Musk wants to end his deal with Twitter. What does this mean for stock?

Elon Musk is officially seeking to exit Twitter's (TWTR) takeover deal for $54.20 per share after TWTR failed to disclose the number of spam accounts on its platform. Since Musk announced his offer to buy TWTR, the stock has fallen to well below its offer price. With Musk out, can TWTR recover? Read on to learn more.

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After months of speculation, Tesla, Inc. (TSLA) CEO Elon Musk has walked away from the $44 billion deal to buy Twitter, Inc. (TWTR). Musk promised to buy TWTR for $54.20 per share.

Musk had recently threatened to pull out of the deal after the social media giant did not disclose the number of spam accounts on its platform.

In the letter disclosed in an SEC filing, Skadden Arps attorney Mike Ringler said, "Twitter failed to meet its contractual obligations. Twitter failed or refused to provide this information. Sometimes , Twitter has ignored Mr. Musk's requests, sometimes it has dismissed them for reasons that seem unwarranted, and sometimes it has pretended to comply while giving Mr. Musk incomplete or unusable information."

On July 12, 2022, TWTR filed a lawsuit against Musk, as his decision to pull out of the deal caused its stock price and investor sentiment to plummet. In its lawsuit, TWTR argued that having signed a binding agreement, it could not abandon it.

In the lawsuit, TWTR argues that "Musk refuses to honor his obligations to Twitter and its shareholders because the agreement he signed no longer serves his personal interests. Musk apparently believes that he - unlike all other parties subject to Delaware contract law - are free to change their minds, trash the business, disrupt its operations, destroy shareholder value, and walk away."

Months of speculation have affected TWTR's stock price. The stock is down 16% year-to-date and 48.3% over the past year to close the last trading session at $36.29. It is currently trading 50.5% below its 52-week high of $73.34, which it reached on July 23, 2021.

Here's what could influence TWTR's performance in the coming months:

Strong finances

TWTR's revenue increased 15.9% year-on-year to $1.20 billion for the first quarter ended March 31, 2022. The company's non-GAAP net income increased 435% year-on-year to $755.57 million. Additionally, its non-GAAP EPS was $0.90, representing a 462.5% year-over-year increase. Additionally, its adjusted EBITDA increased 301.2% year-on-year to $1.18 billion.

Mixed analyst estimates

Analysts expect TWTR's FY2023 EPS to decline 28.4% year-over-year to $1.18. Its revenue for fiscal 2022 and 2023 is expected to increase 15.3% and 21.3% year-over-year to $5.85 billion and $7.10 billion, respectively.

Stretched rating

In terms of forward non-GAAP P/E, the TWTR of 21.94x is 36.1% above the industry average of 16.12x. Likewise, its forward EV/S of 4.79x is 154.2% better than the industry average of 1.88x. And the stock's forward P/B of 5.52x is 201.8% above the industry average of 1.83x.

Lower than industry profitability

TWTR's 4.27% 12-month net revenue margin is 10.7% below the industry average of 4.78%. Likewise, its 1.77% year-over-year EBIT margin is 81.1% below the industry average of 9.39%. Additionally, the stock's 0.37% asset turnover rate over the last 12 months is 22.2% below the industry average of 0.47%.

POWR ratings reflect uncertainty

TWTR has an overall rating of C, which equates to a neutral in our POWR rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. TWTR has a C rating for Sentiment, which matches mixed analyst estimates.

The stock is currently trading below its 50-day and 200-day moving averages of $39.67 and $43.79, in sync with its D rating for Momentum.

TWTR is ranked #27 out of 66 in the F-rated internet industry. Click here to access TWTR's ratings for Gr...