Twitter stock has overreacted to Elon Musk taking a 9.2% stake, analyst says

·Executive Editor

Tue, Apr 5, 2022, 12:47 PM2 min read

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Twitter (TWTR) investors may be too jazzed up about the new involvement of now largest shareholder Elon Musk, warns Jefferies tech analyst Brent Thill.

It was disclosed on Monday that the somewhat unpredictable Musk took a 9.2% stake in Twitter. The stake — valued at close to $3 billion as of Twitter's closing price on Friday — is defined as a passive one.

Shares of Twitter surged 27% in the session. The stock popped by as much as 3% pre-market on Tuesday.

"We view the 27% stock gain as a potential over-reaction given the unclear rationale behind Musk's ~$3.7 billion investment. With the stock up 16% year to date (vs. comparable companies -7%) and trading at a >100% premium to Facebook, investors will need to see substantial progress toward the FY23 revenue and mDAU (monthly daily active user] targets," Thill said.

Twitter has said it's targeting $7.5 billion in sales by fiscal year 2023. The company posted more than $5 billion in sales in 2021.

The analyst reiterated a Hold rating on Twitter's stock. He reiterated Buy ratings on Alphabet, Meta and Snap.

Added Thill, "In the near-term, we expect the stock to remain range bound until investors gain greater comfort around new management's ability to execute against the company's long-term targets."

The disclosure from Musk comes about two weeks after the long-time tweeter-in-chief at Tesla questioned the speech practices on Twitter. He floated the idea of creating his own social media platform, that could perhaps rival his friend Jack Dorsey's.

"Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?" Musk said in the tweet.

To be sure, other analysts on the Street expect Musk to be more aggressive with Twitter, which could support a higher stock price.

"This is just the appetizer. Ultimately, we believe he will have an active stake over the coming weeks or month. This is just a start. I think he will have a broader strategic focus on Twitter, whether it's changing the slate, changing the management team or ultimately a buyout," said Wedbush analyst and Tesla bull Dan Ives on Yahoo Finance Live.

And on that score, Musk gave a small sampling of that potential aggression in a tweet exchange Monday night with Twitter's CEO Parag Agrawal.