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Twitter ‘does have the upper hand here’ in legal battle versus Elon Musk: Analyst

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CFRA Research Industry Analyst Angelo Zino weighs in on the Twitter-Elon Musk drama and why he thinks Twitter has the upper hand in a potential legal battle.

Video Transcript

- Let's move on to Twitter, where shares hit hard today with news of the pending courtroom battle in Delaware. Shares falling more than 11% today. What's ahead for the company and the stock? Angelo Zino is a senior analyst at CFRA Research. Good to see you, sir. So shares now down-- [Clears throat] excuse me-- 53% in the last year, 23% year to date. How much worse are things going to get now that we're headed to court?

ANGELO ZINO: Well, you know, I think it all depends on how kind of the battle in the courts really kind of work at this point in time. And, you know, when we kind of take a step back here, we're actually not surprised by Elon's decision to really walk away here. I actually thought it was the next kind of, really, step in the whole process here. And now you kind of have this kind of, really, you know, what we expect to be a fairly prolonged legal battle in the courts now.

You know, at the end of the day, we do think Twitter does have the upper hand here. And, you know, given that, we do think there is a possibility that they could potentially take, you know, north of a $1 billion breakup fee, when all is said and done. So I think as far as the valuation perspective is concerned here, we value the company at about $26 a share on a standalone basis. So things could absolutely get uglier here before they get better. And then, of course, the fundamentals-- we're entering a period where not only do we have macro uncertainty here, but now there are concerns about the actual kind of strategic, you know, path of Twitter going forward.

- And with that, you've cut your 12-month target price to $33 from $44. At any point, do you think if Twitter does remain public, does it remain attractive as it still has an issue with monetization and growth?

ANGELO ZINO: Well, I mean, listen, I do think there is value on the Twitter platform. And this isn't a company that, you know, is worth necessarily $5 a share. There's value within this company. They do have, you know, a fairly substantial, you know, active user base here at about 229 billion.

Clearly they've definitely disappointed here over the last kind of decade, ever since they've essentially gone public back in 2013, much more so than the rest of the industry. And clearly, they do have issues here, whether or not it's, you know, engagement levels, among other things. And monetizing that platform is going to be extremely important. I think looking, you know, at what the board does here in terms of their next steps I think is going to be absolutely critical.

And I think you know, clearly, Elon Musk has kind of, you know, made advertisers, as well as the investment community aware of some of the issues that Twitter has to cope with. And maybe it is, you know, potentially having something along the lines of more of a subscription-based offering, along with kind of an ad-based platform. But they have a ton of issues they've got to work through here over the next couple of quarters and years, for that matter.

- And to that point Angelo, even if they prevail in this Delaware courtroom, hasn't Twitter already been damaged throughout this entire process in terms of their perception and also because, of course, these doubts now that Elon has put out there about the number of bots? And you mention what the Twitter board does next. Do you expect a lawsuit filed any day now?

ANGELO ZINO: Yeah, no, I mean, in terms of the lawsuit, absolutely. I mean, that's going to get-- that's an absolute. And, you know, this is one of those situations where really the board has no-- all they can do at this point in time is really kind of go at Elon Musk in the courts. And the reason I say that is because potentially Elon Musk could maybe kind of entertain an offer, let's call it, 20% lower or even more so.

But, you know, Twitter can't-- Twitter's board can't do that because the shareholders out there probably wouldn't allow that and probably would, you know, sue Twitter themselves if they were to try to, you know, pull that off. So there are a lot of kind of moving parts as far as that's concerned. But, yeah, I mean, to your point, as far as Elon Musk is concerned and Twitter, he's definitely kind of opened this Pandora's box as far as the bot situation is concerned.

But that's been an issue for years. Everyone's known that's been an issue for years at Twitter. And really, that's not only a Twitter issue. That's an issue that's been a major kind of sticking point for a lot of advertisers out there across the digital ad, you know, platforms and social media platforms out there. So it'll be interesting to kind of see if advertisers out there look for opportunities, you know, potentially away from Twitter or other existing platforms out there. I will say this. In the coming years, there's going to be a lot more opportunities and ways for advertisers out there to kind of, you know, utilize different platforms and kind of advertise in ways that they want to.

- And do you think there could be any scenario, after all this mess, that any other potential bidders might be interested in Twitter after what's gone down now with Elon Musk?

ANGELO ZINO: Yeah. I mean, listen, this is a company now trading at a market cap of at about $25 billion or so. At this point in time, I wouldn't necessarily say there's any sort of white knight that's kind of out there, interested bidder. I think there could potentially be interested kind of private equity firms over time if we were to see kind of the stock really get annihilated here over the next couple of quarters and years, depending on how, you know, this case kind of plays itself out. But at these levels, I'd probably say no, especially, when I start looking at the broader ad space and social media platforms out there, where there are probably actually better opportunities out there, given the hits we've seen across the broader space.

- All right. CFRA Research Senior Industry Analyst, Angelo Zino, thank you, sir. Appreciate it.