Two months ago I wrote about how Hindenburg Research took a short position on Twitter stocks and how they predicted Elon Musk would most likely walk away from the deal if he can't renegotiate the deal for a lower price tag. As usual, Hindenburg Research made their research and reasons for shorting Twitter public and the logic behind their action did make sense. However, Hindenburg Research very rarely shorts well known stocks/companies. Normally, their investigations and research involve less known stocks and companies that are involved in scams, fraud, and/or deceptive financial tactics. It was a big bet to short Twitter in the midst of it being the main topic talked everywhere due to the Elon Musks offer to purchase it.
Their publication and short position came only a couple weeks after Elon Musk made his Twitter bid public. That was very fast and accurate research and analysis of predicting the future on this Twitter deal.
Feel free to read the full report here. These are the outlines of their research and reasons why they were taking a short position on Twitter:
- Nasdaq Has Plummeted ~17.6%, Implying A Twitter Price of ~$31.40 Per Share Without a Deal
- Twitter Reported Weak Quarterly Results And Disclosed It Had Overstated Its Users (Again) Just 3 Days After Accepting Musk’s Offer, Suggesting Further Downside That Has Not Already Been Priced In, Should Musk Walk Away
- Musk Indicated He Will Sell His 9.2% Twitter Stake Should a Deal Not Consummate
- Hindenburg Research Believes The $1 Billion Breakup Fee Really An Option To Walk Away
- The Public Square Should Rest on a Foundation of Financial Stability, Not Risky Leverage
- The Board Has Virtually No Stake in Twitter. Key Holders Rolling Existing Equity or Contributing New Equity Would All Benefit From a Revised Deal
- The Overpriced Twitter Deal Is Placing Undue Pressure on Tesla, Due to Equity Sales and The Prospect of More Margin Debt
- The Risk/Reward Of Shorting Twitter
When Hindenburg Research announced their analysis and short position, there was no hint of a possibility that Elon could walk away from the deal. It seemed like it was done deal, wherever Elon went everybody kept asking him what his plans were for Twitter. And he did share some of them without suggesting that he may walk back on the deal. However, after this research, analysis and predictions were published by Hindenburg research we started seeing the indications of how they might actually be right.
We saw this in Elon's sudden interest of Twitter's bots to humans activity ratio. Out of nowhere Elon Musk, who claimed many times how much he loves Twitter, started demanding from Twitter to show data on Twitter's bot activity. It is a known fact there are bots on Twitter and all other social platforms. Bots are part of normal digital life. They didn't bother Elon before. But now for some reason he started considering them a big deal and potentially a deal breaker on his Twitter purchase. Simple question that comes to mind is, shouldn't Elon's and his team have made inquiries about this issue before making the offer?
I have no doubt Elon's legal and tech teams have made their thorough research into Twitter and assessed pros and cons of such purchase. Elon Musk has always been interested in Twitter, and not only to express his thoughts, share memes, and pump Doge coin. He did have financial interest as well, and this can be seen in his methodical purchase of Twitter stocks and becoming the largest stakeholder before he even made his interest to just buy Twitter and make it a private company again.
For these reasons, I do not buy the argument that he didn't know the real or even close to real approximate numbers of bot activity on Twitter. Just like Hindenburg Research have outlined in their reasons, I believe Elon has realized that he was paying too much for Twitter, especially after all markets started dropping significantly. Nobody knew that markets would make this turn that fast. Neither did Elon. But it happened, and all of the sudden he may have realized he is overpaying for Twitter and walking away from the deal, even if it may cost him a billion dollars, still could save billions more.
The most recent news today is that Elon Must actually officially has terminated the $44 billon Twitter deal. What a perfect prediction by Hindenburg Research. Impressive! While this may cause Twitter stock price to go down a little bit more. Especially if Elon decides to sell his shares. However, I don't think in a long run it will affect Twitter much. It has been a bear market. Many stocks have been down, and maybe will continue to drop more. Who knows. But I have no doubt when overall market sentiment and trends change, Twitter stock prices will do just fine as well. Love it or hate it, Twitter has become a global public forum. It has become more than just a tech company. As much as I like to see decentralized alternatives to emerge, Twitter is not going anywhere anytime soon. I do believe though that the future is bright for decentralized networks and hopefully Twitter killers will be built on Hive.
I don't blame Elon for walking away from his commitment to buy Twitter to save money. Nobody would want to overpay, especially if they think they can't get their money back in a timely manner. Anybody in his shoes would have done the same thing if there wasn't an option not to overpay. I think this deal just happed at a wrong time. If market conditions didn't change, the deal could have gone through. This is still not the end of it. This could still be a negotiating tactic to get a better deal for Elon.
Just like the purchase deal itself wasn't final, it seems the breaking the deal won't be final either. Twitter is already threatening to sue. And there is that billion dollar question, will Elon end up paying the billion dollar penalty? Judging from his tactic of making it look like Twitter misrepresented data about bot activity on the platform, he may try to get away from not paying the billion dollar. At the very least if Twitter insisted on him to pay, his lawyers may just drag the dispute in the courts for a long time until everybody has forgotten about this whole drama. Both Twitter and Elon aren't going anywhere and this love/hate affair will probably continue for a while and keep everybody entertained.
On a finale note, I think buying Twitter entirely and making it a private company for $44 billion dollars wasn't a smart idea. This amount of money could be spend way more meaningful and impactful things and causes. It is inevitable for the web and all networks on web to shift towards more decentralized solutions. Not sure it is a good time to throw billions into centralized platforms. Even the founder of Twitter, Jack Dorsey himself has been saying for years now the future is in decentralized standards. That's why he created Bluesky project in the first place.