Seems to me, you don't wanna talk about it ... seems to me, you just turn your pretty head and walk away. That 1971 James Gang classic, with Joe Walsh's crunching guitars and vocals, is blaring in my head Monday, as the U.S. stock market processes Elon Musk's decision to Walk Away from his deal to buy Twitter (TWTR) . Yes, this will be a prolonged process, and we are probably only in the second inning of Elon's walk-away, as evidenced by Twitter's decision Friday to hire the legal Death Star that is Wachtell, Lipton in an attempt to get Musk to proceed with his deal.
But Elon has exposed the existential problem at Twitter, and he did it 75 days after I wrote him this plaintive open letter in Real Money on April 28. No, I don't think that piece had any sway over Elon's decision-making, but the simple mathematics contained in that open letter would have appealed to a college physics major (plus economics), which Elon was at the University of Pennsylvania.
The issue that we outsiders have is that we can only run our numbers based on Twitter management's disclosures. Elon's 9.2% stake in TWTR makes him very much an insider. We'll see if he was selling last week; I would have advised him to do so, but there have been no filings with the Securities and Exchange Commission to that extent thus far.
What Elon told us -- and the world -- is that those disclosures are not worth anything. This is a theme extending back to Twitter's massive SEC fine over user engagement claims -- in a case that stretched back to 2016 ($810 million, paid in late-2021) and the "oh we were wrong"-belated reduction of its previously reported 2019-2020 user numbers in its first quarter, 2022 10-Q filing. We should have had a clue by now.
But Elon brought the spam/bot issue to the fore, and that explains so much. I think we all knew that there were spambots on social media, but Elon's digging conclusively, in my opinion, proved why Twitter is so mystifyingly, consistently awful at monetizing the number of users it claims to have: Because many of those users simply do not exist. Bam! End of story.
In my sell-side days, I once dropped a piece of knowledge on an auto parts stock that was so tasty -- and negative -- that the portfolio manager in the meeting quite literally closed her notebook. So, close the notebook on TWTR. Elon gave us the reason to, and, rest assured, the Tesla (TSLA) boss is a very, very smart dude. I have had about 200 conversations with my clients about TWTR and Elon this weekend, and in each one I have used the phrase "he gets out over his skis, sometimes." Yes, he does. But he is smart enough to know a good business from a bad one. If it costs him a billion dollars (I believe this is the most likely outcome) to just Walk Away from his Twitter deal, I believe he will consider it money well spent.
I will continue to describe Twitter as a cesspool of lies, hate speech and selective censorship. That description got me de-platformed from another financial media site -- one that has none of the reach or selectivity (or good stock picks) of Real Money -- and I am not planning on shutting up now.
Elon could have changed that, but, please, go back and read my open letter to him to see why it made no financial sense for him to do so. For whatever reason, he snapped out of the William Randolph Hearst/Citizen Kane/Jeff Bezos idolatry that he must have been considering and used some good old-fashioned common sense.
As I have detailed in several of my long-form reports for OHM Research in Sao Paulo, without Elon, TWTR shares are worth $10/share. Will they actually get there? Well, given this year's dreadful Nasdaq tape, that is actually a possibility. More importantly, the spillover will be felt by Meta (META) (Mark Zuckerberg has much more reach than Jack Dorsey) Snap (SNAP) , Pinterest (PINS) (whatever that is) and any other social media platform, save for China-owned ByteDance's TikTok.
There are some shorts to be shorted here, guys. I hope you took my advice on Twitter ... but that is not the last social media stock you should be walking away from.
