Wall Street debates business and advertising – The Hollywood Reporter
With Elon Musk seal a $44 billion contract for TwitterWall Street experts share their views on what the planned sale says about the social media giant, what implications it will have for the broader digital advertising space and whether Tesla’s mercurial boss will be a good fit for the company.
“Twitter: Run…to the Bank,” MoffettNathanson analyst Michael Nathanson, who had a “neutral” rating on the stock, titled his report. His key conclusion: “We did not believe that another bidder was there and that Elon Musk’s offer was a boon for shareholders given the operating, monetization and valuation challenges of the business. Selling Twitter for $54.20 is final proof that Twitter’s idea was far more valuable than Twitter’s long-term operations!
Twitter founder Jack Dorsey also tweeted about Twitter as an idea and a possibility after Monday’s deal announcement, saying, “The idea and the service are all that matters to me, and I will do whatever it takes to protect both.”
Meanwhile, Evercore ISI analyst Mark Mahaney answered key questions investors are likely to have, including whether Twitter will become a “better” platform under Musk’s ownership. “Hard to say,” argued the Wall Street expert. “We have been a firm and consistent believer that product innovation on behalf of consumers and advertisers has been weak at Twitter for many years. Twitter management has acknowledged this. So the easy conclusion is that Twitter under Musk shouldn’t get any worse in terms of product innovation. Whether or not this improves is unclear.
Mahaney also addressed a potential advertiser exodus. Musk having made “almost no mention of Twitter’s advertising clients” and emphasizing its subscription product, “it’s entirely possible that marketers will run their ad campaigns on other platforms (Google , Facebook, Snap, TikTok, Reddit, etc.), “he argued.
“When it comes to consumers, our extensive investigative work over the past seven years has simply not generated strong consumer interest in Twitter’s content moderation policies, which is a high priority for Musk.” , Mahaney also pointed out. “We are skeptical that less moderation will lead to a significant increase in user growth. And interest in a subscription offer has always been limited in our surveys, with only 13% of respondents to our last survey that expressed interest. That said, Musk’s ideas of allowing edits to tweets and removing text character limits strike us as very solid and friendly.”
Did Twitter’s board ‘make the right shareholder decision’ with the sale to Musk? “It depends on two things,” Mahaney explained. “How confident is there that Twitter’s board and management team can meet their publicly stated goals for 2023 ($7.5 billion in revenue and 315 million users?) daily assets, DAU). And when the growth stock market would come back. After all, “Musk’s offer with its sizable premium occurred during a tech bear market when Twitter shares were 50% off late-21 highs,” the Evercore expert pointed out. ISI.
Ahead of Twitter’s latest financial update on Thursday, analyst Nathanson also shared his thoughts on the business implications and takeaways from the Musk deal. “Interesting that the board accepted the deal just three days before Twitter released its first quarter 2022 results,” he wrote. “Last week, Snap’s quarterly revenue showed that brand advertising fared worse than performance advertising in the face of macroeconomic pressures, such as rising inflation, supply chain shortages and war in Ukraine. We believe Snap’s relative weakness in brand advertising (which we believe accounts for about a quarter of Snap’s ad revenue), was a negative read for Twitter, which is the most exposed to brand spend among the major digital ad platforms (the brand was 85% of Twitter ad revenue in 2021).
What does all of this mean for the future of branding and other social and digital advertising? “We expect advertisers to be less willing to spend on Twitter if Elon Musk removes content moderation to promote free speech,” Nathanson wrote. But he also pointed out, “We continue to believe that performance advertising is the primary driver of digital (and total) ad spend in the U.S. going forward, and we don’t expect the acquisition of Twitter by Elon Musk significantly alters this trajectory.”
Cowen’s John Blackledge also discussed the role advertising trends may have played in the social media giant’s decision to accept Musk’s offer. “While the offer represents a significant 38% premium to early April levels, it is near the midpoint of Twitter’s 52-week trading range and a 26% discount to the yearly high. most recent,” he said. “That said, as macroeconomic and market conditions have deteriorated over the past several months, coupled with the potential short-term impact of the Ukraine conflict on Twitter brand advertising, the board may have estimated that it would be difficult to obtain a valuation similar to or better than the proposed offer in a short to medium timeframe.Furthermore, given the various macroeconomic headwinds (rising interest rates, rising inflation, supply chain issues, etc.), the board may also have considered a possible U.S. recession on the horizon, which would impact Twitter’s brand advertising business and stock price levels. shares.
Blackledge also noted that the social media company has felt the need to refocus its advertising business: “Twitter’s management has worked over the years to continue to improve the platform for users and advertisers, recently upgrades its ad tech stack with the goal of increasing the deployment of direct response (DR) ad units aimed at achieving its goal of increasing DR advertising to 50% of total ad revenue from 15% currently , which lags behind social peers.