07 Nov 2022
Entrepreneur Elon Musk has achieved a lot in his 51 years. He’s CEO of Tesla, Inc. and the private space company SpaceX, he co-founded PayPal, was an early investor in several tech companies, and in October this year he completed a deal to take Twitter, Inc. private.
Elon Musk is a quick thinker and fast implementor. He’s well known for his active and influential Twitter account and his often controversial, market-sensitive posts that have the capacity to rock share prices. It’s no great surprise that Elon Musk was keen to get his hands on the social media platform. He’s all for free speech and is against banning specific contributors, regardless of the potentially damaging impact that can stem from controversial commentary.
Business magnate Elon Musk began buying shares of American social media company Twitter, Inc. in January 2022, eventually becoming the company's largest shareholder in April with a 9.1% ownership stake. He then made a bid for the platform worth $44 billion, saying he wanted to turn Twitter into a private company and allow people to speak more freely.
With an estimated net worth of $254 billion as of August 2022 according to Bloomberg and nearly $90 billion ahead of Amazon founder Jeff Bezos, Elon Musk is the richest person in the world. But even for a man with such a sizeable fortune, raising $44 billion to buy Twitter was no mean feat and Musk reached out for backing from several investors to raise the colossal sum. The billionaire used personal assets, investment funds and bank loans for the purchase. Morgan Stanley, Bank of America, and Barclays are reported to be the primary financiers, each committing at least $2.5 billion in debt financing for the deal and the Saudi Arabian Prince Alwaleed bin Talal helped Musk finance the deal by rolling over his existing $1.9 billion stake in the company. Investors such as Sequoia Capital, Binance, and Qatar Investment Authority also committed to help Musk with the acquisition.
The purchase was far from plain sailing though and Musk raised many queries about the platform during the process. After months of lawsuits, verbal mudslinging and the near miss of a full-blown trial, Elon Musk is now the official owner of Twitter.
What sets Elon Musk apart from the rest? Musk has a killer combination of passion and persistence and even after multiple failures, he’s not afraid to take risks and keeps moving forward with determination and optimism. He’s famed for his dogged entrepreneurial spirit but he’s equally well-known for his controversial comments on Twitter and other channels.
So, why did Elon Musk buy Twitter? Is it all about the business or is there an argument to say that the potential influence is also hugely attractive? He claims that he went ahead with the purchase to ‘help humanity’. In a tweet, he said that he didn't buy the firm ‘to make more money. I did it to try to help humanity, whom I love’. Elon Musk is without doubt a powerful influencer who now owns the world’s biggest market square where everyone gets to voice their opinions.
Twitter permanently suspended the @realDonaldTrump account due to the risk of further incitement of violence from his inflammatory Tweets but since Musk believes in free speech and wants to ‘clean up’ the platform, the door to Donald Trump regaining access to the platform may no longer be slammed shut. Just like Elon Musk, Donald Trump loves Twitter as it’s a direct way of connecting with voters, bypassing the traditional media. But times have changed and even if he is invited back to Twitter, Trump may decline as he now owns and runs his own social media company, known as ‘Truth Social’.
We know that Twitter’s influence spans every sphere of everyday life, that Elon Musk is a key influencer, and that he now has the power to unban political figures on Twitter, so it’s not inconceivable that Elon Musk can influence the next US election and the outcome will, without doubt, impact on markets globally.
What does all this mean for tech stocks? When money was cheap and interest rates were low, it was easy for tech companies to borrow money and garner investors but it’s no longer straight forward. Generally, tech stock prices have been on a downward curve with some stocks losing up to 90% of their value this year, yet here is Elon Musk buying a big tech company in one of the highest-value takeovers in history. Is the value of tech stocks overblown or is there a bargain to be had in the current climate?
The value of tech stocks isn’t necessarily what they’re worth now but what they may be worth in the future. Musk may be dedicated to free speech but he’s more than cognisant that the current Twitter business model with advertising at its core is an effective formula. He’s looking to grow the value of the business and make it more profitable by introducing a fee for the Twitter ‘blue tick’ verification endorsement and by reducing the size of the workforce. The basic model on which tech companies are built is often convincing and some still have serious untapped monetary potential.
It's safe to say that there has been a huge bubble in the market when it comes to tech stocks. The bubble may have burst but there are still considerable opportunities when it comes to investing. Up until 2020, investing in tech was a no brainer and passives were more than a viable option but with the drop in tech stock value, discerning active management could be the key to unlocking potential and making the tech stocks in your portfolio do the hard work for you.
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Richard O'Sullivan, Investment Research Manager
Katie Poulson, Client Engagement & Marketing Manager
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