07.06.2022 – It’s getting tight for Twitter: The social media company has been targeted by a US prosecutor. Within three weeks, Twitter must provide reliable data on fake accounts and bots. This looks very much like do or die for the stock.
The drama surrounding Twitter has left its mark on the share price. The share price first rose in the hope of a takeover battle. In the course of the tug-of-war over possibly falsified user figures, it went downhill. The share price is now lurking below the 50-day line on the daily chart.
Source: Bernstein Bank GmbH
Now it’s down to the wire for Twitter: Attorney General Ken Paxton from Texas announced yesterday that he had initiated an investigation against the company. The investigation involves a possible lie about the number of fake bot accounts on the social media site. According to Paxton’s press release, bots or spam accounts distort the true user numbers. Literally, “they inflate followers and reach, and often push deceptive and annoying activity.”
5 percent or 20 percent fakes?
Paxton doubts Twitter’s claim that there are only less than 5 percent of spam accounts and sees potentially a 20 percent share. That, of course, calls into question the marketing potential via advertising. Hence the current Civil Investigative Demand (CID). Twitter must now deliver resilient figures within three weeks.
Because of the recent squabbles, the planned takeover of Twitter could fall through: Tesla billionaire Elon Musk has been complaining for weeks about Twitter’s allegedly false estimates of the number of spam and fake accounts. Twitter refuses to provide him with reliable data for his own research on the number of spam and fake accounts. This is a violation of the takeover agreement, he said. This is precisely why Musk reserves the right to back out of the deal, he said. That’s also why Musk declared the deal suspended – he had offered Twitter shareholders $54.20 per share.
Twitter must deliver
The next three weeks will determine whether the takeover goes through – albeit perhaps at a lower price. Or Twitter presents reliable figures that show that everything is proceeding correctly and that the fake figures are actually low – then the share price should go up. The question for us is why there are not 0 percent fake users on Twitter – after all, people who tweet expect to communicate with real people. Or it comes out that Twitter lied about the numbers of real accounts. Which is also likely to bring the U.S. Securities and Exchange Commission into the picture. And it would almost certainly result in a flood of lawsuits and mass sell recommendations from analysts.
So it’s quite possible that Musk will pull out of the deal and leave Twitter completely destroyed. A bombed-out Twitter stock will then become interesting for the bulls again once the management has been replaced and the internal fake accounts have been eliminated. And perhaps when freedom of expression for conservatives also prevails at some point. Our conclusion: The current development initially argues for a sideways movement until the matter is clarified. Bernstein Bank is keeping an eye on the matter for you!
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