#SocialStocks: Twitter and Musk Now Working Towards Closing Original Deal

The Fly

Contributor:
The Fly
Visit: The Fly

Edit Tweet rolls out to Twitter Blue members, Zuckerbeg confirms Meta cost cutting and hiring freeze, 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.

WHY CAN’T WE BE FRIENDS?: 

Twitter (TWTR) and Tesla’s (TSLA) Elon Musk are continuing talks about closing his deal to buy the microblogging service operator and hope to have an agreement possibly as soon as later today, a person familiar with the matter told The Wall Street Journal’s Cara Lombardo. A potential plan would likely stipulate that the deal closing not be contingent on Musk obtaining the necessary financing, as his initial proposal included Monday, the source said. Should the parties agree on a plan, they can avert the trial set to begin Oct. 17 and potentially finalize the deal within days, the report said. As for now, the judge says a trial in the proceeding is still set for October 17 as she has not yet received any filing to halt the case, according to Bloomberg. “Keep an eye on the docket,” said one source to Reuters. Twitter’s legal team and lawyers for Musk updated the judge who is overseeing the litigation on Tuesday to try to overcome mutual distrust and find a process for closing the deal, Tom Hals of Reuters reported. Musk is scheduled to be deposed on Thursday in Texas, and “that’s the pressure point,” a source told the news agency.

In a regulatory filing, Elon Musk confirmed that on October 3, his advisors sent a letter to Twitter on his behalf, notifying Twitter that he intends to proceed to closing of the transaction contemplated by the April 25 merger agreement, on the terms and subject to the conditions set forth therein. The letter from Musk’s lawyers states: “On behalf of X Holdings I, Inc., X Holdings II, Inc. and Elon R. Musk, we write to notify you that the Musk Parties intend to proceed to closing of the transaction contemplated by the April 25, 2022 Merger Agreement, on the terms and subject to the conditions set forth therein and pending receipt of the proceeds of the debt financing contemplated thereby, provided that the Delaware Chancery Court enter an immediate stay of the action, Twitter vs. Musk, et al. and adjourn the trial and all other proceedings related thereto pending such closing or further order of the Court. The Musk Parties provide this notice without admission of liability and without waiver of or prejudice to any of their rights, including their right to assert the defenses and counterclaims pending in the Action, including in the event the Action is not stayed, Twitter fails or refuses to comply with its obligations under the April 25, 2022 Merger Agreement or if the transaction contemplated thereby otherwise fails to close.” Musk also said the offer is pending receipt of proceeds of debt financing. Twitter shares were up as much as 21% following initial reports that the deal could be completed on its initial terms.

Gordon Haskett’s head of event-driven research, Don Bilson, believes Elon Musk has more Tesla stock to sell in order to finance his takeover of Twitter. To date, Musk has sold about $16B of stock, which is pre-tax, and he owns Twitter stock that is worth about $4B at the $54.20, Bilson told investors in a research note. This does not get Musk close to the $33B in financing he needs to close the deal “and who knows whether he can still count on all of the $6bn that outsiders have said they are willing to pony up,” wrote Bilson. The analyst admitted to not being sure if Musk is even allowed to sell stock before Tesla reports earnings in two weeks. Shares of Tesla were down 4% to $240.20 in early trading.

Carl Icahn quietly amassed a Twitter stake of well over $500M in the past few months and made about $250M for Icahn Enterprises (IEP) on Tuesday after Elon Musk offered to close his $44B purchase of the social-media company on the original terms, Lombardo reported, citing people familiar with the matter. Icahn paid in the mid-$30s per share for the stake on the belief that Musk wouldn’t go through a trial that he looked likely to lose, sources told the Journal. Icahn also believed that the stock was worth close to the mid-$30s anyway in the long term, meaning the downside would be limited even if Musk prevailed at trial, they added.

Also yesterday, the Delaware Court of Chancery determined that Twitter can move forward with a limited investigation to figure out whether whistleblower Peiter Zatko contacted Musk’s lawyers before the billionaire terminated their deal, The Verge’s Adi Robertson reported. The ruling was released just before Musk reportedly asked to close the transaction on its initial terms, the author noted.

Musk’s proposal to acquire Twitter could lead to a very quick close of the deal, CNBC’s David Faber reported, citing sources. The takeover could close as soon as Friday or Monday, according to Faber.

Elon Musk is now scheduled to give sworn testimony on October 6-7 in Austin, Texas, instead of Delaware on his bid to walk away from his $44 billion buyout of Twitter, Bloomberg reported, citing a court filing. The closed-door deposition will take place Thursday and Friday at a law office in the city where Musk’s Tesla is based, the filing said. The billionaire was originally scheduled to be deposed in Wilmington, Delaware, where the trial over Twitter’s suit is set to begin on October 17, the publication notes.

