Welcome to "#SocialStocks," The Fly's weekly recap of Wall Street's reactions to social media stock news.

PROBE: New York Attorney General Letitia James announced that her office is launching investigations into social media companies in connection with the terror attack in Buffalo that claimed 10 lives and wounded three individuals. The investigations will look into the social media companies and other online resources that the shooter used to discuss and amplify his intentions and acts to carry out this attack. Specifically, the investigations will focus on those platforms that may have been used to stream, promote, or plan the event, including but not limited to Twitch, which is owned by Amazon (AMZN), 4chan, 8chan, and Discord. "The terror attack in Buffalo has once again revealed the depths and danger of the online forums that spread and promote hate," said Attorney General James. "The fact that an individual can post detailed plans to commit such an act of hate without consequence, and then stream it for the world to see is bone-chilling and unfathomable. As we continue to mourn and honor the lives that were stolen, we are taking serious action to investigate these companies for their roles in this attack. Time and time again, we have seen the real-world devastation that is borne of these dangerous and hateful platforms, and we are doing everything in our power to shine a spotlight on this alarming behavior and take action to ensure it never happens again."

TWITTER SAGA: Despite Elon Musk's tweets, Twitter (TWTR), Musk's team and banks are continuing to work to close the $44B deal, including preparing the 139-page SEC filing, Bloomberg's Michelle F. Davis and Liana Baker reported. According to people familiar with the matter, Musk himself signed off on the final version of the SEC filing, which included a deal price of $54.20 a share, before it was filed. The situation is similar at the banks that promised to finance the transaction, said the people. Some advisers said they were trying to dismiss Musk's tweets as "noise," and advising colleagues to do the same.

Musk has addressed a number of concerns about the social media company he intends to buy. The issue of bots and spam account and just how much of the platform they make up became a point of contention. Earlier in the week, Twitter CEO Parag Agrawal said in a series of tweets: "Let's talk about spam. And let's do so with the benefit of data, facts, and context...First, let me state the obvious: spam harms the experience for real people on Twitter, and therefore can harm our business. As such, we are strongly incentivized to detect and remove as much spam as we possibly can, every single day. Anyone who suggests otherwise is just wrong...We suspend over half a million spam accounts every day, usually before any of you even see them on Twitter. We also lock millions of accounts each week that we suspect may be spam - if they can't pass human verification challenges (captchas, phone verification, etc)...Now, we know we aren't perfect at catching spam. And so this is why, after all the spam removal I talked about above, we know some still slips through. We measure this internally. And every quarter, we have estimated that less than 5% of reported mDAU for the quarter are spam accounts. Our estimate is based on multiple human reviews (in replicate) of thousands of accounts, that are sampled at random, consistently over time, from accounts we count as mDAUs. We do this every quarter, and we have been doing this for many years...Our actual internal estimates for the last four quarters were all well under 5% - based on the methodology outlined above. The error margins on our estimates give us confidence in our public statements each quarter...There are LOTS of details that are very important underneath this high-level description. We shared an overview of the estimation process with Elon a week ago and look forward to continuing the conversation with him, and all of you." Musk tweeted in response yesterday: "20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher. My offer was based on Twitter's SEC filings being accurate. Yesterday, Twitter's CEO publicly refused to show proof of less than 5%. This deal cannot move forward until he does. Seems like Twitter should welcome external validation if their claims are true."

Citi analyst Ronald Josey believes Elon Musk's review that spam/false accounts on Twitter are less than 5% of daily active users will likely delay the proposed acquisition. However, he would be surprised if there are any material changes to the deal structure as a result of spam/false accounts. The analyst maintains a Neutral rating on Twitter with a $54.20 price target.

While the deal's original structure has come into question, Twitter insists on moving forward on the same terms. On the other hand, Musk has hinted at a potential reworking of the terms as Twitter's value has dropped since the original announcement of the acquisition. The Tesla (TSLA) founder and CEO stoked speculation that he could seek to renegotiate his deal to buy Twitter by saying while speaking at a Miami tech conference that a viable deal at a lower price wouldn't be "out of the question," according to Bloomberg's Dana Hull and Nathan Crooks. Musk said at the same event that he estimates that fake users make up at least 20% of all Twitter accounts, which was the low end of his estimate, and he asked rhetorically if the number of bots on the service could be as high as 90%, according Bloomberg, citing a livestreamed video of his remarks. Twitter has been more buttoned up on the inner workings of the deal going on behind closed doors. Yesterday, the company announced that it has filed its preliminary proxy statement with the U.S. Securities and Exchange Commission in connection with the previously announced agreement for Twitter to be acquired by affiliates of Elon Musk for $54.20 per share in cash. Twitter said it is committed to completing the transaction on the agreed price and terms as promptly as practicable. The preliminary proxy statement contains information including the background of, and reasons for, Twitter's transaction with Musk. The transaction is subject to the approval of Twitter stockholders, the receipt of applicable regulatory approvals and the satisfaction of other customary closing conditions, and is expected to close in 2022.

