What's next in the Elon Musk and Twitter saga?

If Musk isn't buying Twitter, why should you?

| More on:
young woman sitting cross legged with large tub of popcorn and surprised facial expression

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

One of the more dramatic stories of 2022 is closing -- Elon Musk is terminating his deal to buy Twitter (NYSE: TWTR). News of this sent Twitter's stock about 6% higher after hours to $34, still well short of the $54.20 per share Musk was offering.

While Musk may be through, is this an opportunity for investors to take a position in Twitter? After all, Twitter is one of the most popular social media companies.

Shaky user data

First, it may be good to understand why Musk terminated the deal. The biggest sticking point for the deal was Twitter's refusal to provide complete data on fake or spam bots. This data is critical, as it determines how many of its users can be monetized. Most of Twitter's revenue is derived from advertising (93% during the first quarter). If Twitter can't guarantee that most ad viewers are humans, then the price companies are willing to spend on ads is substantially reduced.

Twitter has long claimed the number of bots is less than 5% of total users, but Musk wanted to confirm those numbers for himself.

In the first quarter, Twitter reported monetizable daily active users (mDAU) of 229 million. However, they also had to revise previously stated mDAUs for the last five quarters due to an error in how they were calculated. This mistake instils less confidence in management's ability to report mDAUs accurately. 

Throw in their refusal to provide Musk with the data he wants, and it makes investors wonder what they can trust.

Twitter fires back

Twitter's management isn't just going to let a $54.20 per share offer walk away (especially when there's a $1 billion breakup fee Musk is claiming he wouldn't need to pay). It responded by issuing a letter that claimed Twitter had not violated any of the obligations under its agreement. It also stated that Musk and his party "knowingly" and "willingly" breached the terms of the initial contract.

This breakup will get ugly and will likely end up in court.

While not legally required to do so, the letter did not disclose if Twitter had actually given Musk the user data he was requesting. Whether this was intentionally left off or not, it does leave outsiders wondering what is really going on.

What's next?

As mentioned above, this acquisition will likely end up in court. This battle would incur significant legal fees and consumer time from Musk and Twitter executives. A few ways it could shake out:

  • Musk (or Twitter) pays the $1 billion breakup fee, and each entity goes its separate ways without the long, drawn-out court battle.
  • The courts force Twitter to disclose the data Musk wants, which still leaves the question open if management was truthful or not, leaving Musk a door to still back away.
  • The courts side with Twitter, and Musk would need to decide if he wants to continue his acquisition.

None of these options are ideal, and with the growing animosity between the two parties, each may want to prove that they are right.

However, with the stock now trading well below its buyout price, is this a prime opportunity to make an even larger arbitrage gain?

Should you use this opportunity to buy Twitter stock?

Unlike user data, financials are much easier to audit. However, they also aren't much better.

In Q1, revenue rose 16% YOY (year-over-year) to $1.2 billion. But, expenses rose faster at a 35% clip. This increase was primarily driven by an astounding 60% increase in stock-based compensation, diluting shareholders.

Twitter was profitable in the quarter, but only because it sold MoPub (a mobile ad publishing platform) for $1.05 billion. Without that, it would have lost about $128 million in the quarter.

However, many companies are likely reading the termination letter sent by Musk and noting Twitter's refusal to provide relevant user data. This refusal will likely have long-term damaging effects on Twitter's advertising brand. If management can't provide a suitor the data he needs to close a deal, what makes prospective customers believe the 5% spam account figure is accurate?

As an investor, I don't have a lot of faith in management. This sentiment was echoed by Musk and former CEO and co-founder Jack Dorsey. So if these two have no confidence, why would I?

There are plenty of better investments available in the market, and I think investors should appreciate the entertainment value of this acquisition more than the potential investment value.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in The Star Entertainment Group Limited right now?

Before you buy The Star Entertainment Group Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and The Star Entertainment Group Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Business woman with her arms folded stands in front of multiple screens.
International Stock News

How did the Magnificent 7 fare this reporting season?

Let's explore the highlights.

Read more »

A man looking at his laptop and thinking.
International Stock News

Amazon: A good quarter but some concerns

Here's our initial take on Amazon's financial report.

Read more »

Man looks up at apple on his head.
International Stock News

Apple: Growth in a difficult environment

Here's our initial take on Apple's financial report.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Why Microsoft stock popped this week

Microsoft stock was up by 9.5% this week.

Read more »

Electric vehicle such as Tesla being charged at charging station.
International Stock News

Tesla searches for Musk successor: Why this matters

Could Elon get the chainsaw from his own board?

Read more »

customers inside and outside a Microsoft retail store
International Stock News

Microsoft shares earnings report: What's the verdict?

Investors moved the Microsoft share price significantly.

Read more »

Warren Buffett
International Stock News

Countdown to Berkshire's AGM: What do investors expect to hear from Warren Buffett this year?

All eyes will be on Omaha, Nebraska this weekend.

Read more »

A smiling woman holds a Facebook like sign above her head.
International Stock News

Meta surges on blockbuster earnings report

It's a good day to be a Meta investor.

Read more »