• Twitter (TWTR) stock is still selling for $5/share less than Elon Musk’s offer.
• Musk has the money lined up thanks to SpaceX.
• What happens after the purchase isn’t your problem.

Since Elon Musk said he would buy Twitter (NYSE:TWTR) for $54.20/share, about $44 billion, shares haven’t traded over $52.

Twitter opened May 9 at $49.10. This means you can buy TWTR stock today and book a profit of 10% before the end of the year. In a market that’s falling like a knife, that’s good business.

But Elon has bigger problems. Since the bid came out Tesla (NASDAQ:TSLA), which he’s using as collateral, is down 14%. It was trading May 9 at $835. His fortune, and rising credibility, are now based more on the success of SpaceX.

Despite having the cash for his bid lined up, Elon Musk seems to have a credibility gap. The question is why?

Musk in Space

Musk’s fortune is still listed by Forbes at $240.8 billion. That’s 10 times what he was worth in 2020, when his fortune was listed at $24.6 billion.

You might say his fortunes have gone up like a rocket ship. Most call Tesla the rocket ship. The stock is up 428% over the last two years.

But the real rocket ship is SpaceX. Musk has full control over that private company. Its valuation at its last funding was $100 billion, but it’s probably much more now.

That’s because SpaceX dominates its niche. It has become the primary contractor for flights to the International Space Station (ISS). Its Starlink satellite network is so successful the Chinese government is complaining. 

Starlink reportedly has 250,000 customers, and claims it will have 500,000 by mid-year. The company is charging $135/month for the service, if you want a mobile terminal. If those are 250,000 paying customers, SpaceX could book over $400 million this year from StarLink. If it hits the 500,000 customer target, double that.

Musk Has the Money

The success of SpaceX is why Musk has had no problem executing his bid. He has brought several other oligarchs into the deal, from Oracle (NASDAQ:ORCL) CEO Larry Ellison to Saudi prince al-Waleed bin Talal. The Tesla stock used as collateral is now just $6.25 billion.

The outside investors bought based on a “pitch deck”  that claims Musk could quadruple revenue in 2028 with advertising, data licensing, and subscriptions. He also claims he can get $15 billion next year from a payments business that doesn’t exist today.

As with other leveraged buyouts, the deal would load Twitter with debt. The plan is to transform the company’s prospects, then bring it back to the public market.

But for current Twitter shareholders, this shouldn’t matter. All that should matter is getting the $54.20. Since Twitter doesn’t own broadcast licenses and there are no monopoly issues, regulatory approval should be routine. Despite claims by some writers that Twitter is worth more, Twitter couldn’t find another bidder.

The Bottom Line on TWTR Stock

As a risk arbitrage opportunity, Twitter looks like a no-brainer. 

Morningstar believes the transaction will close before the end of the year. There are regulatory hurdles, but no real issues. Twitter isn’t combining with another company and it’s far from a monopoly in the social media space.

What if Musk backs off? While some analysts insist the company is worth $50 billion, I would say not in this market. Twitter lost $221 million last year, 28 cents per share, on revenue of $5.07 billion. The days of money-losing companies being valued at 10 times revenue based on their growth, even Twitter’s growth of 37%, are over.

That means if you buy Twitter today, you’re betting Musk will buy you out. That’s a lot less risk than the oligarchs are taking, that Musk can make people pay for what’s now a free service. But it is a risk.

For a speculative investor, I call it a risk worth taking.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.