In what has been one of the more gripping stories on Wall Street so far this year, Tesla (NASDAQ:TSLA) CEO Elon Musk has now announced his desire to abandon the deal to acquire Twitter (NYSE:TWTR). The original offer was for $44 billion, although a steep decline in share price for the company means it now has a market capitalization of only $24.95 billion.
But it’s not really about money, or at least it doesn’t seem to be on the surface. Musk has repeatedly asked Twitter to reveal the number of bot accounts it has amongst its users. Twitter has refused or at least not been direct, forcing Musk to pull out of the deal. While Musk agreed to a $1 billion breakup fee, Twitter seems to be pursuing the completion of the acquisition in a Delaware court.
Both stocks sold off significantly on Monday, as investors are seemingly growing tired of the ordeal. Are either of these companies worth your money right now as both stocks dip towards their 52-week low price levels?
As Twitter and Musk Head to Court: Should You Buy Their Stocks?
The case to be made for Twitter is a little more difficult right now. The future is uncertain and company morale is reportedly at an all-time low. Twitter laid off a handful of managers and a large chunk of its talent-acquisition team, which Musk was not happy about. Given the current economic climate, as well as the fact that Tesla is also trimming 10% of its workforce, the cuts seem to have been for a legitimate cost-saving reason.
But the social media site remains with its issues. Twitter has historically had difficulties in monetizing its platform. It lacks the ad revenue capabilities of an Instagram or Facebook, which is primarily how Meta Platforms (NASDAQ:META) makes its income. While both Musk and current CEO Parag Agrawal have proposed ways to increase revenues, the ongoing feud between the two sides has put the business of Twitter on hold. According to TipRanks, 24 of 25 analysts that cover the stock have a Hold rating for TWTR.
Tesla is a bit of an easier case, although the company is certainly facing its share of headwinds right now. The ongoing COVID-19 crisis in China has continued to affect its Shanghai GigaFactory production. China is also the largest EV Market in the world, and Tesla is competing fiercely with domestic EV makers like Nio (NYSE:NIO), XPeng (NYSE:XPEV), and BYD (OTC:BYDDY).
Rising costs for raw materials like rare earth minerals have also been a problem for EV makers. Tesla has continued to battle thes rising costs by slashing its workforce and raising the prices of its vehicles. Despite this, the company has opened two new GigaFactories this year in Austin, Texas and Berlin, Germany, which Musk has described as money furnaces. Still, Tesla remains the clear global leader in the electric vehicle sector, although stiff competition is certainly making the industry a more competitive space.
Finally, Tesla also has its upcoming 3 for 1 stock split, which should pass a shareholder vote later this year. While the bear market has certainly muted the impacts of stock splits for mega tech companies like Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Shopify (NYSE:SHOP), Tesla remains a popular brand with retail investors.
It’s possible we see a pre-split rally in the stock price later this summer but it’s just as possible that this macroeconomic landscape proves to be too difficult to navigate. The second quarter earnings report from Tesla next week should be a telling sign on how the company might fare for the rest of 2022. With rising interest rates, continued supply chain issues, and potentially more COVID-lockdowns in China, these might prove to be roadblocks that continue to trip Tesla up for the rest of this year.
Which Stock is a Better Buy: TWTR or TSLA?
In terms of fundamentals like strength of business and cash flow, an investment in TSLA at these price levels is a no-brainer. Twitter is a critical platform for information and news, but it’s hardly the cash cow that Tesla is. If we are talking about which stock will provide better returns in five or even ten years from now, there is no doubt that Tesla is the better stock to invest in at these price levels.
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