#SocialStocks: Could Musk Sell More Tesla Shares to Finance Twitter Deal?

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CMA orders Meta to sell Giphy, FTC officials trade companies they investigate and other notable stories from this week.

Welcome to “#SocialStocks,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

TWITTER MUSK: Twitter (TWTR) froze the equity awards accounts for employees on Monday as the deadline to reach a deal with Tesla’s (TSLA) Elon Musk approaches, Kurt Wagner and Ed Ludlow of Bloomberg reported. Twitter updated its employee FAQ page this week to alert staff that they won’t be able to access or trade shares from the equity award center. The page said the change was done “in anticipation of the closing of the pending acquisition of Twitter by an entity controlled by Elon Musk,” two people familiar with the change told Bloomberg.

Gordon Haskett’s head of event-driven research, Don Bilson, estimates that Musk remains $8B short to finance his planned takeover of Twitter. Tesla is due to report earnings tonight, and it figures that Musk hasn’t been able to sell any shares in advance of the release, Bilson told investors in a research note. Though Musk has said he is done selling stock, he “isn’t anywhere close” to having the $33B in cash needed to complete Twitter deal, unless he has $8B-$10B of cash lying around in his various accounts, said the analyst. Bilson’s “back of the envelope math” has Musk with $25B for the deal, or $8B short. He believes Musk may have to make another Tesla sale once the earnings report is of the way. “With this in mind, don’t be surprised if Musk is more optimistic than he’s ever been on tomorrow’s call,” wrote Bilson.

A shareholders’ agreement from Musk for Twitter investors gives him “sole discretion” on an IPO decision, “exclusive authority” on board changes, and more, The Information’s Kate Clark, Becky Peterson, and Martin Peers reported. While the acquisition will make Twitter a private company, Musk reportedly indicated in text messages disclosed in court proceedings that he may eventually take it public again.

According to a court filing, Twitter attorneys said that the federal government is investigating Musk.

ANTITRUST LATEST: 

The Competition and Markets Authority, or CMA, has found that Meta Platofrm’s (META) takeover of Giphy could allow Meta to limit other social media platforms’ access to GIFs, making those sites less attractive to users and less competitive. It also found the deal has removed Giphy as a potential challenger in the UK display advertising market, preventing UK businesses from benefiting from innovation in this market. The Tribunal only found in Meta’s favor on a procedural ground relating to the sharing of third-party confidential information. In light of the finding, the CMA reconsidered its decision. The CMA has conducted an expedited review and is issuing its final decision. The CMA has concluded the only way to avoid the significant impact the deal would have on competition is for Giphy to be sold off in its entirety to an approved buyer. Stuart McIntosh, Chair of the independent inquiry group carrying out the remittal investigation, said: “The only way this can be addressed is by the sale of Giphy. This will promote innovation in digital advertising, and also ensure UK social media users continue to benefit from access to Giphy.”

The Federal Trade Commission, or FTC, has open investigations into many major industries and, at the same time, its senior officials disclosed more trades of stocks, bonds, and funds than officials at any other major agency, Brody Mullins, Rebecca Ballhaus, Chad Day, John West, and Coulter Jones of The Wall Street Journal reported, citing a Wall Street Journal review. Many of the senior officials’ investments overlapped with FTC’s work. A third of its 90 senior officials owned or traded stock in companies that were undergoing an FTC merger review or investigation. The officials were most heavily invested in technology, with nearly on in four top FTC officials owning or trading stocks from tech companies such as Amazon (AMZN), Meta Platforms’ Facebook, Alphabet (GOOG;GOOGL), Microsoft (MSFT) and Oracle (ORCL).

Meta has asked a judge to dismiss the FTC’s efforts to block the company’s takeover of virtual reality app Within Unlimited, alleging that the agency’s claims about competition in the sector are based on “pure speculation,” Bloomberg’s Alex Barinka reports. The social media giant argued that the commission has not laid out the elements to show the deal would harm competition in a still-nascent VR fitness space, the author says, citing a court filing.

