reflects the reality of the situation. He’ll protect his cash pile and have more time to devote to his other projects if he walks away.

Contagion Risk

If Twitter refuses to share the requested data, a question mark would still sit over the firm and the sector as a whole. It would be the investors in other social media platforms which haven’t had a thorough analysis conducted who would be looking over their shoulder. Or, more likely, heading for the door.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers, and you can share your experiences here. If you would like to know more about this particular topic or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

Share

Tweet

Safest Forex Brokers 2024

	Broker	Info	Best In	Customer Satisfaction Score
#1	Your capital is at risk Founded: 2014	Global Forex Broker	BEST SPREADS Visit broker	4.8
#2	Your capital is at risk Founded: 2006	Globally regulated broker	BEST CUSTOMER SUPPORT Visit broker	4.9
#3	* 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money Founded: 2008	Global CFD Provider	Best Trading App Visit broker	5
#4	Between 74-89 % of retail investor accounts lose money when trading CFDs Founded: 2010	Global Forex Broker	Low minimum deposit Visit broker	4.9
#5	51% of retail CFD accounts lose money Founded: 2007	Global CFD & FX Broker (*Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more)	ALL-INCLUSIVE TRADING PLATFORM Visit broker	4.9
#6	Your capital is at risk Founded: 2009, 2015 and 2017	Global Forex Broker	Low minimum deposit Visit broker	5
#7	Your capital is at risk Founded: 2006	CFD and Cryptocurrency Broker	CFD and Cryptocurrency Visit broker	5

Forex Fraud Certified Brokers

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.