Why Twitter Stock Fell This Week

What happened

Shares of social media company Twitter (NYSE: TWTR) pulled back this week, despite a pending offer from Tesla (NASDAQ: TSLA) CEO Elon Musk to buy the company. Though shares traded 2.7% higher on Friday, they fell a total of 6% for the week.

The stock’s decline is likely due to a combination of bearishness in the overall market and comments from Musk on Twitter suggesting he may have some doubts about the deal.

So what

Capturing how the overall market is taking a beating recently, the S&P 500 fell a total of 3% during the week and the tech-heavy Nasdaq Composite declined 3.8%. The broader-market pessimism may have weighed on Twitter shares.

In addition, Musk may have made investors nervous when earlier this week he said he wouldn’t want to buy Twitter if more than 5% of accounts are fake.

A group of people looking at their devices.

Image source: Getty Images.

Now what

The fact that Twitter stock is trading lower suggests that investors don’t have a high level of confidence in the deal closing. After all, the $44 billion cash deal translates to $54.20 on a per-share basis. With shares trading at just $38.28 by the end of the week, this represents about 15% potential upside. If investors were sure the deal would close, the gap between the deal price and the stock price would likely narrow.

In a May 17 press release about the deal, Twitter said it expects the deal to close this year. Of course, the deal is “subject to the approval of Twitter stockholders, the receipt of applicable regulatory approvals and the satisfaction of other customary closing conditions,” the company notes.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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