Topline
Shares of Twitter on Wednesday were downgraded by analysts at Rosenblatt Securities, who warned an explosive whistleblower complaint from the social media company’s former head of cybersecurity could further complicate the impending legal battle over Elon Musk’s proposed takeover deal.
An explosive whistleblower complaint unveiled Tuesday prompted CFRA to cut its Twitter price target … [+]
Key Facts
In a Wednesday morning note, Rosenblatt analyst Barton Crockett downgraded Twitter shares to neutral after previously holding a buy rating and revised his one-year target to $37, down from $52 and implying about 7% downside from current prices of about $40.
First reported by the Washington Post and CNN, the whistleblower complaint from Peiter Zatko, a well-known hacker who worked at Twitter from 2020 until he was fired this January, “compels us to step back from our formerly bullish stance on the Elon Musk deal,” Crockett told investors.
He said the complaint could allow Musk to allege “materially inaccurate representations” by Twitter in order to help drag out the lawsuit, or get out of the deal altogether, potentially without paying a $1 billion termination fee.
In a Tuesday note, CFRA analyst Angelo Zino echoed the sentiment, writing that the complaint “provides [Musk] with much needed ammunition” that could help build a case against Twitter, or provide some leverage in seeking a settlement.
Though he still believes Twitter has the upper hand leading up to the trial in October, Zino also said Twitter’s decision to dismiss Zatko earlier this year “now looks more ominous” after the complaint, which means the company’s will “clearly be called into question”; CFRA maintains a hold rating on Twitter shares.
Twitter stock ticked down 0.9% in early trading Wednesday to $39.50, tacking on to a 7.3% decline after the whistleblower report on Tuesday; shares are down 7% this year, compared to a 22% decline for the tech-heavy Nasdaq.
Key Background
In the complaint published Tuesday, Zatko alleged that Twitter misled investors, users and the federal government by falsely claiming it had a security structure in place even though half of its servers were running out of date. Zatko also stated Twitter prioritized user growth over reducing bots, as executives received bonuses of up to $10 million tied to user-count increases but nothing for reducing fake accounts. He claims he was fired after refusing Twitter CEO Parag Agrawal’s instruction to present “false and misleading” documents to the company’s board, but a Twitter spokesperson attributed the dismissal to performance issues.
What To Watch For
Twitter stock has been on a wild ride since Musk bought a 9% stake in the firm in April, announced a bid to acquire the firm at a massive premium weeks later and then decided he was “terminating” the deal in July over uncertainty about the prevalence of bots on the platform. Twitter’s board sued Musk for backing out of the deal within days, asking a Delaware judge to order the billionaire to move forward with the agreement. The trial is scheduled for October.
Further Reading
Twitter Whistleblower: Here’s What Former Security Chief Peiter Zatko Claims (Forbes)
Former security chief claims Twitter buried ‘egregious deficiencies’ (Washington Post)
Ex-Twitter exec blows the whistle, alleging reckless and negligent cybersecurity policies (CNN)
Source: https://www.forbes.com/sites/jonathanponciano/2022/08/24/twitter-stock-downgraded-as-whistleblower-complaint-gives-elon-musk-much-needed-ammunition-for-legal-battle/