The liberation of free speech, the end of digital censorship and a new-age for online sociability; these are the key cornerstones of Elon Musk’s new Twitter. Investors so far seem to be relishing the acquisition, with TWTR shares jumping more than 30% following the circling rumors at the beginning of April. Looking at Tesla (NASDAQ: TSLA) shares, we can see a pattern in an inverted reflection of Twitter’s price action. For instance, Tesla investors sold-off on the acquisition rumors, dropping over 10% following the formal agreement on Monday.
Cleary Tesla investors are uncertain regarding the social media buyout, but should they be? There’s a weak point to be made surrounding a possible divergence of focus, but this is all speculative, and there isn’t really any solid grounding to suggest that Elon’s new ownership position will affect his focus on Tesla. If Musk was still navigating a start-up or high-growth phase it might be a different story, but Tesla’s deep moat speaks for itself.
The main pressure on Tesla shares revolves around pricing; primarily being the $21B in equity financing that investors believe will parallel a sale in Musk’s own Tesla stock. However, a core piece of this financing will likely be held as collateral rather than actually being sold in the transaction. Secondly, the debt acquired as part of the Twitter transaction means, as Wedbush analyst Daniel Ives summarized, “a good portion of Musk’s Tesla shares will be spoken for/used as collateral”.
The financing details have become the main catalyst for bear action; Ives points out that the transaction was “never ideal” for Tesla investors, and TSLA stock is likely to feel the grunt of equity based financing complications. Realistically though, any share volatility is likely to be temporary, largely outgunned by Tesla’s dominant fiscal standing.
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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.