Twitter’s (NYSE: TWTR) shares have been having a great week since Tesla (TSLA) CEO Elon Musk announced a $3.7-billion investment in the social media company on Monday, making him the largest shareholder of the company.
Shares spiked 27% at market close on April 4, and gained about 2% more at Tuesday’s closing bell. These gains have propelled Twitter in green territory for the first time this year, after the shares slogged through the first quarter.
Looking back, Musk began accumulating Twitter shares since January this year, and now, according to an SEC filing, is an active investor who will be a part of the decision-making board.
Thanks to holding 9.2% of Twitter’s stake, Musk has surpassed former Twitter CEO Jack Dorsey who owns 2.3% of the company.
Musk’s love for Twitter also reflects in his activeness on the platform. He is an avid Twitter user with more than 80 million followers, making him one of the top 10 most followed users.
However, Jeffries analyst Brent Thill is not sure about the reason behind Musk’s interest in Twitter. Therefore, he believes that the stock price jump may just be an "over-reaction."
Musk’s Move May Have to Do With ModerationThere is also a very interesting observation that Thill made on the possible rationale behind Musk’s pursuit of a position of power in Twitter.
In a Twitter poll created on March 25, Musk asked his followers “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?”
In the comment section, he added, “the consequences of this poll will be important. Please vote carefully.”
Following this, 70.4% of over 2 million poll participants voted for “No,” indicating that most users don’t believe that Twitter defends free speech as aggressively as it should.
Thill guessed that the results of the poll might be a motivator for Musk to take his position in the company seriously.
“We believe one of Musk's main motives could be to influence TWTR's moderation policies, which he has often criticized as being too restrictive,” speculated Thill.
Thill not ThrilledAlthough Thill recommends against betting against Musk, he is cautious about the share’s performance prospects after the initial enthusiasm dies down.
“With the stock up 27% over the last day, we believe it is increasingly important for TWTR to show progress toward its goal of $7.5+ billion in revenues and 315+ million mDAUs (monetizable daily active users) by FY23,” noted Thill, estimating that Twitter will need to achieve a two-year user CAGR of 20%, which is a far cry from the growth rate of 13% achieved in FY21.
The above observations prompted Thill to reiterate a Hold rating on Twitter. However, showing some optimism with regard to Musk’s new position, the analyst raised his price target to $48 from $40.
“We like TWTR's value proposition as a mobile-first platform well positioned to benefit from industry tailwinds as ad dollars continue to flow into mobile. Improved user products and ad products present addressable growth opportunities, with commerce as a long-tail opportunity. However, recent management changes and concerns around the 2023 revenue and user growth targets keep us cautious on the stock,” concluded Thill, justifying his mixed stance.
Wall Street OpinesWall Street sentiment also resonates with that of Thill, with a Hold consensus rating, based on eight Buys, 18 Holds, and two Sells. The average TWTR price target is $45.58.
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