Update 1201 EST: Elon Musk has responded to Hindenburg's call for moving the deal price lower, Tweeting to the short seller "Interesting. Don’t forget to look on the bright side of life sometimes!"
Interesting. Don’t forget to look on the bright side of life sometimes!— Elon Musk (@elonmusk) May 9, 2022
Twitter shares have been under pressure along with the NASDAQ Monday morning, but helped along by activist-short-seller Hindenburg Research, who published a brief this morning explaining that they were short Twitter shares and that they expect Elon Musk's bid for the company to be lowered.
"Despite the intense public focus on the potential deal between Twitter and Elon Musk, the market seems to have missed a key, developing risk.," Hindenburg wrote in their Monday morning report.
"Since the day before Musk disclosed his initial stake in Twitter, multiple developments have weakened the company’s position, threatening the current deal dynamic."
The report then goes on to talk about the broader market's crash and Twitter's ugly earnings report.
"Twitter has outperformed the Nasdaq by ~43% since Musk disclosed his initial position, setting the stock up for a material downside reversion should Musk walk away from the deal," Hindenburg wrote.
"Beyond broader market dynamics, Twitter’s recent reported performance represents further downside that hasn’t been priced into the stock – but would be, in a scenario where Musk’s offer doesn’t consummate. Twitter announced it had accepted Musk’s bid on April 25th. Just 3 days later, it reported weak earnings, disclosing (i) its slowest revenue growth in six quarters, which missed estimates, and (ii) an overstatement of its daily active user count," it continued.
Twitter shares initially dipped this morning but are rebounding slightly...
Hindenburg also noted that if Musk walks away from the deal, it could materially depress Twitter's share price:
"Musk has made it clear to Twitter’s board that should the deal not consummate, he will sell his shares."
The short seller also expressed concern about the amount of potential fake users on the platform, stating: "We suspect that Twitter continues to overstate its true daily active users, despite the revision. As indicated by Musk, the platform is flooded with bots, spam, and scam accounts that likely inflate its genuine user metrics even further."
From there, the piece takes exception with the amount of leverage the deal creates heading into a rising rate environment:
"Placing both Twitter (and ultimately Tesla’s) future on a foundation of further equity-backed margin loans, or potentially more sales of Tesla equity amidst a volatile market, adds risk to both enterprises."
Meanwhile, as potential incoming CEO, Elon Musk has claimed he is going to "double" Twitter's revenue through subscriptions alone.
Musk reportedly put together a pitch deck on how to drive Twitter Blue users to 69 million by 2025 and 159 million by 2028.
The deck also lays out expectations for massive growth in total users, growing from 217 million users last year to 600 million users in 2025, then to 931 million users in 2028.
Musk also pitched another subscription service that he expects to bring in 9 million subscribers by 2023.
"Revenue from it and Blue combined is supposed to hit the $10 billion mark by 2028," the Verge wrote.
For now Musk has been suspiciously quiet on this Hindenburg note, we suspect that won't last too long given his historic relationships with short-sellers (though this time around, he may actually be on their side, if he can get a lower price?)