Don’t Show This to Elon

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As everyone in the Solar System knows, the richest man in the world, Elon Musk, bought Twitter earlier this year, and none of us know how he feels about it, but I suspect he would happily Ctrl-Z the entire event if he could. It occurred to me while walking my dogs in the pouring rain this morning, what would Twitter probably be worth now if he had never sought to purchase it? Let’s go through a simple exercise.

My first goal was to find another stock which is still actively traded that, prior to the buyout, was highly correlated with Twitter. I thought it would be something like META, but in fact Spotify (SPOT) turned out to be a much better fit. Here is the percentage performance of SPOT and TWTR up to when Musk announced the buyout.

One thing Twitter has in common with the likes of Spotify, and many other high-tech companies, is that they don’t make a penny. In a normal, sane economy, they likely would have gone out of business years ago, but you know how things have been since the financial crisis with respect to these “living dead” companies. As shown below, Twitter had revenue, but it was growing at a snail’s pace, whereas expenses were not only greater than revenue but were growing at a hearty clip (probably because of all the 20-somethings doing absolutely nothing of value in the organization). In any case, the company was bleeding cash. In a sane world, companies with a “-29% operating margin” simply disappear. They don’t get bought out at a hefty premium, for God’s sake.

But get bought out it did. The arrow marks the last pre-Elon trading for the stock, and he made his $54.20 bid immediately thereafter. Why 54.20? Was it based on some sensible financial valuation? No. It’s because 420 is slang for smoking pot, and there was a time pot was contraband, so it has a naughty vibe to it. Heh. Heh heh. Hunh.

At first, the market assumed it was a done deal, but as the weeks (and months) dragged on, it became clear Elon regretted the choice, so TWTR sunk to levels beneath even its pre-buyout price (because, umm, the company sucks, and without a buyout, it was headed to the single digits). As the company put his feet to the fire, he finally relented and bought the damn thing for $44 billion. If he wanted to be cute and naughty, I think a more appropriate price would have been $69, which is about what the place is worth.

So what if none of this had never happened? What if he just stuck to, oh, let’s say, focusing on Tesla, the source of his wealth, and didn’t grab onto this tar baby? I think an examination of the TWTR/SPOT chart would prove useful here, since my view is that TWTR would have “tracked” SPOT quite closely. In other words, left to its own devices, Twitter would be about $20 per share right now.

Nor do I think $20 would be some kind of bargain-basement bottom. On the contrary, this money-losing beast, which engaged in such foolish choices as paying its chief censor $17 million per year, would just keep sinking, and I suspect it would find a bottom somewhere in the single digits. But he bought it instead, much to the delight of its long-suffering shareholders, and I’ve got to tell you, I feel bad for the guy, because this goddamned thing in an albatross that is going to be a horrible distraction for a long time to come. But at least the purchase price was a hoot.