Twitter Inc TWTR shares are up more than 18% over the opening price on Monday on news that Tesla Inc TSLA CEO Elon Musk plans to proceed with his acquisition of the social media platform at the original buyout price of $54.20 per share, or $44 billion.
What Happened: Rosenblatt Securities on Wednesday reiterated a Neutral rating on Twitter. The firm also raised the price target from $37 to $54.20, to reflect Musk’s buyout price.
“We up our Twitter price target to $54.20 to reflect what appears now to be a done deal, with Elon Musk dropping his objections and reviving his former offer to take the iconic social media company private at the previously agreed price of $54.20, and Twitter making a statement of expectation that this will be completed,” Rosenblatt Securities analysts wrote in a letter to its clients.
With its previous $37 price target, Rosenblatt thought Peiter Zatko's complaints would be problematic for Twitter and give Musk leverage to negotiate a significant price reduction to the deal price. Rosenblatt assumed Musk's bot claims, which form the basis of Musk's case, would be largely unfounded.
“In reality, this didn't happen,” Rosenblatt wrote, “reflecting the strength of Twitter's seller-friendly contract.”
What’s Next: There will be pressure to make significant cost reductions and to better understand the scope of spam bots.
Musk has expressed a desire to develop alternative revenue streams and reduce reliance on advertising, mentioning a WeChat or "super app X" model. This is likely a reference to the addition of more features to Twitter, such as e-commerce and payment options.
Rosenblatt pointed out Twitter had already started implementing the "edit tweet" function Musk had pushed for. The edit function is being tested by Twitter Blue subscribers in Canada, Australia and New Zealand. Increased tweet character limits, lessening of content regulation and the reinstatement of former President Donald Trump on the platform are other demands made by Musk.
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