You already know that two months ago, Twitter (NYSE:TWTR) agreed to Elon Musk's $44B, or $54.20/share buyout offer.
You already know that ever since this agreement, Musk is trying to get himself a better deal by describing Twitter bots as "very suspicious" and demanding "bot transparency" without which (he threatens) the deal can't move forward.
What you may not know is that Musk can claim whatever he wants, but the (legal) reality ishe can't walk away from the Twitter deal that easily as it might sound (listening to what he says).
Why so?
1) Legal aspect: Musk's lawyers claim that "This is a clear material breach of Twitter's obligations, actively resisting and thwarting his information rights" but the agreement doesn't require Twitter to provide detailed information on spam and fake accounts.
Musk didn't want or ask to do any extensive due diligence when the deal was announced. At the time, he was anxious to seal the deal as quickly as possible. Only later on, he raised the bots issue, although the topic was raised/discussed before the deal was signed (without Musk seeing it as an obstacle back then).
2) Technical aspect: Parag Agrawal, Twitter's CEO, made it clear that he "doesn't believe that this specific (bot) estimation can be performed externally, given the critical need to use both public and private information (which we can't share)."
Putting it differently, Musk is trying to use an issue that even if Twitter wishes to address (and it likely doesn't) it may not be able to.
3) Financial aspect: Musk can walk away from the deal only if he can't complete the financing (most of it he already secured) or get the required regulatory approvals. Even if he (eventually) links the bots issue to inability to secure financing, he would be liable to pay a$1B
termination fee.
Pocket money, you may say, for someone whose total wealth isestimated to be well over $200B. True that, but let's not forget that Musk's total wealth has suffered a huge blow this year with Tesla (NASDAQ:TSLA) stock price nearly halving at some point.
Moreover, a person's wealth - no matter how big it is - isn't necessarily liquid, and while we don't fear for Musk experiencing any difficulty paying $1B, we don't think he would be thrilled to throw away $1B "pocket money" under the current circumstances.
We think that not only does Musk wish to be heard even more than he already is, but he also (perhaps mostly) wishes to have a meaningful media/communication "toy," just as some of his "World's Richest" buddies do.
Those who think that Musk has buyer's remorse are correct, but not about the deal rather about the price. He's trying whatever he can to get a reduction in price, and he may well succeed, especially if Twitter realizes that enforcing the (original) deal might put the company in a long, expensive, legal battle.
Frankly, we don't think either side (Musk or Twitter) is interested in a legal battle, and so it's only a matter of when (they agree on a final deal) not if (a buyout goes through).
Tesla
Instead of us convincing you why TSLA isn't a good investment right now, allow me to introduce to you someone who can do a much better job: Elon Musk.
In an interview with Tesla Owners Silicon Valley club that took place a month ago (on May 31) in Austin, Texas, hesaidthe following:
- "Berlin and Austin factories are gigantic money furnaces right now."
- "It's really like a giant roaring sound, which is the sound of money on fire. Bigger than a dumpster, a dumpster's too small."
- (The new car factories in Texas and Berlin are) "losing billions of dollars right now. There's a ton of expense and hardly any output."
So let me ask you: Why would you like to invest in a company that's bleeding money, with "a ton of expense and hardly any output!?"
Wall Street isn't (fully) buying into it and a slate of analysts have been lowering their expectations recently:
- Deutsche Bank'snew targets
- Mizuho'sreined-in estimates
- Morgan Stanley'slowered expectations
- Citi'strimmed estimates
It's important to note that the lower expectations are touching each and every aspect of the company's operations:
- Production
- Deliveries
- Margins
- Revenue
- EPS
Over the past seven weeks, revenue and EPS estimates for FY 2022 have been going down, something which is very unusual when it comes to Wall Street expectations out of Tesla.
But the most acute problems are supply-chain disruptions (still) and the slowing economy.
Recall that in 2021, nearly all automakers suffered a massive blow in except for Tesla. According to theWall Street Journal, "Tesla has emerged as one of the auto industry's biggest winners in a year plagued by semiconductor shortages and snarled global supply chains. It owes that success in some measure to its Silicon Valley roots."
Nonetheless, in 2022, things look different. Very different.
Slower economic growth, higher inflation, and recession fears are affecting the demand side.
When both sides of the "car" are being pressured at the same time, it's hard (and probably unwise) to be bullish on the auto industry, let alone on Tesla - a car-maker that doesn't manufacture cheap cars.
Very Interesting/Telling Divergence
Looking at SA Quant Rating for TWTR and TSLA, we can see that the overall score is practically identical, suggesting that both stocks are a "Hold."
Both stocks are getting an "F" on 'Valuation' (We will get to this later on), and "B" on 'Momentum'.
While Tesla is seen as a better pick when it comes to 'Profitability' (A+ for TSLA vs only C- for TWTR), Twitter is seen as having a slight edge when it comes to 'Growth' (A+ for TWTR vs A for TSLA) and 'Revisions' (A for TWTR vs B+ for TSLA).
We respect the Quant Rating, but one thing you must keep in mind about it is that it's only looking backward, not forward. Quant Ratings are based on the past, with no weight for future expectations or forecasts.
Since the Quant Ratings are anyhow identical for both stocks, let's move on and see other comparisons generated by Seeking Alpha ("SA").
Here, we find a very interesting divergence between analysts that write for SA to those who work on Wall Street.
On one hand, based on SA Author Rating, TWTR is a (much) better* pick than TSLA.
*A difference of 0.53 in the ratings is quite significant.
On the other hand, based on Wall Street Rating, TSLA is a (much) better* pick than TWTR.
*A difference of 0.65 in the ratings is quite significant.
This is quite a remarkable divergence.
We don't have the tools to examine this ourselves, but we believe that there aren't too many pairs of stocks with a market-cap greater than $30B, that the combined (SA Author + Wall Street) difference in ratings is 118+, as is the case here.
Which rating do you find more reliable? I don't know about you, but I must say that over the years I've come to appreciate SA Author ratings more than I trust Wall Street ratings for a very simple reason: No bias.
While the Wall Street analysts who cover stocks are subject to all sorts of (conflict of) interests, some more hidden than others - SA authors are "free birds" sort to speak, without any obligation/need to please anyone - be it their employer or the company they cover - aside from their readers.
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