Twitter (NYSE:TWTR) shares jumped over 27% yesterday after Tesla (NASDAQ:TSLA) CEO Elon Musk purchased a 9.2% stake in the company, worth around $3 billion.
The investment comes shortly after Musk tweeted that he is considering building a new social media platform. The billionaire also published a poll on Twitter, questioning the social media company's ability to adhere to free speech principles.
Yesterday, Musk asked Twitter users if they want to have an edit button on the platform, with over 1.2 million users voting in just three hours. More than 75% responded they want an edit button, a feature that Twitter has been working on for some time.
The poll was followed by Twitter CEO Parag Agrawal tweet in which he urged users to vote carefully.
Wedbush analyst Dan Ives, also known to be a big Musk admirer, expects this passive stake as just the start of broader conversations with the Twitter board/management that could ultimately lead to an active stake and a potential more aggressive ownership role of Twitter.
"We will be following Musk's comments/future regulatory filings closely to see if Musk ultimately pursues further conversations with the Twitter board and/or goes to an active stake and above the key 10% threshold. For Tesla purposes, we view this move as Musk just further building out his tentacles," Ives said in a client note.
For Jefferies analyst Brent Thill, Twitter shares overreacted given that investors don't know the rationale behind Musk's investment.
"Don't bet against Musk, but we wonder about the rationale behind his investment," Thill said in a client note.
Thill reiterates that investors are still focused on Twitter making major progress on 2023 revenue and daily user targets. Moreover, Jefferies believes the Twitter stock is expensive as it trades at over 100% premium compared to Meta Platforms (FB).
On why Musk decided to invest in Twitter, Thill believes he may be motivated to change Twitter's moderation policies.
BofA analyst Justin Post expects that Musk's investment will drive significant retail investor interest in, and activity for, the stock. Along these lines, the analyst also sees a greater risk to short sellers due to potentially higher retail interest/activity.
Moreover, Post is positive on Twitter shares as Musk may end up in the boardroom.
"We think Street doesn't expect an outright acquisition, but does see an increased potential for positive change at Twitter. The type of form used (13G) often indicates the investor isn't seeking to acquire control, or to influence who controls it. Twitter is more vulnerable than some of its Internet peers to outside pressure because its founders don't have special voting control," Post said in a memo.
Twitter stock is up 1.8% on pre-market Tuesday.
By Senad Karaahmetovic