Another Twitter whistleblower is weighing taking the stand when Musk faces the social media giant in court and may have more information about bots on the platform, the New York Post’s Josh Kosman and Theo Wayt reported last week. The potential second whistleblower could testify on an alleged internal study finding that the site’s bot problem is much bigger than Twitter has acknowledged, the authors say. The tipster, a former Twitter employee, said he was involved in an internal report several years ago that concluded at least 30% of Twitter’s daily active users are automated spam accounts, the authors note. “Twitter execs laughed when they were told about the report and said, ‘We have always had a bot problem,'” the potential whistleblower told The Post.

The earliest report of the two sides coming to an agreement came on Friday when it was reported that Hollywood super agent and Endeavor Group (EDR) CEO Ari Emanuel has attempted to broker a potential settlement between Musk and Twitter. Ed Hammond of Bloomberg reported, citing people familiar with the matter, that Emanuel contacted Twitter board member Egon Durban within the past few weeks and suggested the two sides find a solution ahead of upcoming court proceedings. Durban notified the Twitter board about the conversation, but it is unclear if the company responded to Emanuel, or intends to do so, the sources said. Whether Emanuel is operating at the behest of Musk or is trying to resolve a dispute involving two allies is a “question investors will likely pour over,” reports Hammond. Shares of Twitter are up 3% to $44.22 following the report.

Former Twitter CEO Jack Dorsey wanted Musk on the board of the social media company, but felt the rest of the board members were too “risk averse,” a new court filing said, CNBC’s Lauren Feiner reported. Dorsey told Musk his power was limited because “I only had one vote, and 3% of company, and no dual class shares.”

IN WITH THE NEW: 

Twitter stated in a blog post: “Sometimes you need more than one kind of media to express yourself the way you want. Don’t worry, we’ve got you. Today Twitter is introducing a new way to share different types of visual content – videos, images, and GIFs – together in a single Tweet… You can add up to four videos, images, and/or GIFs per Tweet. The update is currently available on iOS and Android, however Tweets with different content types can be consumed on all platforms.”

Meta Platforms’ (META) Facebook has announced new ways to customize what users see in their Facebook Feed. “Now, you can select Show more or Show less on posts from the people and communities you’re connected to and posts that Facebook recommends to you. Selecting Show more will temporarily increase the ranking score for that post and posts like it. If you select Show less, you’ll temporarily decrease its ranking score. By offering more ways to incorporate direct feedback into Feed ranking, we’re making our artificial intelligence systems smarter and more responsive,” the company said. “Soon, you can choose to Show more or Show less on posts by tapping into the three-dot menu in the upper right-hand corner. We are also starting to test this feature in Reels,” it added. “Additionally, we’re continuing to explore ways to help you customize how much content you see in Feed from the friends and family, Groups, Pages and public figures you’re connected to. These tools – as well as Favorites, snooze and reconnect- can be found in Feed Preferences.”

Sprout Social (SPT) announced the launch of its rebranded advocacy solution, Employee Advocacy by Sprout Social. With this solution, users can create and publish their employee-driven amplification efforts from Sprout’s comprehensive social suite. Today’s social media climate comes with a new set of challenges to solve, from algorithmic shifts to increasingly crowded feeds. To overcome those challenges, brands are leveraging the social media influence of their own employees-more than two-thirds of marketers report that their organizations have an advocacy program for social. Marketers note using these programs to increase brand awareness and garner more qualified leads, underscoring the incredible opportunity advocacy presents for businesses to reach new audiences and drive sales.

Twitter Blue tweeted: “test went well, Edit Tweet is now rolling out to Twitter Blue members in Canada, Australia, and New Zealand! US coming soon”

META BOARD SUED: 

Meta Platforms’ board was sued by a shareholder activist who has claimed the directors put profit over public safety, Zijia Song of Bloomberg reported. James McRitchie filed the lawsuit and alleges the board members have pursued an “outdated” approach to financial success that disregards “high costs that Meta imposes on society and the economy,” the lawsuit said, according to Bloomberg. The suit names as defendants: Chief Executive Officer Mark Zuckerberg, ex-Chief Operating Officer Sheryl Sandberg, lead director Robert Kimmitt, and board members Peggy Alford, Marc Andreessen, Andrew Houston, Nancy Killefer, Tracy Travis, and Tony Xu. The lawsuit was filed Monday in Delaware Chancery Court and currently seeks class-action status and unspecified damages. It also seeks a court order finding that the officers and directors have breached their fiduciary duties and barring them from from “continuing to disregard the interests of… stockholders,” the suit added, according to Bloomberg.

EVERYTHING APP:  

Musk said in a tweet, “Buying Twitter is an accelerant to creating X, the everything app.”

