Trolling is widely prevalent in social-media platforms, but then when social media itself gets trolled, it gets to a different level. That is exactly what has happened to Twitter today with Elon Musk’s hostile bit to take the company private with his $54.20/share offer for the company. His offer values the company at around $43 billion
It’s a take it or leave it bid, indicating he may not be interested in increasing his offer price, and may consider selling his current close to 10 per cent stake in the company if his bid is rejected by the board/shareholders. As such the board had fiduciary duty to take his offer to the shareholders and let the decide.
At $54.20 Twitter is valued at CY22 PE of 72 times and EV/EBITDA 29 times and EV/Revenue of 7.2 times. On the face of it, these are good multiples for investors to cash in on. Despite being one of the most popular and active social-media apps globally, Twitter has failed to do justice to its monetization potential. This is precisely what Musk also sees – he sees a lot of potential in Twitter once it is transformed and he believes this is better done when the company is private. However, the current board and management are unlikely to see it that way. They are likely to push back against this offer as Twitter has just started on a new transformation journey without the involvement of Musk.
Podcast | Analysis: Elon Musk bid for Twitter
CEO Parag Agarwal recently took charge of the company after founder Jack Dorsey decided to move out. Investors also looked at this favourably with stock reacting positively on this announcement. Twitter had its IPO in 2013 at $26 and within weeks crossed $60. Shares have since underperformed and is quoting well below its 2013/14 highs.
As mentioned above, monetisation of user base has been a problem and value can be unleashed if this fixed. On a EV/DAU (daily active user) basis, Musk is valuing Twitter at around $200 versus above $300 levels for Facebook. Further, it needs to be noted that Facebook has corrected significantly in recent months and its valuation on this metric was even higher. Thus the opportunity for Twitter on this count is also large.
Further, Musk is not the only person who has shown interest to acquire Twitter. In 2017 the software giant Salesforce, too, had considered acquiring Twitter, but backed off when Salesforce shareholders expressed their displeasure. Salesforce had seen synergies between its marketing offerings to customers and marketing insights it could monetise from Twitter’s troves of user data and analytics. This was besides the fact that Salesforce CEO Mark Beinoff saw a lot of value in Twitter if the controversies surrounding it were ‘polished’ off.
Thus Twitter Board and management might attempt to sell the underlying value in Twitter to shareholders and indicate why Musk’s offer may not enough. Further one thing that will work against Musk’s bid for Twitter now is that in 2018 he made a half hearted indication that he wanted to take Tesla private. His intended offer (which was just tweeted), didn’t proceed. From the offer price Musk quoted then, Tesla shares have given 20 times returns. This is another factor that Twitter board can sell to its shareholders.
But one thing is for sure. If Musk’s bid is rejected, Twitter may realise its full potential and move past Musk’s offer price, but it will not be in a linear direction. The share is likely to have a volatile path as the transformation in its current form will take time