According to a filing Monday, Elon Musk recently bought 9.2% of Twitter stock, making him the company's largest shareholder.
Twitter's (TWTR) stock jumped 22% in early trading after the deal was announced. Musk did not say how much he paid for the stock, but it was worth $2.9 billion at Friday's close and $3.5 billion following the early Monday rise.
The objective of the purchase, as well as Musk's plans for the company, were not disclosed in his filing. He has, however, previously been a vocal opponent of Twitter's regulations. He claimed last month that he was considering developing a new social media platform "seriously."
Last month, Musk wrote, "Given that Twitter functions as the de facto public town square, failure to adhere to free speech norms significantly damages democracy." "Should something be done?" says the narrator.When an investor purchases 5% or more of a company's stock, the Securities and Exchange Commission requires them to report the transaction. Although a holding of less than 10% in a firm is considered "passive" by Wall Street, it could indicate Musk's desire to be more involved in the management of Twitter. Another element driving up the price early Monday was other investors buying shares.
"I believe he intends to become more engaged and demand change at Twitter," said Dan Ives, a Wedbush Securities tech analyst. "This is a shot across the bow at Twitter's board of directors and management team to get them to start talking."Even if Musk doesn't try to change Twitter's business model, Ives believes that his massive investment will encourage other activist investors to buy into the firm.
"He'll change the path of Twitter in one way or another," Ives said.
According to Ives, it's unlikely that Musk or anybody else will be able to start from scratch and establish a competing platform. As a result, it's more logical for him to try to change Twitter's practices.
Musk is the most followed CEO on Twitter with 80 million followers. And he's a regular tweeter, using it as the primary means of spreading news about Tesla (TSLA) and SpaceX, the two firms he controls that don't have a formal public relations department.
However, his tweets have occasionally landed him into difficulty.
Musk announced in 2018 that he planned to take Tesla private for $420 per share and that he had "financing secured" to do so. While he did have discussions about supporting such a bid, it was later revealed that the finance was far from certain.
Musk agreed to relinquish his chairmanship at Tesla in exchange for remaining CEO. He and Tesla both paid a $20 million fine, with Musk repaying Tesla by buying another $20 million in Tesla stock.
A request for comment on Musk's investment was not immediately responded to by Twitter.He also committed to have any future tweets containing critical corporate information reviewed by other Tesla executives before being sent. The SEC has questioned Musk's compliance with that part of the deal, and the two are currently litigating in court.Last November, Twitter co-founder Jack Dorsey abruptly stepped down as CEO, without the usual previous notice. Parag Agrawal, the chief technology officer, was named his successor.
When Dorsey was criticized by some shareholders in the past, Musk backed him up. When someone else pointed out that Google, Microsoft, Adobe, IBM, Palo Alto Networks, and Twitter are all led by Indian-born executives, Musk responded with his own tweet: "USA benefits enormously from Indian talent!"
However, just days later, he posted a meme equating Agrawal to former Soviet despot Joseph Stalin, with Dorsey shown as a former Stalin confident in the dictator's assassination.
In a letter to clients, Morningstar analyst Ali Mogharabi stated, "Musk has already signaled that he did not agree with Agrawal's selection and that he desires some adjustments." "This adds to the uncertainty over how Agrawal and the company will react to the company's new largest shareholder."Unlike Musk, who owns almost 20% of Tesla, Dorsey owns only 2.3 percent of Twitter.
According to Ives, Musk does not need to become the CEO of Twitter to encourage the company to change its ways. And it's unclear exactly what he wants to see changed.
He recently conducted a Twitter survey asking his followers whether they feel Twitter strictly adheres to the idea of free speech, which received 70% negative responses, and whether its algorithms should be open source, which received 83 percent positive responses. More over one million people responded to both polls.However, the changes Musk may advocate for at Twitter may be very different from those sought by a traditional activist investor, who normally seeks to raise a company's stock price.However, the changes Musk may advocate for at Twitter may be very different from those sought by a traditional activist investor, who usually seeks to raise a company's stock price.Activist investors have confronted Twitter in the past. Hedge fund Elliott Management urged for modifications to the platform in 2020, potentially driving Dorsey out or requiring him to relinquish his separate CEO role at payments technology business Square (SQ). Dorsey made it through the challenge, but he left Twitter a year later.
On all sides of the political aisle, Twitter has become a target for detractors. Some say the platform did not go far enough in combating misinformation regarding Covid-19 and allegations of election fraud. Others argue that censoring some viewpoints, such as banning former President Donald Trump, was wrong.
Twitter's market capitalization of $31.5 billion is a drop in the bucket compared to companies like Tesla or rival social media behemoth Meta, which owns Facebook and Instagram. Twitter's stock has lost more than half of its value since February 2021, when the company announced that its efforts to combat false information after the US election cost the site some users.
Still, Ives believes it would be too costly for Musk to purchase Twitter on his own, especially because the majority of his wealth is tied to his Tesla and SpaceX stock holdings. According to Forbes, Musk has a net worth of $288 billion, making him the wealthiest person on the planet."He'd have to work with private equity," Ives explained. "It's not like he'd be able to accomplish it on his own."
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