Elon Musk Takes 9.2% Twitter Stake

Twitter Inc. (TWTR) soared 25% in Monday’s pre-market after Tesla Inc. (TSLA) CEO Elon Musk announced a 9.2% stake in the social media outlet. The ownership gives Musk leverage over management decisions and the choice of board members, which is a big deal after the retirement of founder Jack Dorsey. New CEO Parag Agrawal has shown an authoritarian streak since his appointment, upsetting free speech advocates concerned with politically-motivated censorship.

Champion of Free Speech

The stock has struggled since Dorsey stepped down in November, dropping more than 40% into February’s 20-month low. It bounced with the broad market into April but is still mired in a 13-month downtrend. The double-digit upside will ease bearish technical readings but it will still take weeks or longer before the stock confirms a new uptrend. And to be honest, that may not be possible right now, given political and economic headwinds.

Wedbush analyst Dan Ives insisted on CNBC that Musk’s stake is “unlikely to remain passive”, indicating could easily lead to a buyout. It’s obvious the shareholder will push hard for greater free speech on posting rules and taking punitive actions.  His Mar. 25 Twitter poll now makes perfect sense, asking “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle? 70.4% of the 2 million respondents voted “No”.

Wall Street and Technical Outlook

Wall Street consensus stands at a mediocre ‘Hold’ rating based upon 9 ‘Buy’, 2 ‘Overweight’, and 24 ‘Hold’ recommendations. In addition, two analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $30 to a Street-high $60 while the stock is set to open Monday’s session about $6 above the median $42 target. While upgrades and higher targets are likely, the stock appears to be fully valued at this time.

Twitter posted a two-year low in March 2020 and turned higher, breaking out above the 2018 peak at 47.79 in October. It mounted the 2013 high at 74.73 by six points in March 2021 and reversed, completing a double top breakdown and failed breakout in November. A higher opening got sold after Dorsey’s Nov. 29 resignation, yielding a final selling wave that ended in February. The stock has lifted into 50-week moving average resistance after the news and is likely to trade in the upper 40s well into the second quarter.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.