Fri, 05/06/2022 - 21:44
Tesla's eccentric South African CEO is no stranger to controversy. Everything from his crypto musings to political leanings and even love life seem to garner headline after headline. It's no secret that Musk has been less than pleased with what he views as outright censorship on Twitter for some time now, and this latest move appears to be his way of "saving" the legacy social media platform from what he sees as "wokeness" gone mad. Indeed, Elon himself has stated that his motivation for buying the company has always been about preserving free speech within the meaning assigned to it in law. As he put it: "Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated."
But naturally, the question on traders' and investors' lips remains the following: What does this mean for Tesla and Twitter share prices? Unfortunately, the answer is not as clear-cut as many would hope. In this article, we will seek to explain the reasons behind the immediate stock price movements following the deal and, with any luck, predict the future trajectories of these two companies' fortunes over the near term.
What's good for Musk isn't always what's good for TSLA
Now, anyone would probably agree that gaining control over what is one of the world's biggest and farthest-reaching social media platforms must be considered a coup for the individual who successfully completed such a takeover. However, that doesn't necessarily mean that such an individual's other concerns will receive the news quite as positively. In the immediate run-up to the deal's announcement, TSLA lost 12.2% (or almost $125 billion in share capital) as Musk was forced to sell personal stock holdings in order to fund his Twitter purchase. Many might say that this is just a routine temporary correction and things should normalise within a few weeks or months, but several analysts aren't so sure. Some suggest that this significant slump could pose problems for a $12.5 billion credit line the Tesla CEO took out against his own TSLA holdings. Their fear is that he might now be forced to sell even more shares in order to service this debt, which will, in turn, lead to further price declines. Not to mention that many view Tesla as extremely overpriced compared to the rest of the sector in general.
Twitter up, but trading suspended
As we have seen so many times in the past when underperforming companies have been taken over by corporate royalty, Twitter's stock price shot up by some margin to gain around 60% over the course of a month as rumours of Musk's takeover whirred around the internet. To the tristesse of prospective investors, trading was halted by the NYSE on the day that Twitter’s board announced it had accepted the deal and would submit it for approval by shareholders. This means that unless you were smart enough to buy in during the March doldrums, you have probably missed your chance to gain from what will likely prove to be the M&A of 2022. To make matters worse, it could well turn out that this is the highest level TWTR ever reaches as an independent equity of its own. Musk has made no secret of his intention to take Twitter private as this is the only way he can realistically make all of the changes he wishes to make to the social media platform. It could be good news for ordinary Twitter users, though, as Elon has pledged "to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans."
Libertex: giving you more than the rest
While trading in physical Twitter shares may be suspended on the NYSE, CFDs such as those offered by online CFD and stockbroker Libertex are unaffected. This means you can lock in the current price of $49.11 with Libertex, and, should any new development come to light that leads to trading in TWTR being reopened, you can then benefit from any potential future gains. Meanwhile, TSLA remains open for trading, and if Musk is successful in his stated aim to finally monetise Twitter effectively, it's hard to imagine a situation where TSLA doesn't benefit, particularly given this recent -10% net correction.
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Cryptocurrency instruments are not available to retail clients in the UK.
