FIFI PETERS: I went on Elon Musk’s Twitter profile earlier today before the show started, around half an hour ago, and he was tweeting something about sleep and how to ensure you get a quality night’s sleep. I’m not too sure if he’s pre-empting sleepless nights for himself ahead of Twitter’s decision to take him to court for backing out of his deal to buy the company, or if the Tesla and SpaceX CEO is just generally giving advice to his more than 100 million followers about how to sleep better. I don’t know.
But we do have Seleho Tsatsi, investment analyst at Anchor Capital on the Market Update for more. Seleho, so good to speak with you. It has been a long time. What do you think it is? Why is Musk tweeting about how to sleep better?
SELEHO TSATSI: Hi, Fifi. I think it is quite typical of Elon to tweet about things unrelated to what’s going on in his business world, so I don’t think we can read too much into that. Whether or not he’s losing a large amount of sleep over this Twitter deal I guess time will tell, but it is quite an interesting legal and financial situation, for sure.
FIFI PETERS: Prior to that he tweeted a picture of Chuck Norris, the American actor, just sitting in front of a chess board, seemingly playing chess – and then his hashtag was ‘Chuckmate’. He received a lot of comments from a few of his followers, just wondering what that was in reference to. A lot of people were assuming that it was in reference to his decision to walk out of the deal.
I know that Anchor Capital does hold Twitter in its tech fund, so talk to us personally about what Musk’s chopping-and-changing around his decision to buy Twitter has meant for you and your portfolio.
SELEHO TSATSI: We actually don’t hold Twitter. We haven’t held it for some time, thankfully.
FIFI PETERS: Oh, right. Sorry.
SELEHO TSATSI: We sold before the let’s call it mini-crash we’ve had in the tech shares. But, speaking more broadly on Twitter as a whole, I think what’s interesting about this is that Elon is saying that Twitter hasn’t provided him with enough data, or the data he’s asked for regarding the amount of bots on the platform. Twitter claims that less than 5% of their users are bots. It seems as if Elon is essentially trying to either walk away from the deal, or just pay the termination fee which would be a billion dollars. That’s obviously a lot less than what he would have to pay – which would be roughly R45 billion or R44 billion – if he would have to go through with the merger.
FIFI PETERS: And probably even more if he had to introduce a lot of the changes that he wants, talking about immediate verification for some people, and the ability to edit tweets and the like. But there’s a view out there, Seleho, that – given the access to information that Elon Musk has had around the Twitter business model, the ins and outs as it were that he probably would’ve been privy to as a result of doing due diligence – he may actually even walk away from this and start something similar at a lower cost. I was wondering if you think that’s too much speculation or if that’s actually a possible scenario.
SELEHO TSATSI:. It’s hard to say. Before he made the offer I would’ve thought that he had a lot on his plate already with Tesla, SpaceX and all the other things he’s doing, the boring company. Clearly he’s a person able to multitask.
I do think it’s quite difficult to start these online digital platforms from the ground up. In the last couple of years we can probably count on one hand the number of upstarts in that space that have been successful. There’s been maybe TikTok. It’s hard to think of too many more; it’s quite a difficult space to penetrate. Of course I think you [can] never put anything past Elon, but it is quite a tough place to start from the ground up.
FIFI PETERS: So the reference that you made to him wanting to walk away with paying a billion [dollars], and calling it curtains, as it were – do you see that as the likely outcome, how the story ends?
SELEHO TSATSI: All things considered – I’m speculating – I suspect Elon would see that as a win or a positive if he was to just have to pay the billion-dollar termination fee. On July 8, after Elon said he was walking away from the deal, the chairman of Twitter tweeted that Twitter plans to pursue legal action to enforce the merger agreement. In the merger agreement apparently there is a provision that allows Twitter to enforce the deal to be consummated or to go through, given where this deal was agreed to in April. Although even at the time the stock market was under pressure, it’s come under increasing pressure since then.
And the valuation, that $44/$45 billion valuation, now looks increasingly good I think for Twitter and its shareholders, so they’ll obviously be fighting to get this deal pushed through.
FIFI PETERS: On Friday I read that after Musk made the announcement that he’s calling it quits, Twitter’s shares plunged 5%. I read a report that the share price had plunged a further 8% before the market closed today, wiping some $2 billion off Twitter’s market value. I know you said you don’t own Twitter in your tech fund at Anchor but, just given the pull-back in the stock price, are you tempted to buy, and would you be advising our listeners to perhaps look at it at these cheaper levels?
SELEHO TSATSI: Just looking at the moment, it looks like the share price is down about 9% today. I think the challenge with comparing Twitter to other companies in the tech space – or even just in the online advertising space – is that valuations have come back so much over the past let’s call it maybe 18 months or so. So although Twitter is down 22% for the year, roughly, at the moment you’ve got companies like Meta Platforms, the parent company, or Facebook which has more than halved this year. That’s a company that’s actually very free-cashflow positive, [having] generated just under $40 billion of free cashflow last year with several dominant platforms in each of their categories. And that’s just one example.
So I think unfortunately there are many interesting companies that are at similar – if not more attractive – valuations than Twitter at the moment. In short, to answer your question, I would say no. I think there are more interesting places to put one’s money at the moment.
FIFI PETERS: All right. Tweet that. [Laughing] Thanks so much, man. It was really great to catch up. We’ll leave it there. Seleho Tsatsi is the investment analyst at Anchor Capital.