What’s Going On At Twitter (NYSE: TWTR)?

It’s been a volatile few weeks for shares of social media platform Twitter (NYSE: TWTR), with the stock logging some of its highest traded volume in years. They popped as much as 40% in the first week of April, but have already started to give back a hefty portion of those gains. The catalyst for the initial surge was the news that Tesla (NASDAQ: TSLA) CEO Elon Musk had taken a passive 9.2% stake in the company. 
It was a funny turn of events considering that less than a week previously Musk had used the platform to criticize the company, tweeting “given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?" He’d also run a poll the same week asking his followers if they believed Twitter “rigorously adheres” to the principle of free speech. More than 70% said they didn’t. 

Sizable Stake

But few know and even fewer understand what goes on inside of Musk’s head. A week after lambasting the company like this, he was the proud owner of a stake worth more than $3 billion. And the story is unlikely to end here. According to Wedbush’s Dan Ives, this is “just the start” as he wrote in a note to clients last week. He explained that the 9.2% passive stake is likely to be the start of more conversations with the company's board and management and could lead to an active stake and perhaps a "more aggressive ownership role of Twitter." He added that this “is a furthering of Musk "building out his tentacles”, but interestingly Ives is not concerned with the tech chieftain "taking his eye off the ball" regarding Tesla. 

Deutsche Bank analyst Benjamin Black, who has Twitter rated as a Hold, said the likelihood that Musk brings any "immediate change" to Twitter would be limited but noted the investment could help the company accelerate its transition to Direct Response products at a faster pace. Youssef Squali from Truist shared this sentiment, writing in a note that Musk's involvement, “both from a financial and strategic perspective, is likely to help the pace of innovation and boost its ability to generate revenue.”

Wall Street clearly bought into the additional upside now on the cards, as shares gapped up more than 20% at the open the day after the news broke. While they’ve cooled somewhat in the days since, they’re still up more than 50% from last month's low of about $30, a level shares haven’t traded at since 2020 and one they were trading at way back in 2014 as well. Morgan Stanley’s price target of $58 suggests there’s still an upside of some 25% to be had from where the stock closed on Monday. This is only slightly ahead of Bank of America’s $54 price target.

Getting Involved

It’s all positive momentum though whatever way you look at it, and for a company whose stock has been trending down for more than a year, it must be a welcome reprieve. Investors getting involved now should still do so with caution as the initial pop from the news is wearing off, and shares are in danger of filling in the gap they left below $45. But if they can consolidate their gains around this level through the shortened trading week, there’s a fair chance they’ll kick on from there again over the rest of the month.

To the upside, they’ll have to take out the $55 level to have any chance of permanently breaking the downtrend, but the fact that they seem to have bottomed out between February and March certainly bodes well for the summer. Whatever the future holds, it’s a different Twitter we’re looking at today than we were this time last month, as the world’s richest man has just taken a sizable stake in the company. This should be enough to tempt in even the more cautious investor. Strange things tend to happen when Musk gets involved, but they’re usually profitable strange things.