The 5 reasons that made Elon Musk Buy Twitter Shares

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The world’s wealthiest person made headlines last week after spending $2.9 billion buying up 9.2% of Twitter, sending the social media company’s share price skyrocketing.

Elon Musk has made it into the headlines again. This time it’s due to his significant acquisition of Twitter (NYSE: TWTR) shares, which made him the social media platform’s largest shareholder. But it’s not the cost of the shares (a relative drop in the ocean considering his $282 billion fortune) that’s been getting social media and industry folks’ tongues wagging, it’s that this investment differs from his current business portfolio, begging the question – what is his main motivation? Against his own desire of starting his own platform, this time has he actually bought his way into it?

Twitter share price: Elon Musk’s 5 potential motivators

1) Free speech

Musk is a vigorous advocate for free speech, guaranteed under the first amendment of the US Constitution. In March, he asked ‘Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?’

Moreover, he followed with ‘The consequences of this poll will be important. Please vote carefully.’

And Musk refused to block Russian news outlets through the Starlink satellite internet system that he provided to Ukraine, based on being a ‘free speech absolutist.’

Some have mused he would readmit Former US President Trump to the platform, but Twitter insists it has ‘no plans to reverse any policy decisions.’

2) Securities and Exchange Commission

The battle between Musk and the SEC has been raging for years. When he tweeted ‘funding approved’ to take Tesla private in 2018, the regulator insisted that a securities lawyer would pre-approve any tweets containing ‘material information’ about the EV company. Musk is suing to nullify, arguing ‘something is broken with SEC oversight.’

And having violated it several times already, he’s now being investigated for his November Twitter poll asking whether he should sell a 10% stake in Tesla. And he may even have broken securities law over his Twitter shares purchase.

But interestingly, he’s also polled users on whether they would ‘like an edit button.’ With 73.6% in favour, it’s possible Musk is aiming for a compromise deal with the SEC that respects his constitutional right to publicise what he wants, with a lawyer approving tweets retrospectively.

3) Promotional power

Pre-covid-19 pandemic, Musk’s wealth sat at a meagre $26.6 billion. But it’s now risen tenfold, driven by the power of his personal brand. With 81.3 million Twitter followers, investors and consumers alike are constantly updated with snippets of progress at his various companies.

This free marketing has allowed him to almost completely ignore traditional advertising for Tesla cars. And there’s no denying his ability to affect the markets, whether he’s tweeting about corporate progress or the latest canine-inspired alt-coin.

With Tesla alone a trillion-dollar company, the $2.9 billion price tag for promotional power is cheap. It also buys security; like Trump, Musk’s incendiary tweets left him at risk of being de-platformed.

This is because (currently) Twitter’s right as a private entity to de-platform supersedes an individual’s First Amendment right to freedom of speech.

4) Sound investment

Twitter’s share price was $72 in mid-July 2021, before falling to $32 by 7 March. When Musk bought the stock on 4 April it was worth $39, before shooting up to $51 the next day. He has made a significant paper gain already.

And in 2021 full-year results, annual revenue grew by 37% to $5.08 billion, while average monetizable Daily Active Users grew by 13% to 217 million. Twitter also announced a $4 billion share repurchase, while aiming for $7.5 billion revenue in 2023.

However, it made another net loss of $221 million. And in Q4, total ad engagement decreased by 12% and cost per engagement rose 39% year-over-year. These may be figures that brand Musk could actively improve.

He may already be starting, commenting on the inactivity of the top 10 most followed Twitter accounts by asking ‘Is Twitter dying?’ Moreover, Musk wants ‘no ads. The power of corporations to dictate policy is greatly enhanced if Twitter depends on advertising money to survive.’

5) Personality quirk

In May, Musk listed a string of achievements, before asking an audience ‘‘Did you also think I was going to be a chill, normal dude?’ Eccentricity and unpredictability are twin rooks on the chessboard. Maybe he was simply bored or enjoys the attention.

Over the weekend, he polled users on whether the company should ‘Convert Twitter SF HQ to homeless shelter since no one shows up anyway,’ or ‘Delete the w in twitter?’ And perhaps to mock the SEC, he then posted a meme of character Saul Goodman, saying ‘in all fairness your honor, my client was in goblin mode.’

But one thing seems certain. Musk will not rest on his laurels as a passive investor.

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Image: Bloomberg

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