Shares of Twitter (NYSE:TWTR) are down about 3% as both the S&P 500 and Nasdaq Composite fall more than 2.5% today. However, there’s another catalyst sending shares of TWTR stock lower.
This morning, Hindenburg Research released a short report on the social media platform. The report mainly focuses on several reasons why Elon Musk’s acquisition of Twitter could potentially fall apart.
For starters, the short seller notes that the Nasdaq Composite has fallen by 17.6% since closing on April 3, the day prior to Musk disclosing his 9% position. However, Twitter has outperformed the index by roughly 43% since that date. As a result, Hindenburg believes that shares could fall to $31.4o if the acquisition is unsuccessful.
Hindenburg was also unsatisfied with Twitter’s first-quarter earnings. Three days after accepting Musk’s $54.20 bid, Twitter reported Q1 results. Hindenburg points out that the company reported its slowest revenue growth in six years and also said it overstated its daily active users in Q4 2021.
With this context in mind, here’s what else you need to know about the report.
TWTR Stock: 10 Things to Know About Hindenburg’s Short Report
- During Q4, Twitter said it overstated its global users by as many as 1.9 million users. This comes about four months after the company paid an $809 million settlement relating to past issues concerning overstatements of users. Hindenburg wrote that “We suspect that Twitter continues to overstate its true daily active users, despite the revision.”
- Musk disclosed that he will sell his 9% stake if the acquisition falls apart. This could create massive downside for TWTR stock.
- Twitter has a “specific performance” clause in the merger agreement. This clause gives Twitter the right to “force Musk to close the deal as long as he has the available financing.”
- Hindenburg believes that this clause will not be enforced because Musk has “direct influence on the financing and no apparent fear of a court battle.”
- Therefore, the short seller believes that if Musk pays the $1 billion breakup fee, he could “walk away” from the deal.
- The Twitter deal also places stress on shares of Tesla (NASDAQ:TSLA). The Tesla CEO has already sold around $8.4 billion of TSLA stock to finance the acquisition.
- Musk previously pledged 88.3 million shares of Tesla as collateral for his loans. Hindenburg believes that these equity-backed margin loans add risk to both companies.
- The firm notes that the chances of Twitter receiving a better offer are “extremely low.”
- In response to the short report, Musk tweeted “Interesting. Don’t forget to look on the bright side of life sometimes!”
- Hindenburg has disclosed that it is short shares of Twitter.
On the date of publication, Eddie Pan did not hold (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.
