As the stock market continued its selloff from the previous week, plenty of tech and growth stocks suffered significant losses. While Twitter (NASDAQ: TWTR) didn’t fare as poorly as some other tech stocks on Monday, the company was on the receiving end of another negative catalyst worth talking about. Twitter was targeted by a short-seller report published Hindenburg Research, which claimed that Twitter could possibly fall as much as 50%.
Hindenburg Research is one of a handful of elite short-selling research groups on the market today, as remains one of the most famous and successful of its kind. The company issued a report on Monday warning that there were multiple developments that have since weakened Twitter’s prospects.
“We are supportive of Musk’s efforts to take the company private, and believe he could get it done, but see no reason why he should at these levels,” wrote Hindenburg in its report. “We believe if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower.”
For one, the Nasdaq has plummeted in price since Musk initially disclosed his 9.2% stake in Twitter. Since Twitter has outperformed the Nasdaq by over 43%, the idea is that the stock is at risk of a sudden collapse should Musk walk out of the deal. If he does so, he’ll pay a $1 billion termination fee, but the gains made from his initial Twitter investment should more than cover such a loss.
Another dangerous catalyst for Twitter is that its Q1 results were disappointing, to say the least. This includes the company admitting to overstating its users by around 1.9 million, roughly 1% of its current user base. Hindenburg suspects this figure could be even larger, especially as the platform is riddled with bots and spam accounts inflating the total user base further.
Hindenburg isn’t the only analyst still skeptical about Musk’s commitment to Twitter. Especially in recent weeks. However, just as many seem sold that the eccentric CEO truly plans to go all-in on buying out Twitter, regardless of its current price is justified or not. There’s a very good chance that Musk is overpaying significantly for Twitter when it could be at least 30-50% cheaper.
Shares of Twitter were down around 4.5% in after-hours trading following the news. While the Musk buyout offer has propelled Twitter to new heights, the fundamentals behind the business are still an issue worth noting. Some have speculated that Musk could remove the need for advertisers altogether by implementing a one-dollar per month subscription fee per user, a move that would more than finance the struggling platform.
Twitter Company Profile
Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 140 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%). – Warrior Trading News