Shares of Twitter (NYSE:TWTR) continue rising today with gains of 2.9%, trading just shy of $52 a share after yesterday’s strong rally of approximately 30%. The catalyst is Elon Musk becoming the largest shareholder in the social media company. The most important question to ask now is what can investors expect for TWTR stock as Elon Musk joins Twitter’s Board? The answer is not an easy one, but here are some of the possible explanations to consider. Elon Musk has criticized Twitter in the past, questioning free speech on the platform and writing that it undermined democracy. Given these comments, a logical investor would not expect Musk to invest in Twitter and become its largest shareholder.
Musk is notorious for his controversy, bold visions, success, and setting big goals and achieving them. He will certainly bring a unique perspective to Twitter’s Board and many new ideas to implement. Some safety net rules have already been made public, such as the fact that Musk cannot own more than 14.9% of the Twitter stock. On the other hand, Musk already asked his followers about changes in the platform. For example, he asked his followers if they wanted to add an editing button on the platform. We should expect a lot of changes to Twitter’s appearance, functionality, and interactivity that will strengthen user engagement. The main goal of changes should be to increase the daily active user growth and monthly active users. Key metrics that will attract more advertisers to the platform will be a huge benefit for revenue growth.
Elon Musk has been also supporting the cryptocurrency market, so there could be a shift for Twitter to post more content on cryptocurrencies. It could even decide to launch its own cryptocurrency and seek to become a huge player in Web 3.0. Most of these arguments are in the positive direction for TWTR stock. However, since Musk has expressed his intention to “end [U.S. Securities and Exchange] SEC settlement that required preapproval for some tweets” investors should expect more tweets from Elon Musk that will cause controversy and volatility in TWTR stock. Parag Agrawal, Twitter’s chief executive officer, has expressed his excitement about Elon Musk joining Twitter’s board. Musk has hinted significant improvements are coming in the next months.
For now, it is best to wait and see if this rally has legs or was just a reaction to the exciting news. Twitter will change and the key to success will be turning sales growth into profits, a weak area for the social media company in 2020 and 2021. With Musk now on Twitter’s Board, there is both excitement and a need for a risk-on mode, as not all changes may be in Twitter’s best interests.
On the date of publication, Stavros Georgiadis, CFA 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.