Home Credit report Here are some numbers behind Elon Musk’s bid to acquire Twitter

Here are some numbers behind Elon Musk’s bid to acquire Twitter


I have an urgent message for Elon Musk: When the number 58,008 is reversed on a calculator, the 8 looks like a B and the 5 looks a bit like an S, resulting in an informal anatomy term that makes every time laughing young school children. Rhymes with “tubes”. It’s a potential game changer for the attempt


to resume.

You see, naughty numbers play a central role in Musk’s math. His $54.20 bid for Twitter (ticker: TWTR) is not based on the current risk-adjusted value of anything in the future. This just took Twitter’s price of $45.85 before the deal was announced and determined the next highest price that contains 420, a nod to cannabis culture that references the lighting at 4:20 p.m. plug

You’re here

private at $420. Financing assured.

Nowhere, by the way, does Professor Aswath Damodaran discuss this pricing model in the third edition of Investment Valuation: Tools and techniques to determine the value of any asset.

Musk has another favorite number, and decorum prevents me from precisely explaining its meaning here. Let’s just say that the numbers 6 and 9, when placed in close proximity, evoke a certain non-financial merger of two willing parties. “Due to inflation 420 has increased from 69,” the world’s richest person tweeted in November.

Speaking at a TED talk last Thursday, Musk explained — you might want to hydrate and pack a compass for that long walk — that a book called The Hitchhiker’s Guide to the Galaxy refers to 42 as the answer to life’s ultimate question, and that 42 times 10 is 420, and it is possible to have a triangle with angles measuring 42, 69, and 69 degrees.

Nowhere is this even mentioned in Geometryby Ray C. Jürgensen.

I’m pretty sure Musk is making a running meta-joke about the absurdity of a brilliant engineer and consummate business leader inserting unscholarly references into scholarly settings.

It’s not super funny, but it’s been trending a lot on Twitter, and Musk continues the bawdy numerology laughs with the same persistence he used to upend space travel and the global auto trade. All of this has led to scattered, half-joking speculation that in a few days, on 4/20, he will be increasing his Twitter offer to $69.

On the mark but unlikely, I say, and not just because Musk called $54.20 his best and final offer. Its current offer is bullish, but not absurd. Before Musk went to court, Twitter stock was below $40, five dollars lower than it was at the end of its first day of trading in 2013. But it also topped $70 a day. last year. The new management has a plan, or at least a goal, to exceed $7.5 billion in revenue by 2023, a doubling in three years, while reigniting user growth.

Suspend disbelief about whether Twitter’s goals are achievable. Then extrapolate to 2025 and $10 billion in revenue; apply energetic software multiple of four to five times this far theoretical income; pause for a few ounces of fine rye whisky; then consider that Musk can borrow cheaply against inflated Tesla stock (TSLA) to pay for his $43 billion buyout. It’s all starting to look pretty reasonable.

But a key Twitter shareholder, Saudi Prince al-Waleed bin Talal and his Kingdom Holding Company, lamented that the offer fell short of Twitter’s “intrinsic value”. It’s a fancy term for a totally arbitrary price that gives the illusion of having achieved mathematical certainty – standard business school stuff.

On Friday, Twitter adopted a poison pill to prevent Musk from increasing ownership beyond 15%. Musk says he won’t remain a shareholder if his bid is rejected. Twitter recently traded at $45, well below the trade price. That leaves shareholders with a big potential move in either direction. (See our related article for perspective on what to do with stock.)

If Musk were to increase his offer to his other aforementioned favorite number, it would cost the deal $55 billion, which is an ambitious 5.5 times that speculative and far-off income. Musk says he’s not pursuing this deal to make money, but I doubt he’s doing it to lose money.

This is where my opening proposal comes in. A price of $58,008 per share for Twitter works out to a much more reasonable $46 billion and changes. Don’t tell Prince Talal what he spells when knocked down – he’ll appreciate that Musk’s use of a third decimal place suggests he takes intrinsic values ​​seriously. Twitter management might feel like Musk is meeting them at least halfway. And Musk will get his favorite editing platform for a meta-kidding price.

I’m sorry to interrupt this discussion of high finance for a few words about profit-making companies, but profit season has arrived. This week, companies representing 15% of the market value of the S&P 500 will release their quarterly results, followed by 48% the following week and 16% the following week. By Mother’s Day on May 8 (don’t forget those brunch reservations), the relative health of the stock market will have been revealed.

Expect good news. The index’s first-quarter earnings growth is pegged at 4.6%, a significant slowdown, but companies are no longer bouncing back from depressed levels. Grumps will point out that without windfall energy earnings, the estimate would be almost flat. Tell them that without the banks collapsing on Russia-related losses and the pinching of a flattened yield curve, earnings would rise by 14%.

Additionally, companies typically exceed earnings estimates. Factor that in and revenue could go up 9% or more, estimates

Swiss credit

Not all company reports are consolidated in the coming weeks. There are weirdos like


(NKE) and


Brands (CAG), both of which use fiscal years ending in May, and are therefore out of sync with the others.

BofA Securities would like you to know two things about the nearly two dozen companies whose results come in ahead of the others. Their rising earnings and revenue surprises have historically shown a 71% correlation with surprises for the rest of the companies. And this time around, early risers beat the estimates.

Write to Jack Hough at [email protected] Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.