Today, investors in social media platform Twitter (NASDAQ:TWTR) have seen some pretty impressive volatility play out. The price action with TWTR stock has provided traders with the kind of volatility they like to see. However, for longer-term investors, this directional move may not be so positive.
Shares of Twitter stock opened trading roughly 5% higher this morning. This came on news that celebrity CEO Elon Musk had put forward a buyout offer for the entire company. Previously, Musk purchased 9.1% of the company in a series of surprise purchases over the course of the past few weeks. Accordingly, this move to buy the company has created a lot of buzz.
That said, the market appears to be calling “nonsense” with this move. It’s worth noting that TWTR stock did trade above $70 per share during the previous rally. Accordingly, a $54.20 offer for the entire company may simply not be enough to get this deal done. Additionally, Musk’s asserting that this offer is “best and final” doesn’t appear to bode well for a buyout happening in the near term.
In addition to this saga, there’s some chatter around why this offer could be a net negative for the social media platform. Let’s dive into why some are suggesting Twitter could crash 20% from here.
Analyst Suggests TWTR Stock Could Crash 20%
This buyout offer from Musk paints Twitter in a corner. At least, that’s what Jeffries analyst Brent Thill thinks.
Thill suggests in a research note that should Twitter reject Musk’s offer, which is what’s anticipated to happen (at least what the market is pricing in), then Twitter stock could have substantial downside from here. This analyst believes the downside correlated with the rejection of Musk’s bid could approximate 20% or more.
Much of that has to do with how high TWTR stock has already run prior to this announcement. Having Elon Musk as an investor appears to have been reason enough for many retail investors to jump on board. Accordingly, the rejection of this offer could lead to Musk offloading his position and the company needing to seek out additional bids.
While Thill does think a strategy consortium of buyers could present themselves in the event this stock sells off after rejecting Musk’s offer, volatility is likely to remain high with this stock for some time.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
