After buying a 9.2% stake in Twitter, Elon Musk quickly tweeted ideas to improve what he labeled the de facto online “town square.”
He proposed new features, such as a $3/month fee to receive a blue check mark, and sprinkled in jokes amid the “tweetstorm.” For example, on April 9, 2022, Musk tweeted a poll, “Convert Twitter SF HQ to homeless shelter since no one shows up anyway — Y or N?”
If you stand back from the humor and headline news, there’s an obvious question that stands out: is it time to buy Twitter now that Elon has?
After all, if you fast-followed Musk and bought shares in his other companies over the years, you could probably have retired long ago. From Paypal to Tesla, the list of winners is long.
Elon Musk Bought Into Twitter, Now What?
After hinting that he might shake up the social media industry, Elon Musk became Twitter’s biggest shareholder in mid-March 2022. His 9.2% stake is estimated to be worth $3.4 billion.
At first, it was speculated that he would join the board of Twitter, but he has since declined. A statement by the CEO suggested that Musk would be shackled from expressing his vocal views if he were to accept the position. Musk clearly believes he can effect more change by not taking such a prominent role.
His decision also means he is no longer limited to a maximum stake of 14.9%. The story continues to unfold daily – there are now talks of him pursuing a hostile takeover.
After announcing his stake in Twitter, shares surged as much as 27%. That leaves his retail investors in a bit of a pickle. Is it too late to buy or is this just the start of a bull run?
Twitter Is Making Headlines, But Big Problems Still Linger
Since Twitter’s IPO in 2013, the share price has largely disappointed. Even Musk’s involvement is unlikely to catalyze sufficient change to ignite the stock long-term.
His current holding is a passive shareholding, meaning he does not have a leadership operational role to effect meaningful change. In short, Musk is not the one calling the shots. Plus, Twitter has several deep-rooted problems that need to be addressed.
Twitter has a significant problem, and as an investor, it’s a big one. The platform lacks effective monetization. For years, Twitter has not been able to convert its user base into cash flow, and it will likely take more than Elon Musk to change that.
Although Musk will help bring attention to Twitter from a PR perspective, he is currently concerned with changing the user experience.
Some analysts are optimistic about Twitter’s ability to increase monetization through cryptocurrencies, NFTs, ads, subscriptions, and community chat but history has taught Twitter investors to be skeptical. Until the company posts meaningful top line sales growth, caution is warranted.
3 Reasons to Avoid TWTR Stock
If you’re a long-term investor, there are several red flags surrounding TWTR stock.
- Since the company’s public debut, Twitter’s user growth has decelerated. Initially, the company aimed to reach 400 million monetized users by the end of 2013, a target that was missed. Twitter then replaced this goal with monetizable daily active users (mDAUs). In 2021, the company reported 217 million mDAU, representing 13% growth compared to the previous year. Twitter’s goal of 315 million mDAUs by the end of 2023 seems a bit of a stretch, as its year-over-year mDAU growth would need to increase by more than 20%.
- There are concerns surrounding Twitter’s poor domestic growth. The company’s American mDAUs rose just 3% year over year, staying flat in Twitter’s latest quarter. Controversies, such as banning certain public figures, like Donald Trump, will likely continue to impact growth.
- Twitter is planning to ramp up spending to expand its ecosystem, despite its latest product launches having not yet generated much traction. For example, Fleets, Twitter’s version of a social Stories feature, was up and running for less than a year before being shut down. Another feature, Super Followers, only generated around $6,000 in the first two weeks.
Nevertheless, some analysts remain optimistic following some of Twitter’s fourth-quarter results, with advertising revenue growing 22% year over year. This growth was attributed to product improvements and increased advertiser demand.
The Bottom line? — If you’re interested in TWTR stock, consider observing from the sidelines because the recent share price spike may be nothing more than an Elon Musk premium that will soon deflate. The company needs to make some significant adjustments before this stock is a buy for long-term investors.