Elon Musk Finally Dropped His Bid for Twitter: Buy at Your Own Risk!

Shares of Twitter (TWTR) fell 5.1% on Friday and additionally lost 7.1% in Monday’s premarket after Elon Musk announced he is dropping his bid for arguably the most popular, but increasingly loss-making social network.

Twitter has been a negative cash flow company for several quarters, apparently having difficulty in luring customers to its advertisement perks. However, the takeover followed by widely announced crucial functionality changes was perhaps the last hope for its desperate shareholders. In the latest quarter, TWTR saw a slowdown in growth that was to be expected considering the macro headwinds and tough comparables. Revenue grew 16% to $1.2 billion, or 22% excluding MoPub and MoPub Acquire, which it had sold to AppLovin (APP) earlier in the year. TWTR generated net income of $513 million, but that included realized one-time gains of $970 million received from the above-mentioned MoPub transaction. Excluding that realized gain, TWTR was not profitable even on a non-GAAP basis.

To sustain its shares from free fall, TWTR was active in the capital markets during the quarter, repurchasing $2 billion of stock. But the company ended the quarter with $6.3 billion of cash versus $5.1 billion of debt.

Interestingly, the takeover saga might not be over, as TWTR may try to collect the $1 billion termination fee and force Musk to fulfill his agreement in kind. The stock is trading at extremely low multiples even without any deal – making it a seductive bid for those inclined to high risk/reward plays.

For Twitter, completing a sale to Elon Musk is vital. It struck its deal with him as technology companies were enjoying optimistic valuations; some, like Snap (SNAP) and Meta (FB), have now plummeted as they face advertising pressure, global economic upheaval and rising inflation. Twitter’s stock has fallen about 30% since the deal was first attempted, but trades well under Musk's offering price of $54.20 a share.