Elon Musk dealt ‘a huge psychological blow’ to Twitter: Analyst
TECHnalysis Research President and Chief Analyst Bob O'Donnell speaks with Yahoo Finance Live about Tesla CEO Elon Musk pulling out of the Twitter takeover deal and what that means for the stock.
Video Transcript
- Elon Musk is pumping the brakes on his $44 billion deal to buy Twitter, citing a lack of information provided to properly assess the number of fake accounts on the platform. Now Twitter says it is committed to closing the transaction and plans to pursue legal action. Joining us now to discuss is TECHnalysis research president and chief analyst Bob O'Donnell.
OK, Bob. You largely expected this. Many people actually expected this as well. But in terms of what comes next, it seems that shareholders, they're going to fight for this deal. And so what do you expect the Delaware courts to now move forward with, and what is Musk going to have to prove versus Twitter going to have to prove?
BOB O'DONNELL: Well, yeah, obviously, the shareholders are going to go after it because this was a fantastic deal for them. And clearly, it's fallen apart. I mean, look.
Ultimately, the problem is you've got a man who makes emotional decisions about a lot of things, apparently, in his life. And then he has to deal with the consequences. And that's clearly what happened here.
In terms of what the court's going to do, it's hard to say. I mean, there's no question that he made a commitment that seems legally binding, and something is going to have to happen. If he pays that $1 billion, then he pays the billion. For him, it's not frankly that big of a deal.
For shareholders for Twitter, on the other hand, of course it's a huge deal because not only is it a financial blow, but it is a bit of an emotional blow certainly in a sense to them because the value of the platform all of a sudden gets derided even further than it unfortunately already has, and he was seen as potentially being some sort of savior for the platform. And there were all kinds of elements going on here. And so it's a big problem sort of from a psychological perspective. And you know, I think it's going to end up being a very ugly court fight as a lot of people suspect because obviously the Twitter shareholders and the existing Twitter board is going to fight super hard to get it.
Musk clearly is going to be fighting very hard to get out of it, and a lot of messy things are going to come out. I mean, things like monthly active user numbers, all these things have been debated in social media for years and years, and maybe we'll see even more of sort of the dirty laundry that goes on in terms of how those numbers are created. I mean, the fact that we're talking about a million accounts every day have to be deleted sort speaks to it.
And by the way, that's not unique to Twitter. Those problems happen on social media in general. It's the state of where we are, unfortunately. So all of those things kind of come to a head when it comes to this deal and this trial. So it's going to be a very interesting soap opera to watch. That's for sure.
- Hey, Bob. It's Julie here. It's good to see you. You know, I was looking at Twitter's revenue growth this morning. And we have definitely seen, after a pandemic bounce in that revenue, that it has come back down.
And this is obviously not really a growth company in the sense that social media was once seen. Is that-- you sort of just spoke to it. But if you could give us a little more detail, is that the fault of Elon Musk? In other words, how do-- it was sort of bumping along before this whole thing, but it wasn't seen as anything spectacular. But--
BOB O'DONNELL: Right.
- --has he has he torpedoed its prospects in a real way?
BOB O'DONNELL: I think that's a serious question that a lot of people have, and I think there's a very real possibility. I mean, look. We've all seen-- for the people who are on Twitter, there are some people whose lives are built around Twitter, and that's literally everything practically that they do there, their incomes and everything else. So there's a very dedicated, strong group of followers and believers.
And then there's a lot of other folks who are like, yeah, whatever. And the thought that Musk is going to come in, and that's going to bring excitement and new capabilities and new other things to the platform all of a sudden did give rise to, hey, you know what? Maybe they can turn these things around.
With him walking away, that's what I was saying. It's a huge psychological blow because it's like, oh, well, maybe not after all. And it just continues to bump along as it is, which makes it not a particularly great investment and frankly raises questions long term about the platform.
- Bob, isn't this great news for the folks over at Meta and Snap, even TikTok? I mean, you're essentially watching a competitor drown in real time.
BOB O'DONNELL: Well, you could certainly make that point, Brian. I mean, that's-- obviously I think a number of people are going to see that in the short term. You know it does raise questions longer term about how any of these platforms other than one or two can really do particularly well from a financial perspective.
But yes, absolutely. I think you're going to see a lot of people, you know, the sharks swimming around as these follies continue. So on the one hand, you're going to see Twitter want to fight to get what they can. On the other hand, they don't want to drag this out too long because if they do, I think you'll see people get even more concerned and even more of the sharks circling and making more aggressive efforts to do what they can to take whatever audience Twitter has and move them to their platforms or take advantage of whatever things they have. So it is a very real concern, and it's going to be very interesting to see.
- But Twitter has already pulled back some of its own features that it implemented. Fleets, that fleet did pretty fast away from the platform. We're continuing to track spaces to see where that might be monetizable in the future. But when it comes down to engagement and seeing monetizable, daily active users, what is this company going to have to do to continue to see that type of engagement, or what type of spending might that even really entail to roll that out on the platform?
BOB O'DONNELL: Well, you know, I think what we've seen over time is there's this realization that when it comes to Twitter, it's never going to be a particularly huge audience. But the thought is, oh, it's an influential, important audience. Therefore, the value of reaching that audience is higher than it would be on other platforms, right?
I mean, if we think about the amount of money that people spend who have regular Twitter users versus the amount that people spend who are that are kids that are on Instagram or what have you, that's about the only argument you can really make sort of from a longer term perspective, and I'm not sure how well that's worked because I think that's been tried up till now, and it hasn't really dramatically changed it. So it's a good question. Again, we're seeing a lot of challenges with social media.
It's become this incredibly influential thing in the world, but it's also created an incredible amount of divisiveness and anger, and all of these things are going to play themselves out with this trial. And like I said, I think it's going to bring focus on that whole notion of daily active users and monthly active users, things that have been kind of questionable, I think, and from a measurement perspective, for a very long time across all of these platforms. And that may have a blowback on the industry as a whole as advertisers start to see what the reality is versus what they've been told.
- Yeah, and it's already under fire because of Apple changes and everything else going on. Bob O'Donnell--
BOB O'DONNELL: Exactly.
- --it's good to see you. TECHnalysis--
BOB O'DONNELL: Thanks, Julie.
- --research president and chief analyst, appreciate it.
