Elon Musk is now the biggest shareholder in Twitter (NYSE:TWTR) following a $2.9bn investment in the company’s shares. His 9.2% stake eclipses those of institutional investors, such as Vanguard and BlackRock. Musk has also joined the board of directors. With the share price surging on the news, let’s explore where the social media stock could go next and whether it would be a good buy for me.
Reversing a downward trend in the Twitter share price?
Since reaching $77.06 per share in February 2021, Twitter stock has declined dramatically over the past year. The share price has traded below $40 for most of 2022. However, Elon Musk’s recent involvement brought it above $50 again in the stock’s largest intra-day gain since Twitter’s IPO in 2013.
Yet fundamental challenges remain. Twitter has posted a net profit for only two years in the past decade. In 2021, the company paid out $809.5m to settle a shareholder class action lawsuit alleging that executives, including former CEO Jack Dorsey, concealed information regarding its slowing user growth.
Musk’s arrival on the board heralded an initial reversal in the share price, but there are question marks over whether this can be sustained.
A potential shake-up for Twitter’s policies
Despite being an avid Tweeter, Elon Musk has been a notable critic of the microblogging site. For instance, he recently admonished Twitter’s development of profile pictures linked to non-fungible tokens (NFTs).
Moreover, on 25 March, Musk polled his Twitter followers to ask whether the social media network rigorously adhered to the principle that “free speech is essential to a functioning democracy“. Over 70% voted no.
Musk intriguingly stated that “the consequences of this poll will be important.” So, big changes may be on the horizon for the company’s policies, which could have potential implications for the share price.
Indeed, many Republicans are already lobbying Musk for the reinstatement of former US President Donald Trump on the platform. Twitter has banned Trump since the storming of the Capitol in January 2021.
However, Musk doesn’t have a controlling stake and there are 11 other directors on the board. Their support will be critical to enact any future changes. Accordingly, investors may be overly optimistic about the influence the world’s richest man will have on the Twitter share price.
Is now a good time to buy Twitter shares?
For me, while Elon Musk’s involvement is good news for current shareholders in the short term due to increased publicity and speculation about his future plans, I am sceptical that the Twitter share price will benefit longer term.
I suspect Musk’s primary loyalty will remain with Tesla. He’s also the CEO of SpaceX and Neuralink. As a self-professed “free speech absolutist“, the multi-billionaire’s ambitions for Twitter may not be primarily motivated by financial concerns.
I’m also not convinced Musk’s arrival on the board will be enough to rescue Twitter’s struggling business model. The company lost nearly $1.4bn over the past two years, in stark contrast to profitable competitors, such as Meta.
If I owned Twitter stock, I would take profits from the recent rise in the Twitter share price. However, I’m not a shareholder and, for me, this is not an attractive entry point to buy Twitter shares.
