Twitter cut to 'sell' at Stifel as 'full blown Elon circus' sets a near-term ceiling in share price and increases downside risk

• Stifel cut Twitter stock to "sell" on Thursday after Elon Musk made a $43 billion bid to buy the company.
• "Full blown Elon circus" sets a near-term ceiling on the stock price and detaches Twitter from its fundamentals, Stifel said.
• Twitter has said its board of directors will review Musk's bid to buy the company for $54.20 per share.

Elon Musk's $4 bid for $4 represents a "full blown Elon circus" that puts a near-term ceiling in the social media company's share price, Stifel's Mark Kelley said in a note on Thursday.

The investment firm downgraded Twitter to "sell" from "neutral" and reiterated its $39 price target, representing potential downside of about 18% from current levels. Twitter $4 before pairing those gains.

Musk offered to take Twitter private at $54.20 per share on Thursday, just weeks after $4 and floated with the idea of joining Twitter's board of directors.

"We believe this sets a near-term ceiling on shares, detaches the company from fundamentals, and offers significant downside risk if Mr. Musk decides to abandon his offer or sell down his stake," Kelley said.

Given that Musk explicitly said in his SEC filing that $54.20 per share was his "best and final offer," the potential for Musk to abandon Twitter is a real possibility if the company doesn't work with Musk to get a deal done.

"Either the company goes private at $54.20, and you're playing for ~15% upside from here, or the offer is declined, Musk sells his stake and the shares sell off dramatically," Kelley explained. Aside from the Musk drama, Stifel sees risk in Twitter's ability to meets its monthly daily active users target set out during its most recent analyst day.

"We don't believe the product roadmap has been getting the attention it deserves from the advertising community (despite checking a lot of the boxes, in our view)," Kelley said. Stifel's $39 price target on Twitter is derived from a 4.3x multiple on its 2023 revenue estimate of nearly $7 billion.

Stifel's view on Twitter shares amid the Elon Musk drama is the complete opposite of what Wedbush's Dan Ives expects to happen. Ives said $4 and if not, it could motivate the company to explore a sale to someone else.