Twitter Stock News and Forecast: TWTR slumps as NDA issue surfaces for Musk

Twitter (TWTR) stock recovered on Friday to close down only 10%. "Only" is a curious word to use when a stock is down this much, but it was looking much worse for Twitter in Friday's premarket. Elon Musk announced the deal to take Twitter private was on hold (via a tweet ironically enough), and Twitter stock immediately headed south to the tune of 20%. Some hope for a lower price kept a lid on the losses as did a broad market recovery after a truly horrible weak.

Twitter Stock News

So where to next? In our view the deal is dead. We are not basing this on any unique insights or company analysis. Rather we take a broad-based view of the macroeconomic environment, and we do not like what we see. The Fed has decided to inflict pain on the equity markets – not just equity, but all markets. Fed Chair Powell mentioned this in an interview on Thursday evening. The market shrugged it off, because it needed to rally to close some positions on Friday, but pain is what the Fed has in store.

Things are moving rapidly in the macro environment and not in the right direction. Goldman Sachs has once again downgraded US economic growth projections. Deutsche Bank has penciled in a US recession next year. The bond market now too is forecasting lower rates along the curve due to recession risk. Inflation is not coming down but is broadening. The job market remains tight and hot, meaning wage hikes are plentiful. This means inflation becomes self-sustainable.

This current environment is not conducive to paying a high multiple for a social media company in our view. We feel Musk and or some of his fellow investors, banks and other sources of finance will begin to get increasingly uncomfortable with stumping up such a price for Twitter. The deal will get done at a lower price or not at all. The Nasdaq is down 17% since the initial takeover offer. Lowering the price by 20% would reflect such a change but is likely to be rejected by Twitter. We also feel lowering it by 20% would not adequately reflect the changing financial and tightening conditions. In our view, we think it is unlikely the deal comes back.

The situation has not been helped over the weekend with Elon Musk tweeting that Twitter has accused him of violating the non-disclosure agreement.

Twitter Stock Forecast

On April 4, Twitter spiked 27% when Elon Musk announced his initial stake. Previous to this, Twitter was trading at around $38. Taking into account that the Nasdaq is down 17% over that period would place Twitter back in the low $30s without this deal. The week before Musk's announcement, Twitter had been trading in the low $30s already, so the move to $38 may have been due to Elon buying large amounts of stock. $32 minus 17% takes us back to nearer $26, and sub-$30 is likely where Twitter would be trading without any of this sideshow. That would take Twitter to a key support and low from June 2020.

Twitter (TWTR) stock chart, daily

The author is short Twitter and Tesla.