APPLE THROWS HEADSET IN THE RING: 

While Meta Platforms will have the advantage of selling products in the VR/AR category for almost seven years by the time Apple (AAPL) introduces its own mixed reality headset sometime next year, the latter’s device will have some “technological tricks” that even the latest Meta headset can’t boast, including the ability to scan the irises of people wearing the headsets so they can quickly log into their accounts simply by putting the devices on their heads, according to The Information’s Wayne Ma, citing two people who helped develop the Apple headset.

MISINFORMATION IN FOCUS AHEAD OF ELECTIONS: 

The Integrity Institute, an advocacy group, is attempting to measure how much social media amplifies misinformation and began publishing results on Thursday that it plans to update each week through the midterm elections, Steven Myers of The New York Times reported. The institute’s initial report found a “well-crafted lie” received more engagement than typical, truthful content and that some social media sites and their algorithms contribute to the spread of misinformation. The institute said Twitter has the great misinformation amplification factor, mostly due to its retweet feature. This was followed by TikTok, which uses machine learning to predict engagement. Facebook has the most instances of misinformation but amplified such claims to a lesser degree. Sharing posts requires more steps, but many of Facebook’s newer features are prone to amplify misinformation. The report showed Instagram as having the lowest amplification rate.

AFRICA SALES PARTNER: 

Entravision (EVC) announced that its Africa-based digital business unit, Entravision 365 Digital in Ghana, has become the authorized sales partner of Meta, the company that owns Facebook, Instagram and WhatsApp. Entravision 365 Digital will provide support, training, lines of credit and local billing to advertisers in the Ghanaian market, thereby enabling them to meet their business objectives.

ANALYST COMMENTARY: 

Citi analyst Ronald Josey opened a “30-day positive Catalyst Watch” on Neutral-rated Snap (SNAP) into the company’s Q3 results. The analyst sees potential for upward revenue provisions given an improving online advertising environment. Snap’s 20% workforce reduction provides earnings support, says Josey, who looks for improving operations before becoming more positive overall on the stock.

MKM Partners analyst Rohit Kulkarni lowered the firm’s price target on Meta Platforms but reiterated his rating on the shares as part of a broader research note into Internet names. Companies reporting Q3 results are expected to have a cautious tone on earnings calls, citing currency headwinds and low visibility heading into the critical holiday shopping period, the analyst tells investors in a research note.

Barclays analyst Raimo Lenschow raised the firm’s price target on Sprout Social (SPT). The current uncertain outlook favors cash flow positive, established software vendors, Lenschow told investors in a research note. The analyst moved his base valuation year to 2024. This lowers the valuation levels, especially for some of the high growth names, “although we are not sure this will necessary drive shares in the short term,” Lenschow wrote.

MKM Partners analyst Rohit Kulkarni lowered the firm’s price target on Snap but kept his rating on the shares. The analyst cited the company’s August pre-announcement, the subsequent restructuring implying $125M per quarter in cost reductions, and neutral ad spend data points for September. Longer term, Kulkarni remains positive on Snap’s product and innovation track record and continues to see upside to ARPU.

Cowen analyst John Blackledge lowered the firm’s price target on Meta Platforms. The analyst cut his 2022-2027 advertising estimates given various macro and FX headwinds, the transition to short-form video monetization, and weaker than expected 3Q22 Digital ad expert check call, which suggested ad spending down tear-over-year against tougher pricing comps.

Wells Fargo analyst Brian Fitzgerald noted that while the vision of the metaverse as “the next iteration of computing” remains nascent, the analyst saw some initial encouraging indications in the Keynote and Developer State of the Union: META’s VR app economy continues to grow and may be accelerating, with total Quest Store sales exceeding $1.5B, use cases are becoming more social, and partnerships with Microsoft and Accenture (ACN) provide early validation for enterprise and industrial use cases.

Originally Posted October 19, 2022 – #SocialStocks: Could Musk sell more Tesla shares to finance Twitter deal?

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