OFFICE SPACE: 

Meta Platforms plans to shrink some of its offices and will rearrange some office layouts as the company reassesses its real estate in the hybrid-work era, reported The Wall Street Journal’s Chip Cutter. John Tenanes, vice president of global facilities and real estate at Facebook-parent Meta, said it was too early to quantify how much the company’s overall real-estate footprint could shift, but is quoted as having stated: “One of our jobs is to recalibrate our space. We’re creating a smaller venue, and for the same amount of folks, but it’s a smaller venue and we’re hoping that really drives a life in the building: more energy, more activity.”

BULLETIN BITES THE BULLET: 

Facebook is winding down its Bulletin subscription service, The New York Times’ Katie Robertson reported. The company has contacted writers within the program to tell them that the Bulletin platform, which competes with Substack and other newsletter services, will be wound down early next year, Robertson says. “Bulletin has allowed us to learn about the relationship between creators and their audiences and how to better support them in building their community on Facebook,” the company confirmed in a statement on Tuesday. “While this off-platform product itself is ending, we remain committed to supporting these and other creators’ success and growth on our platform.”

FREEZE: 

Meta CEO Mark Zuckerberg told employees in a weekly Q&A session that the company is pausing hiring and restructuring some teams in an attempt to reduce costs and shift priorities, Bloomberg’s Kurt Wagner reported, citing a person in attendance for the Q&A. Zuckerberg also said the social media giant plans to cut budgets across most teams, even teams that are growing, and that individual groups will sort out how to handle workforce changes, the author notes. Meta shares fell nearly 4% after the news.

ANALYST COMMENTARY: 

Vertical Group analyst Phil Leggiere downgraded Twitter after on Elon Musk offered to complete the buyout transaction agreed upon in the April 25 merger agreement. The analyst said a lack of clarity on the platform’s management and ownership future, coupled with sector-wide macroeconomic headwinds, are limiting adoption of Twitter’s new features and its growth.

Citi analyst Ronald Josey raised the firm’s price target on Twitter and kept a Neutral rating on the shares. While there remain some unknowns around the transaction, the deal is now likely to close, Josey told investors in a research note.

Barclays analyst Ross Sandler raised the firm’s price target on Snap (SNAP). The analyst thinks the digital advertising market is “soft but stable” and growth rates are likely continue to decelerate and possibly bottom in the first half of 2023. Against this backdrop, “we would take another overall cautious stance on upcoming prints and think SNAP is the only name where numbers may be revised up from the depressed levels,” Sandler tells investors in a research note. The analyst’s estimates for Snap “actually increase” on an improved second half of 2022 trajectory but he reduced growth rate expectations for 2023.

Piper Sandler analyst Thomas Champion says his look at Snap CPM data suggests pricing bottomed in July, in-line with management commentary about revenue growth trends of “about flat” on July 21.The analyst thinks recent cost cuts are the right move and that SNAP+ “sounds encouraging.” But, user trends are mixed, sayid Champion, who reiterated a Neutral rating on the shares.

JPMorgan analyst Doug Anmuth said that despite the challenging macro backdrop, currency pressures and sector underperformance, he’s found “increasing interest in select names” across the internet group, albeit more from hedge funds than “long-onlys.” Amazon (AMZN) remains his best idea as the analyst continues to expect year-over-year revenue acceleration, margin expansion, and capex moderation to drive a “significant” free cash flow inflection in 2023. Uber (UBER) is Anmuth’s next favorite name as he looks for a continued rides recovery and greater operating discipline to drive $1.5B in EBITDA this year, on track toward the company’s 2024 goals. Netflix (NFLX) is the most discussed name with investors given the upcoming advertising launch and “a number of key questions still outstanding,” Anmuth told investors in a research note. The analyst also believes there is increased investor optimism in the online ads space following significantly better growth for Snap in August, lapping of early iOS privacy impacts, and greater cost discipline.

BofA analyst Justin Post lowered the firm’s price target on Meta Platforms (META). He has lowered his estimates for both Alphabet (GOOGL) and Meta on the potential top-down impact of a possible Western economy GDP recession as well as potential headwinds from TikTok monetization, Amazon (AMZN) ad growth, and new ad-supported streaming competition. Street estimates for Alphabet and Meta advertising revenues are “likely too high for 2023,” but he sees potential for strong EPS resiliency for both from cost cutting in 2023, much like in 2009, Post said. Alphabet and Meta remain “top value stocks in the group,” the analyst added.

Piper Sandler analyst Thomas Champion raised the firm’s price target on Pinterest (PINS) to $23 from $22 and kept a Neutral rating on the shares. The company’s U.S. and international monthly active user trends remained strong again through September, Champion tells investors in a research note. The analyst raised monthly active user estimates but continues to have questions about Pinterest’s core business.

Originally Posted October 5, 2022 – #SocialStocks: Twitter and Musk now working towards closing original deal

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from The Fly and is being posted with permission from The Fly. The views expressed in this material are solely those of the author and/or The Fly and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.