Some more of Musk's tweets on the deal read:

"Very important to fix your Twitter feed: 1. Tap home button. 2. Tap stars on upper right of screen. 3. Select “Latest tweets”. You are being manipulated by the algorithm in ways you don’t realize. Easy to switch back & forth to see the difference."
"I’m not suggesting malice in the algorithm, but rather that it’s trying to guess what you might want to read and, in doing so, inadvertently manipulate/amplify your viewpoints without you realizing this is happening"
"Not to mention potential bugs in the code. Open source is the way to go to solve both trust and efficacy."
"Whoever thought owning the libs would be cheap never tried to acquire a social media company!"
"At least, that’s what the lib hivemind thinks haha"

Last week, Elon Musk was in talks to raise enough equity and preferred financing for his proposed buyout of Twitter to negate the need for a $6.25B margin loan linked to his Tesla (TSLA) shares, Gillian Tan of Bloomberg reported, citing people with knowledge of the matter. Musk's advisers have begun soliciting interest from potential investors for as much as $6B in preferred equity financing, sources told Bloomberg.

Notably, Musk has run into some red tape as seeks to close the Twitter deal. On Thursday it was noted that the SEC is investigating Musk's tardy disclosure last month of his sizable stake in the social media company, a delay that allowed him to purchase more shares without alerting other investors to his ownership, the Wall Street Journal's Dave Michaels reported, citing people familiar with the matter. The SEC is probing Musk's late submission of a public filing that investors must submit when they acquire more than 5% of a company's stock, the author noted. Also, in a tweet, Elon Musk said that, "Twitter legal just called to complain that I violated their NDA by revealing the bot check sample size is 100! This actually happened." The executive had tweeted on Friday that his $44B cash deal to take the micro-blogging platform private was "temporary on hold" while he awaited data on the proportion of its fake accounts.

Agrawal announced a hiring freeze and other cost-cutting efforts in a memo to staff ahead of the company's pending takeover, Kurt Wagner and Sarah Frier of Bloomberg reported. Twitter won't hire new employees and may rescind offers already out, and it is also pulling back on costs such as travel, consulting and marketing, Wagner and Frier note, citing an internal memo. Agrawal said that global events, including the war in Ukraine and supply chain disruptions, have hurt Twitter's business results and may continue to do so, they add. Kayvon Beykpour, head of consumer product, and Bruce Falck, in charge of revenue, are both leaving Twitter, Wagner and Frier report.

TRUMP CARD: Digital World Acquisition Corp. (DWAC) disclosed Monday morning a proxy statement relating to its proposed merger with Trump Media & Technology Group, which it refers to TMTG. Digital World stated, "President Trump is generally obligated to make any social media post on TruthSocial and may not make the same post on another social media site for 6 hours. Thereafter, he is free to post on any site to which he has access. Thus, TMTG has limited time to benefit from his posts and followers may not find it compelling to use TruthSocial to read his posts that quickly. In addition, he may make a post from a personal account related to political messaging, political fundraising or get-out-the-vote efforts on any social media site at any time." Donald Trump is currently banned from Twitter but Musk, who is seeking to acquire the company, has come out against the ban. Shares of Digital World Acquisition were up 6%, or $2.40, to $44.38 in that morning trading session.

BACK TO REALITY: Meta Platforms (FB) is poised to make cutbacks in its Reality Labs division, a strategic unit at the center of its strategy to refocus the company on hardware products and the "metaverse," Reuters' Katie Paul reported, citing a company spokesperson. CTO Andrew Bosworth told Reality Labs staffers during a weekly Q&A session on Tuesday to expect the changes to be announced within a week, according to a summary of his comments viewed by Reuters and confirmed by the spokesperson.

Morgan Stanley analyst Brian Nowak noted multiple press reports that indicate Meta is taking a more conservative approach to expense and headcount growth and plans to reduce or freeze hiring for engineers and mid-to-senior level positions, which he views as a confirmation of management's comments on the Q1 earnings call around expense discipline and prioritization. While he maintains an Overweight rating on the stock even without incorporating potential cuts, Nowak said he is "even more encouraged by these changes" as he sees the combination of a revenue acceleration in the second half and cost discipline leading to significant free cash flow. The extent to which Meta has significantly lowered hiring and/or operating expenses per head could add, as a "bull case," 4%-16% to 2022 free cash flow per share, added Nowak, who keeps an Overweight rating and $330 price target on the shares.

M&A: Zoom Video (ZM) announced it has entered into a definitive agreement to acquire Solvvy, a conversational AI and automation platform for customer support. Zoom and Solvvy will offer "elevated customer service experiences to a global enterprise base and work quickly to capitalize on new opportunities in contact center and customer support," the company said. "The nature of customer experience is transforming fundamentally, as enterprises increasingly need to deliver exceptional, personalized, and effortless customer experiences. Solvvy understands this shift and is the ideal platform to enhance our Zoom Contact Center offering," said Velchamy Sankarlingam, President of Product and Engineering at Zoom. "Solvvy's differentiated AI and machine learning technology, deeply talented team, and an easy-to-deploy solution will help accelerate our roadmap to creating a concierge-level experience for customers worldwide. Together, we are excited to help businesses of all sizes improve their customer retention, increase operating efficiency, and set new standards for customer service and satisfaction." The transaction is expected to close in Q2 FY2023. Terms of the transaction were not disclosed.

Piper Sandler analyst James Fish downgraded Zoom to Neutral from Overweight with a price target of $96, down from $157. The analyst sees limited upside to paid video with adjacent products like Phone and Rooms given the slowdown and size of video. These dynamics result in a lack of free cash flow growth and potential risk to estimates, Fish tells investors in a research note.