- Fake account controversy is starting to grip Twitter (TWTR) shares.
- TWTR stock has other issues on its price chart and a frothy deal price.
- Investors should stay away from TWTR at current levels.
For most of Wall Street, the conversation on Tuesday was about a market trying to recover. And rightly so amid ongoing economic threats from Covid-19 and the Russia-Ukraine conflict. But for Twitter (NYSE:TWTR), a whole lot more is being discussed.
TWTR stock is underwater by nearly 24% and wildly underperforming the market this month. And unless you’ve been onboard a SpaceX Starship, you’re aware the challenge to Twitter stock buyers has been Tesla’s (NASDAQ:TSLA) Elon Musk.
That said, let’s dive into the latest TWTR news and its impact, off and on, the stock chart.
Walking the Aisle With TWTR Stock
A proposed $44 billion union between Tesla’s Elon Musk and Twitter is facing challenges. At the crux of the disagreement are fake Twitter accounts that are home to bots making activity on Twitter appear more significant than it actually is.
Musk is suggesting that up to 20% of the accounts on the communications platform are fake/spam accounts. Meanwhile, TWTR’s CEO has publicly refused to confirm Securities and Exchange Commission filings insisting the activity is less than 5%. As a result, the deal has reached a non-negotiable impasse according to Musk.
But some on Wall Street believe Elon is really attempting to lowball Twitter into a better deal price or even renege on the proposed purchase altogether. Veteran technology analyst Dan Ives of Wedbush chimed in saying a deal will require “a much lower price” after further diligence on Twitter’s daily average user and algorithms hot button issues.
Twitter Is Trending On Twitter
Source: Charts by TradingView
Today, it doesn’t take a rocket scientist to see that Elon may not want to pay up. While Twitter announced its “committed to completing the transaction on the agreed price and terms as promptly as practicable,” the agreed $44 billion valuation deal works out to $54.20 per share versus today’s TWTR stock price of $37.87.
It’s a hefty premium that might arguably make less sense if more bots are responsible for what’s trending on Twitter beyond Elon’s own active tweets. But don’t feel too bad for Elon just yet.
Despite falling over 32% from last month’s high, TWTR is only back near price levels aligned with where Elon initially began accumulating shares prior to disclosing a 9.2% stake on April 4. That news sent the stock soaring from an April 1 close $39.31 to a year-to-date high of $54.57 just two days later and fractionally above the deal price announced a couple weeks later on April 25.
TWTR Stock Is Trending Weakly
The violin may soon be more appropriate for Elon. Technically, shares are caught in a 15 month downtrend with a bearish and overbought stochastics crossover. Moreover, TWTR stock has significant downside risk if shares break beneath Tuesday’s low of $36.85 and the 76% retracement level of its Musk-induced rally.
The observation is bearish momentum could send TWTR into the high $20’s to low $30’s before a bottom might play out with an advantage to buyers. Shares may be expensive off the price chart too.
As InvestorPlace’s Mark Hake notes, though for less worried reasons, the projected takeover deal price looks expensive at 10.3 times adjusted EBITDA compared with private equity typically paying four to six times EBITDA.
All told, Twitter is risky business right now and Elon can afford to take a penalty of $1 billion if he pulls out of the agreement for whatever reason. At the end of the day, Elon knows that when other investors are losing money in TWTR shares, he can stick to making great automobiles and jokes on his Twitter feed as a side hustle.
On the date of publication, Chris Tyler 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.