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Twitter Securities: What happens when Musk gets in control?


After months of haggling, Elon Musk and Twitter (TWTR) is expected to finalize an acquisition deal next week, the bulletins said. Twitter shares fell on Friday.




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According to a report from New York TimesNegotiations between the two sides have become cordial and focused on closing the transaction on October 28, rather than through litigation, people familiar with the matter said.

What happens next is in Musk’s hands. He tried to pull out of the deal. But Twitter pushed Musk to continue with an initial offer to buy the company for $44 billion.

Twitter shares fell 4.9% to close at 49.89 on stock market today.

A new service called Application X

What can Musk do with the company? In a mysterious tweet in May, Musk wrote about creating a new service called X. He called it an “everything app.”

The closest thing to an everything app would be WeChat, the most popular app in China, owned by Tencent Holdings (TCEHY).

People use WeChat for text messaging, social media platforms, voice communication, video conferencing, games, and mobile payment systems. It has more than 1.1 billion users.

“WeChat 2.0 is his goal,” Wedbush analyst Dan Ives said in an email to Investor’s Business Daily. “But it will take a lot of effort to move the needle and possibly as early as 2024.”

What will it mean for Twitter stock?

One concern among investors is what the Twitter deal will mean for Tesla stock. It’s down 44% since Musk, CEO of Tesla (TSLA), revealed a 9% stake in Twitter in early April.

Then, Tesla shares fell more than 12% on April 26, a day after Musk and Twitter reached an agreement to give Musk ownership of the company.

Musk sold billions of dollars of Tesla stock to finance the deal.

“This continues to be a devastating situation for Tesla investors,” Ives said. “We believe Musk may need to sell somewhere between $5 billion and $10 billion more to fund this acquisition, depending on financial negotiations.”

Twitter Stock: Overwhelming Free Cash

Ives continued: “Free cash flow for Twitter remains very low, which makes it a very difficult leveraged buyout candidate for banks that are likely to take on most of their debt. agree.”

In addition, a report by Washington Post on Friday said Musk has told potential investors he plans to eliminate nearly 75% of Twitter’s 7,500 workers, reducing the company to just over 2,000 employees.

“Clearly, cutting headcount and controlling costs needs to happen in a $44 billion leveraged deal,” Ives said. “Twitter is long overdue for cost-cutting due to lack of growth.”

“However, Musk can’t cut off his growth path with Twitter,” he added. “A number in the 75% range is in our opinion too aggressive and likely to set back this core platform for many years before the Application X strategy is upheld.”

Twitter stock has an IBD Composite Rating of 72 out of 99.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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