Summary
- Twitter’s decision to sell itself makes sense if the board knows the ephemeral upside is never going to happen.
Take the Money and Run
One has to wonder at Twitter’s (TWTR) board capitulating to Elon Musk so quickly, especially for a price some 30% below its 2021 high. But then, maybe it was an easy decision.
TWTR has struggled for years to monetise its popular platform. Its premium valuation has always been predicated on hopes that the company would come up with that ephemeral business model that could generate supersized profits sometime in the not-too-distant future – that invisible weavers were indeed creating a magnificent wardrobe of clothes.
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Summary
- Twitter’s decision to sell itself makes sense if the board knows the ephemeral upside is never going to happen.
Take the Money and Run
One has to wonder at Twitter’s (TWTR) board capitulating to Elon Musk so quickly, especially for a price some 30% below its 2021 high. But then, maybe it was an easy decision.
TWTR has struggled for years to monetise its popular platform. Its premium valuation has always been predicated on hopes that the company would come up with that ephemeral business model that could generate supersized profits sometime in the not-too-distant future – that invisible weavers were indeed creating a magnificent wardrobe of clothes.
TWTR decision to sell has be to viewed as a tacit concession that it was never going to grow into its premium valuation within any reasonable timeframe – that the emperor actually had no clothes. Perhaps Netflix’s (NFLX) abrupt derating in the eyes of investors when the promise of unlimited growth dimmed concentrated the TWTR Board’s collective mind in a way that might not have otherwise happened.
It feels a bit like Merrill Lynch’s decision to sell itself to Bank of America after Lehman Brs. Collapsed in 2008. In that case BAC tried to back out once it realized what a toxic mess it was taking on but the Fed strong-armed it into going through with the deal.
Next Stop: Washington?
The Fed won’t have a role in this deal. But other regulators such as the SEC or FCC or even the FTC may weigh in. And then there could be Congressional hearings. A reasonable person might well expect plenty of drama to come before this one closes, with plot twists to rival a wacky Italian opera.
If this deal somehow falls through, here’s guessing that TWTR’s stock price ends up a lot more than 30% below its all-time high.