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Shareholder activism or "billionaire retail therapy?"

Just because Musk is dropping $3 billion on a Twitter tantrum doesn't mean the company will make any more money says @DoubleLJSquared https://t.co/h2hKLnbS1Q

— Aaron Back (@AaronBack) April 4, 2022

First off let me say that I love Twitter (TWTR). I find it to be a terrific platform for following smart and insightful people as well as sharing my own ideas. However, I don’t believe Elon Musk’s investment in the company justifies a one-third increase in its stock price.

WSJ Heard On The Street columnist Laura Forman made the best case for why in her article in Tuesday’s paper (“Musk’s Twitter Tantrum Needs A Timeout”. Forman argues – citing AB Bernstein analyst Mark Shmullk – that Musk seems mostly interested in how Twitter manages conversations rather than how it makes money. While this could be a plus for users, it may not be so for investors. Indeed it may amount to no more than what Shmullk apparently called “billionaire retail therapy”.

Indeed this gets to the heart of the problem with TWTR as a business. While it is by far my – and many others I’m sure – favorite social media platform for the reasons stated above, TWTR has struggled to monetize its user base. Personally – though I use Twitter a lot – I have never clicked on an ad, and the couple of times I’ve tried to promote my tweets on Twitter have been failures. So it’s not surprising that TWTR’s Adjusted EBITDA for all of 2021 was less than $700 million. By contrast, Facebook’s (FB) net income for 2021 was more than $39 billion. While I hate Facebook and love Twitter from a user perspective, FB is a much better business from an investment standpoint.

So while I hope Musk does improve the platform for users like myself, I’m skeptical he can improve TWTR from a business standpoint. Fade Elon’s “billionaire retail therapy”.

1Q22 Performance (through 3/31/22):

Top Gun Long/Short: +24.55%

NASDAQ: -9.10%

S&P: -4.95%

— Top Gun Financial (@TopGunFP) April 5, 2022