Ever since the announcement of Elon Musk’s stake in one of the biggest social media companies, Twitter, and the speculations surrounding his appointment as a member of the board of directors, the company has experienced erratic sales in shares.
Between the tech giant’s obvious influence on the stock value of companies, Twitter’s difficulty in achieving profitability, and opinions of economic commentators on the motive behind Musk’s shareholding in Twitter, we discuss the significance of this recent chain of events and insights that can be gleaned from them all.
From all indications, billionaire tech entrepreneur, Elon Musk, is not only making giant strides in space but also here on the earth. Not only did he overthrow Jeff Bezos, 3-time-recognised richest man in the world, but his income tax alone, which is more than that of anyone else in the world, is bigger than the economy of many nations.
Only last year, NASA awarded a contract to Musk’s SpaceX to build a spaceship to transport astronauts to the moon. In 2020 and 2021, Tesla accounted f0r over 69% of all the electric vehicles in the United States, with the second-largest producer, Nissan, far behind with less than 10% of the Electric Vehicle market share.
But it would be untrue to assert that the billionaire has always been in the news for the right reasons. Regardless of the reasons he gets featured on the news, however, what we do know is that whatever business his hands touch experiences a monumental and borderline irrational leap. But we are not the only ones who know this. Everyone does, and so does Musk himself, and the billionaire who is anything but reticent on social media (especially Twitter) never fails to milk this opportunity.
Tweets and comments from him about companies have caused significant spikes and drops in their stock values; Dogecoin, Etsy, and even his own company, Tesla, being cases in point. This event repeated itself on Monday, the 4th of April, but with Twitter this time. The company recorded a 27% increase in stock value, but then later dropped as liberals began to question if Elon Musk was being true.
You probably know by now that Elon Musk was offered a position among Twitter’s board of directors after he acquired a 9.2% stake in the company. The CEO, Parag Agrawal, announced this on the bird app on Tuesday, 5th of April, 2022.
‘I’m excited to share that we’re appointing @elonmusk to our Board! Through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our Board’, Parag tweeted. He went on to describe Musk as ‘a passionate believer, and intense critic of the service’, which he declared was exactly what the Board and the company truly needed.
Although Musk said nothing about the acquisition himself, the news became public only as a result of the SEC’s filing. Twitter Inc has enjoyed a massive surge in its share sales upon its public association with the tech billionaire.
At this point, though, it is unclear what the real motives behind his acquisition of stakes in a company that he openly criticises are, but some people say the 9.2% share he holds in the company is but a prelude to his eventual buyout of the entire company. Remember that since he declined the position among Twitter’s board of directors, he is no longer under any obligation to keep his shares at under 14.9%. Documented reports from the Securities and Exchange Commission also reveal that, depending on how enticing investment opportunities in Twitter are, he might acquire more shares in the company.
Without a doubt, the billionaire businessman will no longer be buying his next shares at the same amount he acquired them last month, and the reason is simple. Since the speculations surrounding his being a board member, the Initial Public Offer value has spiked (the usual Musk effect). But it is hard to see this deterring the tech genius as his net worth is seven times more than the social media company’s current market valuation.
Others are more optimistic about the possibility of Musk buying out the company. These are the group of people who believe that it is not enough to gripe about a situation and that as long as one is in a position to make a positive change, he should seize the chance. These are the people who are most impressed by the part that Musk has purportedly played in Twitter’s launch of the Edit feature.
Interestingly, the value of Tesla has steeply dropped by more than double the cost of Twitter as investors become worried about how much of his own wealth was being leveraged in purchasing Twitter.
But what’s our take?
Remember, at Xavier McAllister, we love to be on top of all the news in the financial sector. But most importantly, we are interested in the financial implications of all these events and what lessons or strategies can be gleaned from them.
Although arguably the most important media platform of all time, Twitter barely lives up to its expectations business-wise. What are the chances of any significant improvement happening with Musk’s involvement with Twitter? Isn’t he going to be distracted from his role as Telsa’s chief executive? What about Elon Musk’s net worth dropping from $270 Billion to $240 Billion? We’d say don’t bet on it, as neither the company nor Musk has provided any viable solution for converting its humongous customer base to profit, which is the most important thing. However, you may consider hedging on short-term returns based on investors’ current confidence, but always remember Elon’s propensity to make sudden announcements which could ultimately affect the value of your investment.