Here’s a Look at Some Numbers Behind Elon Musk’s Bid to Acquire Twitter

I have an urgent message for Elon Musk: When the number 58,008 is turned upside down on a calculator, the 8s looks like Bs and the 5 a bit like an S, yielding an informal anatomy term that gets a laugh from young schoolboys every time. Rhymes with “tubes.” It’s a potential game-changer for the attempted


Twitter
takeover.

See, naughty numbers play a pivotal role in Musk math. His $54.20 bid for Twitter (ticker: TWTR) isn’t based on the risk-adjusted present value of future anything. It comes from taking Twitter’s price of $45.85 before the deal announcement and determining the next-highest price that contains 420, a nod to cannabis culture that refers to lighting up at 4:20 pm Recall that in 2018, Musk famously tweeted, “Am considering taking


Tesla
private at $420. Funding secured.”

Nowhere, by the way, does professor Aswath Damodaran discuss this pricing model in the third edition of Investment Valuation: Tools and Techniques for Determining the Value of Any Asset.

Musk has another favorite number, and decorum keeps me from precisely explaining its meaning here. Let’s just say that the digits 6 and 9, when placed in close proximity, evoke a certain nonfinancial merger of two consenting parties. “Due to inflation 420 has gone up by 69,” the world’s richest person tweeted in November.

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

Nowhere is this hinted at in Geometryby Ray C. Jurgensen.

I’m pretty sure that Musk is making a running meta-joke about the absurdity of a brilliant engineer and accomplished business leader inserting lowbrow references into highbrow settings.

It isn’t super-funny, but it goes over big-time on Twitter, and Musk pursues bawdy numerology laughs with the same perseverance he has used to upend space travel and the global automotive trade. All of that has led to scattered and only half-joking speculation that mere days from now, on 4/20, he will up his Twitter offer to $69.

On-brand but unlikely, I say, and not just because Musk has called $54.20 his best and final offer. His current bid is bullish, but not preposterous. Before Musk came courting, Twitter stock sat below $40, five bucks less than it fetched at the end of its first day of trading in 2013. But it also topped $70 just last year. New management has a plan, or at least a goal, to pass $7.5 billion in revenue by 2023, a three-year doubling, while reviving user growth.

Suspend disbelief about whether Twitter’s goals are achievable. Then extrapolate out to 2025, and $10 billion in revenue; apply a peppy software multiple of four to five times this distant, theoretical revenue; pause for a few ounces of good rye whiskey; and then factor in that Musk can borrow cheaply against inflated Tesla stock (TSLA) to pay for his $43 billion takeover. It all starts to look rather reasonable.

But one key Twitter shareholder, Saudi Prince al-Waleed bin Talal and his Kingdom Holding Company, balked that the offer was below Twitter’s “intrinsic value.” That’s a sophisticated term for a totally arbitrary price that gives the illusion of having achieved certain mathematical—standard business school stuff.

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

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

That’s where my opening proposal comes in. A price of $58.008 a share for Twitter comes out to a much more reasonable $46 billion and change. Don’t tell Prince Talal what it spells when turned upside down—he’ll appreciate that Musk’s use of a third decimal place suggests that he takes intrinsic values ​​seriously. Twitter management might feel that Musk is at least meeting them partway. And Musk will get his favorite publishing platform at a meta-joke price.

I’m sorry to interrupt this high-finance discussion for a few words on companies turning profits, but earnings season is here. This coming week, companies representing 15% of the S&P 500 index’s market value will report quarterly results, by 48% the following week, and 16% the week after that. 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. First-quarter earnings growth for the index is pegged at 4.6%, a big downshift, but then, companies are no longer bouncing back from depressed levels. Grumps will point out that without windfall energy profits, the estimate would be near-flat. Tell them that without banks slumping on Russia-related losses and the pinch of a flattened yield curve, earnings would be seen growing 14%.

Also, companies usually beat earnings estimates. Factor that in, and earnings could swell 9% or more, reckons


Credit Suisse.

Not all company reporting is clumped in the weeks ahead. There are weirdos like


Nike
(NKE) and


Conagra
Brands (CAG), both of which use fiscal years that end in May, and so are out of sync with the rest.

BofA Securities would like you to know two things about the nearly two dozen companies whose results trickle in before the rest. Their upside earnings and revenue surprises have historically shown a 71% correlation with surprises for the rest of companies. And this time around, the early birds have been beating estimates nicely.

Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.

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