It’s no secret that things have been complicated at Twitter headquarters since Elon Musk acquired the company. The Tesla (NASDAQ:TSLA) CEO has taken the social media giant on a wild ride, firing executives and reinstating highly controversial accounts amid rising accusations of spikes in misinformation spreading. Shortly after changing Twitter’s logo to the Dogecoin (DOGE-USD) symbol, he claimed his dog was the company’s CEO. Musk also asserted that Twitter was “roughly breaking even” now.
But things may be far worse than Musk has initially let on. A report from Insider Intelligence recently laid out the problems facing Twitter’s advertising business since Musk assumed control of the platform. It examined how the company has been fairing since Musk’s takeover and reduced its ad revenue forecast for the year by 37%. That’s bad news for Musk, but it could also cause problems for anyone holding Tesla stock.
Should investors regard Musk’s problems at Twitter as a bellwether for their Tesla holdings? Let’s take a closer look at the report and what investors should be expecting in 2023.
Tesla Stock in the Dogecoin-Twitter Economy
In the six months since Musk finalized his Twitter acquisition, TSLA stock hasn’t been performing well. Despite some early-year growth in January 2023, it remains in the red by more than 16%. Of course, other economic factors have pushed shares down since then. The electric vehicle (EV) leader fell short of Q1 delivery estimates, and competition is mounting steadily. However, Musk shifting his focus from Tesla to Twitter certainly didn’t help TSLA stock rise, just as experts predicted.
Insider Intelligence lays out one key two-part question in its report: “Should advertisers spend on Twitter, and will the platform survive?” In short, the answer to the second question posed is unclear. However, the report has found plenty of reasons for advertisers to take their business elsewhere. And that’s not good for the company. As Quartz reported in November 2022, Musk needs the companies paying Twitter for ad space considerably more than they need him. The outlet also laid out the problems facing Twitter that Insider Intelligence found:
“‘The biggest problem with Twitter’s ad business is that advertisers don’t trust Musk,’ Jasmine Enberg, principal analyst at Insider Intelligence, wrote in a statement on April 10. ‘None of Twitter’s efforts to bring back major advertisers — including ad incentives and brand safety partnerships — will work with Musk at the helm. Twitter needs to unravel Musk’s personal brand from the company’s corporate image to regain advertiser trust and bring back ad dollars.'”
Enberg hit on something important when she noted the need to “unravel Musk’s personal brand” from Twitter. A CEO’s personal brand is crucial to any company, and now, Musk’s has plenty of problems. Specifically, it is currently associated with problems at Twitter, which could easily make Tesla stock investors nervous.
Shareholders need to know that their company is in good hands, and right now, those hands appear to be running another industry-leading company into the ground. If Twitter’s ad revenue falls by anywhere near the amount predicted by Insider Intelligence, it could cause significant problems.
What Comes Next
Tesla stock has indeed performed reasonably well lately. It’s rising today and remains in the green for the month, though not by much. But as InvestorPlace contributor Larry Ramer recently noted, the company is facing enough problems on its own.
Some might say that Tesla has a Twitter problem, but the underlying reality is that both companies have an Elon Musk problem. If the CEO isn’t careful, his struggling company could start to negatively impact his more stable one.
On the date of publication, Samuel O’Brient 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.
