Can Elon Musk Turn Twitter Around?

Twitter's share price shot up after Musk took a 9.2% stake, but has since faded. Is the enthusiasm for Musk-inspired changes done already or can we expect more?

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What happened to Twitter?

Once the future of the internet, the microblogging site has had significant difficulties, lately, both in its finances and in its reputation. During the pandemic, when tech firms were raking in the dough because everyone was at home, Twitter lost money - despite having higher revenues. Both FY20 and FY21 were loss-making. Analysts are projecting barely any profit for the latest quarter.

Although the stock price spiked after Musk announced his investment, it is still way off the highs of early 2021. Musk has published a series of polls on suggestions of what to do with Twitter, suggesting he's looking to take an active role in managing the firm. But the proposals, from using the HQ to house homeless to adding an edit button, aren't addressing the company's core issues. Although, one of his tweets from early April did bring up the issue that the most followed celebrity users generate little content.

The underlying issues

Twitter has some worrying financial metrics. Its CPM - the amount advertisers pay to access the platform - is the lowest among major social media platforms. That means it has less revenue generation potential and has to attract a wider user base. But this is an additional problem: men outnumber women on the platform, and women are the leaders in consumer spending. In other words, advertisers get less bang for their buck if they are on Twitter. On top of that, Twitter is pretty top-down, with a handful of accounts generating the vast majority of the content.

While some of the proposals that Musk has tweeted are aesthetic or outright ‘trolling’ (such as suggesting removing the "w" from the name), some do address issues. Musk's position of "free speech absolutism" might deal with one of the platform's user problems: it's the second-most left-leaning platform (after Reddit).

To summarize, twitter's problem is that it appeals to a relatively narrow section of the population (highly educated, left-leaning, middle-aged, upper-income men). Now the question is whether a highly educated, middle-aged, very upper-income man can change that!

TWTR rejected at 200-day MA

Twitter’s share price has been on a general downtrend since Q4 of 2021. On October 26, twitter’s 50-day average crossed below its 200 equivalent, and has remained in a bear market since. The recent spike to $55 per share has been repelled by the 200-day resistance at $55 and validates the downtrend -- somewhat. $50 is round resistance.

Observing the breakout gap might seem bullish, but in case $40 gets filled bearishness will likely prevail. The next support lies at $37, and lower down at $31.

Source: Spreadex trading platform

Key takeaways

Twitter has had a declining trend as of late with analysts remaining doubtful about its revenue potential for the remainder of the year despite Elon Musk joining the board of directors. One of its large-scale problems that need to be addressed is gender balance, another, content generation, and finally, Twitter needs to deal with is its left-leaningness. Without attracting more women or increasing advertising revenues, traders might want to think about the recent spike again.