Insights

Why Twitter Shares Rose 27% (but not 40%) Last Month

What happened
Shares of Twitter (NYSE: TWTR) gained 26.7% in April 2022, according to data from S&P Global Market Intelligence. The jump was fueled by a buyout offer from Tesla (NASDAQ: TSLA) CEO Elon Musk. However, it should be noted that Musk’s all-cash offer actually stands a fair bit above Twitter’s current share price in early May.
Image source: Getty Images.

So what
Twitter entered April on a sharply downward trajectory. The stock had fallen 39% over the previous 52 weeks, and the microblogging veteran’s earnings reports had been hit and miss for years.
The month started with a bang, though. Twitter shares soared when regulatory filings showed that Elon Musk had built a 9% ownership stake in the company and accepted a seat on its board of directors. Things got a little weird over the next couple weeks as the company set up a poison-pill policy to fend off unwanted buyout offers.
However, Musk found ways around that defensive system. By April 25, Musk had offered to take Twitter private in an all-cash deal valued at $54.20 per share. As expected, Twitter’s stock rose a bit on that news — but investors never quite dared to lift share prices to match Musk’s buyout offer. If you imagine Twitter’s stock closing April at $54.20 per share, that would have been a 30-day gain of 40.1%.
Now what
Market makers see a lot of risk in Musk’s offer. The billionaire keeps changing the terms of the deal, bringing in investing partners to lighten the damage to his own wallet. The usual set of regulatory reviews might be a rough ride, as Twitter has played a massive part in U.S. and international politics in recent years. Shareholders might vote against the deal, since Twitter’s stock still stands 30% below last summer’s 52-week highs. And of course, Elon Musk is a mercurial fellow who might just get bored and walk away (even if that means paying a $1 billion breakup fee) if the regulatory red tape becomes too tiresome.
So there’s a lot of risk baked into Twitter’s stock price, and that’s why last month’s gains stopped at just 26.7%. And I’m not touching the stock with a ten-foot selfie stick until the Musk deal either moves forward or falls apart.
Anders Bylund has positions in Tesla. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy. –

What happened

Shares of Twitter (NYSE: TWTR) gained 26.7% in April 2022, according to data from S&P Global Market Intelligence. The jump was fueled by a buyout offer from Tesla (NASDAQ: TSLA) CEO Elon Musk. However, it should be noted that Musk’s all-cash offer actually stands a fair bit above Twitter’s current share price in early May.

Image source: Getty Images.

So what

Twitter entered April on a sharply downward trajectory. The stock had fallen 39% over the previous 52 weeks, and the microblogging veteran’s earnings reports had been hit and miss for years.

The month started with a bang, though. Twitter shares soared when regulatory filings showed that Elon Musk had built a 9% ownership stake in the company and accepted a seat on its board of directors. Things got a little weird over the next couple weeks as the company set up a poison-pill policy to fend off unwanted buyout offers.

However, Musk found ways around that defensive system. By April 25, Musk had offered to take Twitter private in an all-cash deal valued at $54.20 per share. As expected, Twitter’s stock rose a bit on that news — but investors never quite dared to lift share prices to match Musk’s buyout offer. If you imagine Twitter’s stock closing April at $54.20 per share, that would have been a 30-day gain of 40.1%.

Now what

Market makers see a lot of risk in Musk’s offer. The billionaire keeps changing the terms of the deal, bringing in investing partners to lighten the damage to his own wallet. The usual set of regulatory reviews might be a rough ride, as Twitter has played a massive part in U.S. and international politics in recent years. Shareholders might vote against the deal, since Twitter’s stock still stands 30% below last summer’s 52-week highs. And of course, Elon Musk is a mercurial fellow who might just get bored and walk away (even if that means paying a $1 billion breakup fee) if the regulatory red tape becomes too tiresome.

So there’s a lot of risk baked into Twitter’s stock price, and that’s why last month’s gains stopped at just 26.7%. And I’m not touching the stock with a ten-foot selfie stick until the Musk deal either moves forward or falls apart.

Anders Bylund has positions in Tesla. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

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