Musk’s Stake in Twitter Stock: Coup … or Coup d'Etat?

One of Twitter's (TWTR, $39.31) bigger headaches developed into a full-blown migraine Monday after Tesla (TSLA) founder and world's richest person Elon Musk disclosed a 9.2% stake in Twitter stock.

The mercurial billionaire is now the single largest shareholder in the social media platform. What he's up to, only Elon knows. But it's safe to assume Twitter management can't be thrilled with the move – not after Musk has tweeted so much criticism of the company's policies and priorities.

Twitter's C-suite is also well aware that Musk, with an estimated net worth of $298.1 billion, has the financial firepower to buy plenty more TWTR stock – perhaps even all of it – should he find it amusing to do so.

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Musk's Stake in Twitter Stock

Musk revealed in a regulatory filing Monday that he purchased a total of 73.5 million TWTR shares worth $2.9 billion as of Friday's closing price. The market, reacting with a combination of shock and elation, sent Twitter stock up 25% at the opening bell.

If nothing else, the Musk news was the jolt shares needed.

The communication services stock lost 35% of its value over the six months ended April 1, versus a gain of 5.5% for the broader market. Wall Street, for its part, hasn't been particularly bullish on Twitter’s shares for some time. Indeed, analysts' consensus recommendation stands at Hold, per S&P Global Market Intelligence – a rating that has been in place for more than a year-and-a-half.

Perhaps Twitter stock will finally catch some upgrades now that Musk is involved. The devoted Twitter user with more than 30 million followers recently hinted about shaking up social media. And he's never been shy about singling out Twitter for a hard time.

Last month, Musk polled his followers on whether they thought Twitter adhered to the principles of free speech. In late 2021, he tweeted a meme that was apparently critical of incoming CEO Parag Agrawal, who replaced Jack Dorsey after his surprise November resignation.

Adding to the drama is that Musk has tweeted himself into trouble plenty of times – both with the Securities and Exchange Commission as the CEO of Tesla, and as a private citizen.

What Does Musk Have Planned?

Musk's stake has been described as a “passive” one, meaning he has no intent to run or take control of the company. But it's not clear what would stop him if he were to change his mind.

Unlike Alphabet parent Google (GOOGL) or Facebook parent Meta Platforms (FB), Twitter has only one share class. As such, the company's largest stockholder is well positioned to exert influence, analysts say.

"It looks like Elon has his eyes laser set on Twitter," writes Wedbush analyst Daniel Ives, who rates Twitter stock at Hold. Ives notes that Musk's move could lead to a "more aggressive ownership role."

And that could be putting it mildly, some analysts say. After all, Musk was able to buy more than 9% of TWTR for less than $3 billion. Although the company's market capitalization swelled to more than $40 billion following Monday's pop in the stock price, Twitter's enterprise value – or theoretical takeout price that accounts for both cash and debt – was less than $30 billion.

"While a passive stake by Musk won't change TWTR's fundamentals, we do think his investment will drive greater interest from consumers," writes CFRA Research analyst Angelo Zino (Buy). "Musk's actual investment is a very small percentage of his wealth, and an all-out buyout should not be ruled out."

The good news for Twitter stock holders is that they've been gifted a much needed catalyst. The bad news? The value of their shares is now to some extent linked to the whims and wishes of Elon Musk.