This past weekend, Moonbirds launched an NFT project and has done over 69,000 ETH in volume on OpenSea.  This brought out the crypto bot scammers in full force on Twitter.  Dozens, if not hundreds, of hijacked Verified (!!) accounts are tweeting out phishing links pretending to be Moonbirds.

What does this have to do with Elon Musk’s takeover bid for Twitter and his Plan B?  A lot actually.  One of his main gripes with Twitter that he wants to fix has to do with the rampant spam and bots that have over run the service.  We see it mentioned by Elon as a top priority if he buys Twitter.  There were many tweets deleted on this topic as well.

We can even see him mentioning that it deserves a closer look almost 3 years ago:

Last week at the TED conference Elon Musk mentioned that there was a Plan B, but was mum on sharing details about it.  Many think it has to do with partnering up with other private equity firms or making a tender offer to shareholders.  I actually don’t think that’s his Plan B, though a tender offer may be done in concert with the Plan B scenario I’m about to describe.  Instead I think his Plan B is directly tied to the bot problem.  Elon Musk’s Plan B will be a highly researched report with undeniable data that reveals Twitter’s bot problem is far far worse than management has led the public to believe. Here’s why this is a bombshell and how it could play out:

How Elon Musk Will Gather The Data He Needs

First, we have to ask how Elon Musk will be able to get this data.  Aside from having the capital of a small nation state, he has access to the best artificial intelligence engineers in the world.  Though not an easy task, the individuals Elon has around him will be able to do a deep dive into the real state of bots on Twitter.  In fact, this research was likely done well before he started acquiring stock late last year.  

What Matters To Twitter’s Valuation – mDAU

Next, we need to understand the key metrics Twitter is valued on according to Wall Street.  The key metric Wall Street looks at besides revenue is “monetizable Daily Active Users or mDAU”.  The key word here is monetizable.  A real person like yourself can be monetized with ads, but a bot or fake account certainly cannot be monetized.  It’s very important that this mDAU number is correct.

What if the Spam % Twitter is Reporting Is Inaccurate?

Twitter currently estimates that spam accounts represented fewer than 5% of their mDAUs. (https://s22.q4cdn.com/826641620/files/doc_financials/2021/q4/947c0c34-ca90-4099-b328-a6062adf110f.pdf).  My gut says Elon’s report will show that the mDAU number and overall spam % is something much larger than has been reported.  We’re talking maybe 20% or higher of accounts on the platform are spam, not 5%.  This would make the mDAU count closer to ~170M, not the 217 million they stated in their recent earnings and also making it impossible to reach the 2023 goal of 315M. https://variety.com/2022/digital/news/twitter-q4-2021-earnings-users-growth-1235176882/

The Stock Will Crater and Elon’s Offer Will Look Even Better

At this point, the stock will crater.  Elon’s offer of 54.20 per share won’t look like a 14% premium to today’s price or the 38% before Elon started acquiring shares.  I believe the stock will lose half of its value overnight based upon this report.  The report wouldn’t be released if it didn’t have enough evidence to cause that large of a drop.  The stocks its at $47 per share as of April 18th, 2022.  If it dropped to say 25 per share, Elon’s offer would be a 116% premium over the current price.  There’s even a chance Elon will point out that the board knew this, but buried their heads in the sand.

Buying Twitter Also Becomes Untenable For Other Buyers

Lastly, this will scare away any other buyers of the stock.  Even if a big tech co could get it past regulators, none of them would want to take on an asset with such issues.  It also scares away PE firms that would make a bid without Elon as it breaks the economics for them.  As Elon said at TED last week, it isn’t about the economics for him.  He’s fully willing to take on an asset that may be worth far less due to spam bots.

So in short here’s how it plays out:  Elon releases the report revealing bot spam is way worse than thought to be believed, which causes the actual mDAU number the valuation of Twitter’s stock is based upon to fall.  With that the stock craters, scaring off all other suitors and Elon’s offer of $54.20 looks incredible.  

There’s a chance this scenario happens and there’s a chance it does not.  Regardless, Twitter has a real spam bot issue that has persisted for many years and continues to get worse.  For this and many other reasons, I hope Elon Musk becomes the new steward of Twitter over the coming months.