Breakingviews: Twitter may be target for non-Musk deal

Elon Musk’s trash may be another person’s treasure. The Tesla boss walked away from his $44 billion agreement to buy Twitter on Friday. After the resulting fall in its shares, the social network’s $25 billion valuation is now about fair. If the price continues to fall, other buyers might be interested.

Twitter’s struggle with slowing growth makes it a decent candidate to come off the public market. But Musk was the wrong buyer, offering the wrong price. He swooped in at the start of April, just as a massive rout in technology stocks began. As interest rates continue to go higher and the economy slows, so do company growth rates, especially for technology firms. That, coupled with a higher risk associated with gleaning that growth, means the intrinsic value of Twitter has declined.

That shows in the math Twitter’s own bankers at JPMorgan did to help weigh up Musk’s bid. As part of their valuation exercise, they assumed Twitter’s cash flow would grow at a rate of 6% annually from 2028 onwards. They also turned that into a present-day sum by using a discount rate of around 10%. Now, with rates rising, both of those look optimistic. Cut the growth rate down to 4% and notch the discount rate up to 11%, the shares would be worth $32 each, roughly where they traded on Monday.

Another way of sizing Twitter up is to take its estimated EBITDA for 2023 per Refinitiv estimates, and put it on the same multiple as Alphabet, Meta Platforms, Pinterest, and Snap. Based on that median of around 13 times, Twitter’s enterprise value would be around $23 billion. Add its roughly $1 billion of net cash and divide by the number of shares outstanding, and the result is roughly the same – around $32 apiece.

Since Musk has walked away from buying Twitter, its shares have fallen about 10%. That makes them almost undervalued, if not quite yet. Paul Singer’s Elliott Management was formerly a big investor in Twitter, and Silver Lake’s Egon Durban sits on the company’s board of directors. Musk may be tossing Twitter to the curb, but that just makes room for a non-Musk deal.

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BREAKINGVIEWS