Elon Musk's decision to put his $US44 billion Twitter takeover on hold early this morning reveals that the world's richest man expects more pain for technology companies.
To be honest, it's not the false accounts that have sprung up all over the social networking platform that has irritated Musk — it's all about valuations.
Musk and his backers have seized an opportunity to renegotiate better conditions or, better yet, an escape hatch, rather than risk seeing billions of dollars vaporized by forcing himself into a corner by making a bold play on the social media network.
Tech stocks have taken a beating since the Tesla creator received board approval for a deal late last month.
The Nasdaq, which is heavily weighted in technology, is down 9% – it was down 12% at one time.
Individual stocks have suffered larger losses. Even with implicit support from Musk's all-cash bid, Twitter shares have slid more than 20% in that time, valuing the firm at "only" $US31 billion.
Musk said he was "still committed" to the acquisition while tweeting on the impracticality of plastic straw bans and US Vice President Joe Biden.
Few, including Steve Johnson, co-founder of Forager Funds, an Australian value fund manager, anticipate him to follow through.
Johnson, a seasoned fund manager, has been riding the Twitter rollercoaster for the past 18 months, albeit he has recently sold half of his position in the firm.
“I find it hard to imagine that fake accounts is something that’s a massive shock to Elon Musk. And he said right from the start it’s something he wanted to fix. So you know, whether it’s 5% or 2%, or 10%, it’s a problem he wants to fix,” he says.
"The possibility was already building that he (Musk) was going to walk away from this," Johnson says of the big drop in technology markets last week. "For me, the fact that he tweets that he's putting it on hold doesn't change the probabilities all that much."
The Tesla billionaire made his move on the struggling tech company at the worst possible time.
Interest rates in the United States had already begun to rise, and the prospect of further increases has sucked excess cash out of tech equities and into increasingly attractive bonds as well as old-economy industries that can outperform inflation.
The Musk deal includes a $US1 billion break fee, which is preferable to paying the full $US44 billion. There's a chance that Twitter might use the courts to force the acquisition to close on behalf of significant shareholders.
Musk is currently billions of dollars ahead of the competition. He sold more than $8.5 billion worth of Tesla stock just days after securing backing, and since then, the electric vehicle company's stock has dropped 20%, putting him about $US2 billion ahead of the market. His personal fortune is still valued at $US274 billion.
Both Twitter and Tesla stock moved drastically in opposing ways, with Twitter falling 18% and Tesla, which Mr Musk had proposed using to help pay the Twitter transaction, rising 5%.
Investors have had to weigh Mr Musk's legal difficulties against the potential that owning Twitter would be a distraction from his role as CEO of the world's most valuable automaker.
Mr Musk, the world's richest man and self-proclaimed free speech absolutist, has stated that removing "spam bots" from the platform would be one of his top goals.
Mr. Musk has already expressed his dissatisfaction with Twitter's moderation approach.
He has stated that he wants Twitter's algorithm to prioritize public tweets and that he opposes giving advertisers too much power on the platform.
Until the deal with Mr Musk is finalized, Twitter faces various risks, including whether advertisers will continue to spend money on Twitter due to "possible uncertainty over future objectives and strategy."
Earlier this week, he said he would reverse Twitter's ban on former US President Donald Trump when he buys the social media platform, signaling his intention to cut moderation of the site.
On Tuesday, when Twitter shares dipped below $46.75, the implied probability of the deal closing at the agreed price fell below 50% for the first time.
Twitter said it is "cutting back on non-labor costs to ensure we are being responsible and efficient" and is delaying most hiring, save for crucial areas.
Chief executive Parag Agrawal stated in a note addressed to workers and acknowledged by Twitter that the company had not met growth and revenue targets since investing "aggressively" to develop its user base and income.