Twitter Shares Will Drop 30%, If Musk Exits

The Elon Musk offer to buy all of Twitter, Inc.’s (NASDAQ: TWTR) shares and take it private faces three risks. One is that Twitter’s board could adopt a poison pill and prevent the billionaire from making the purchase. Another is that Musk may become frustrated if the board and large shareholders delay a buyout enough to frustrate him and trigger a sell off of the 9% of the shares he owns. The last one would be an inability to raise the $43 billion he needs to complete the transaction.

One thing is certain. Many investors will be extremely upset if the premium Musk has offered goes away. Shares currently trade at $46. However, in mid-March, the figure was $33.

Twitter’s stock was low earlier in the year for several reasons. The first is the exit of long time CEO Jack Dorsey. While some shareholders believed he had taken too long to turn the company around, others saw him as the only visionary who could do so. And his departure was viewed as a lack of confidence in Twitter’s prospects.

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Another reason for the shares bottoming in March was a widely held perception that Twitter’s best days were behind it. Average monetizable DAU (mDAU) reached 217 million in the most recently reported quarter. That was barely higher than the immediately previous quarter. The revenue increase was modest as well, as it rose from $1.3 billion in the same quarter a year ago to $1.6 billion. Net income dropped from $222 million to $182 million between the two periods. Twitter can no longer be described as a growth company.

Whether Musk would undermine Twitter’s operations or supercharge its prospects, his offer remains well over the stock price immediately before the offer. Investors have no reason other than to sell it back to that level.