Elon Musk said the Twitter Inc (NYSE:TWTR) takeover deal was "temporarily on hold" after the company estimated false or spam accounts represented fewer than 5% of its daily active users.
The social media platform reported that 229mln users were served advertising in the first quarter, according to a regulatory filing made to the Securities and Exchange Commission (SEC).
Musk, the boss of Tesla and SpaceX, tweeted on Friday that the deal was on hold "pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users".
He added a four-word tweet later, saying "still committed to acquisition".
Nasdaq down 27% YTD / Twitter up 4.3% - is it that great a shock that Mr Musk is looking to change the deal? #TwitterTakeover @elonmusk
— Guy Johnson (@GuyJohnsonTV) May 13, 2022
Shares in Twitter slumped almost 19% in pre-market trading on Friday to US$36.69, wiping out most of its gains since Musk first revealed he had a 9% stake in early March.
Twitter acknowledged in the filing that spam and fake accounts "could diminish the experience on our platform, which could damage our reputation and deter people from using our products and services".
It said its estimate of less than 5% accounts being spam was "based on an internal review of a sample of accounts and we apply significant judgment in making this determination", meaning the estimation "may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have currently estimated".
Notably, Twitter recently admitted that it has been overstating its daily active users numbers by up to 1.9mln since 2019, which it said was the result of an error.
Musk tweeted a few weeks ago that one of his actions as head of the social media company would be "will defeat the spam bots or die trying".
In the new filing, the company said it faced various risks until the deal is closed, such as whether advertisers would continue to spend on Twitter and "potential uncertainty regarding our future plans and strategy".
This week, short-seller Hindenburg Research suggested Musk's offer could be pulled unless it is repriced lower, which would "result in Twitter's equity falling 50% from current levels".
The bid is also undergoing regulatory scrutiny, with a probe by the SEC on whether Musk broke rules by disclosing a large stake in the social media platform.
Overnight, the company revealed that two top managers had been fired and that it was pausing hiring as part of an efficiency drive.
"We are pulling back on non-labour costs to ensure we are being responsible and efficient," it said in a statement.
'Friday the 13th horror show'
Analysts at Wedbush said it was a "bizarre tweet" from Musk.
"The implications of this tweet will send this Twitter circus show into a Friday the 13th horror show as now the Street will view this deal as 1) likely falling apart, 2) Musk negotiating for a lower deal price, or 3) Musk simply walking away from the deal with a $1 billion breakup fee."
Analyst Daniel Ives said his team's opinion, with Tesla shares being used as leverage for Musk in the deal, "the massive sell-off seen in Tesla and the overhang created by this deal has turned into a life of its own".
"The initial reaction will be positive for Tesla shares as now the Street will view the chances of a deal as less than 50%."
If Musk does decide to still go down the deal path, Ives added that a renegotiation is "likely on the table", but that many observers will view Musk as "using this Twitter filing/spam accounts as a way to get out of this deal in a vastly changing market".
"The nature of Musk creating so much uncertainty in a tweet (and not a filing) is very troubling to us and the Street and now sends this whole deal into a circus show with many questions and no concrete answers as to the path of this deal going forward."
Susannah Streeter, markets analyst at Hargreaves Lansdown, agreed that there will also be questions raised over "whether fake accounts are the real reason behind this delaying tactic, given that promoting free speech rather than focusing on wealth creation appeared to be his primary motivation for the takeover" and in light of the huge US$44bn price tag and the market retreat in recent weeks, "may be a strategy to row back on the amount he is prepared to pay to acquire the platform".
The active daily users metric is "key", Streeter added, given that establishing an accurate number of real tweeters is considered to be key to future revenue streams via advertising or paid for subscriptions on the site.
"This is likely to come as highly frustrating for many in the company given that a number of senior executives have already been laid off in expectation of the takeover and the change in direction he was expected to pursue."
**Updated to add second tweet, more background and comment.