Elon Musk's acquisition of X Corporation is valued nearly 80% lower, according to Fidelity's evaluation.
After Elon Musk splurged $44 billion on a private acquisition in October 2022, X no longer trades publicly.
Despite this, Fidelity discloses its perceived value of X shares, making these estimates a significant focal point, monitoring the company's overall well-being.
End-of-August, these shares were valued at a mere $4.2 million, according to Fidelity's Blue Chip Growth Fund's recent filing.
This new estimate signifies a whopping 24% decrease from their July valuation. Furthermore, it showcases an alarming 79% decline from the $19.66 million valuation in October 2022 when Musk acquired Twitter.
Fidelity now estimates X's value to be a mere $9.4 billion – a far cry from Musk's acquisition price. Other investors may evaluate X differently.
Analysts attribute Fidelity's plummeting estimation to X's diminishing ad revenue, as the company no longer discloses quarterly financial metrics.
Fidelity declined to comment on individual companies.
X did not respond to a request for comment.
Advertising challenges for X
Dan Ives, a managing director and senior equity analyst at Wedbush Securities, voiced that "Musk clearly overpaid for this asset." He believes that at the time of purchase, Twitter had a true worth of around $30 billion, shifting to closer to $15 billion presently. Ives notes that although X's engagement remains strong, ad pressure persists.
Under Musk's leadership, some advertisers have expressed concerns about content on the platform that they wish to disassociate their brands from.
A recent Kantar survey indicated that 26% of marketers plan to decrease their X spending next year, marking the steepest pullback from any major global ad platform. Only 4% of advertisers believe that X ads provide brand safety, in stark contrast to 39% at Google.
In November, Musk faced a backlash from brands after endorsing an antisemitic conspiracy theory popularized by White supremacists. Subsequently, he apologized for his "dumbest" social media posting but during that apology, he publicly insulted fleeing advertisers.
Despite these controversies, X remains a significant player in the social media landscape under Musk's ownership.
The company reported having 570 million monthly active users during the second quarter, a 6% increase from the previous year.
However, research firm Similarweb found a drop in X engagement in the United States, reporting a nearly 11% reduction in August compared to the year before and a 20% decline from October 2022.
Similarweb also observed that X's US web traffic in August was lower than Twitter's was before Musk's acquisition, although external countries have shown stronger numbers.
Gene Munster, managing partner at Deepwater Asset Management, challenges Fidelity’s alarming estimate, stating, "Fidelity was overly aggressive, they are essentially cleaning house on the investment."
Munster believes that in the long run, X and its valuable data will be worth more than $44 billion – the acquisition price of Twitter.
"If you want a real-time understanding of what people are thinking, Twitter is the best source," Munster says, appreciating the platform's priceless data.
Furthermore, this data has assisted in training Grok, an artificial intelligence chatbot developed by xAI, Musk's rapidly growing AI startup.
As it turns out, Twitter has become X's unique strength, with Munster predicting it as Musk's most significant source of wealth.
"When Musk bought Twitter, investors didn’t realize we’d be embracing AI at this pace," Munster notes, calling Musk's Twitter acquisition "better lucky than smart."
Despite Musk's acquisition of Twitter significantly increasing X's valuation to $19.66 million in October 2022, Fidelity now estimates X's value to be a mere $9.4 billion – a significant decrease.
Gene Munster, a managing partner at Deepwater Asset Management, contests Fidelity's estimate, believing that in the long run, X's valuable data, particularly from Twitter, will be worth more than the $44 billion acquisition price.
