Why Twitter is holding on to the stock market despite falling sales

Funny situation. On Thursday, Snap posted a lower growth rate for its turnover, at 13%, and its price plummeted by more than 33%. Twitter reported a 1% drop in turnover this Friday. This time, Wall Street barely faltered, and stocks lost less than 1%. However, both companies are the same size and both rely on online advertising.

Differences? From Twitter, all eyes are more on Elon Musk’s acquisition than on economic results. In April, the billionaire agreed to buy all of the company’s shares for $54.20 each, for a total worth of nearly $44 billion. Three months later, the stock is trading at $39.20, the same price as before the announcement. And if Elon Musk announced at the beginning of the month that he no longer wants to follow through, Twitter intends to force him to do it. Although the litigation raises doubts about the company’s medium-term future, for now it gives it some stability.

Twitter vs. Elon Musk in court: why the social network is already a big loser

Loss of income and increase in monetized users

In particular, Twitter’s revenue for the quarter was $1.18 billion, lower than Q2 2021 and below analysts’ forecasts. To justify this stagnation, the social network invokes “headwinds” of online advertising, a bleak economic situation (inflation, fear of a recession, war in Ukraine, a crisis in raw materials and energy…), and especially the “uncertainty” associated with Elon’s ongoing acquisition of Mask.

In addition, the social network, which has still not turned a profit since its IPO in 2013, posted a net loss of $270 million for the quarter, three times more than analysts had expected. Like Gafam and most tech giants, Twitter has already announced that it will partially suspend hiring to cut costs. In addition, the company clarifies that it is $33 million in expenses related to the acquisition in the second quarter.

In good news, Twitter received 8.8 million “monetizable daily users” – the number reported to advertisers – up from last year (up 16.6%), for a total of 237,800,000. Although this figure is positive , in normal times this indicator would not be enough to compensate for poor financial results.

Hope to sell for $54.20

But if investors are in no hurry to sell, it is mainly because they are waiting for the acquisition procedure. If the deal is successful, as Twitter wants, the shares will be bought by Elon Musk at a price of $54.20 per share. Either a nice win of $15 compared to the current price which is $39.20. This also leaves a headroom even if the price is revised down. Partly not because Twitter’s stock has lost only 10% in a year compared to more than 20% of the rest of Nasdaq’s stock, and much more for companies like it heavily dependent on online advertising.

Thus, by not selling shares, shareholders are betting on at least a partial victory for Twitter in court. On Tuesday, lawyers for the company and Elon Musk were heard for the first time by a Delaware judge to set a trial date. The social network emerged as a double winner. First, he ensured that the trial took place quickly – in October – and the Musk camp wanted to drag it out until February 2023. Then the argument hammered by the billionaire’s lawyers seemed very unconvincing. The businessman was outraged from the very beginning that Twitter underestimated the number of fake accounts on its platform. Except that Elon Musk can’t prove his point, and even if he did, it might be pretty much not enough to break the acquisition contract.

Due to this administrative situation, Twitter did not host conference calls, write to its shareholders, or communicate its forecasts for the second month in a row. And for good reason: in the event of a successful acquisition, Twitter will become a private company that will no longer have to publish its financial results. But whatever the outcome of the dispute, this time the company will indeed have to face the limitations of its economic model.

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