Rosenblatt Compelled to ‘Step Back’ on Twitter Following Whistleblower News

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Twitter (NYSE:TWTR) shares were downgraded to Neutral from Buy, with its price target cut to $37 per share from $52 by Rosenblatt Securities on Wednesday following news Monday that a former Twitter executive has lodged a whistleblower complaint.

As a result, the firm said it has been compelled to step back from its formerly bullish stance on the Elon Musk deal.

It was widely reported on Monday that former Twitter security chief Peiter ‘Mudge’ Zatko had filed a whistleblower complaint with the SEC alleging “egregious deficiencies” in Twitter’s security practices.

“The filing appears to open up a new avenue for Musk to allege materially inaccurate representations by Twitter, allowing Musk to move on from a fishing expedition on well-hedged spam disclosures. Musk instead may be able to use the whistleblower’s claims to argue that security malpractice constitutes a material adverse effect,” said a Rosenblatt analyst.

The analyst explained that Zatko made numerous assertions, including deficient deployment of tracking systems for new software development, extensive internal access to sensitive systems, and known infiltrations by foreign agents. In addition, Zatko claimed CEO and former CTO Parag Agrawal concealed key issues from his board of directors.

Twitter responded to the claims via a spokesman, stating that Zatko had been fired for performance and labeled him a disgruntled former employee whose claims are “riddled with inaccuracies.”

However, the analyst said Zatko has meaningful credentials.

“Twitter won’t want this to drag on, or risk losing everything. Musk might be willing to move ahead if he gets a big concession. So we now assume a bigger compromise than we had formerly presumed. Our new $37 PT is the mid point of the agreed $54.20 deal price, and $20 (or 3.2x 2022E revenues). Twitter could trade at this price absent a deal, consistent with multiples for peers Pinterest (NYSE:PINS) and Meta (NASDAQ:META),” concluded the analyst.

Twitter shares are up 1.2% at the time of writing.