"We believe this sets a near-term ceiling on shares, detaches the company from fundamentals, and offers significant downside risk if Mr. Musk decides to abandon his offer or sell down his stake," Kelley wrote in a note to clients on Thursday.

If the offer is not accepted, Musk has said he would "need to reconsider" his position as a shareholder. Stifel believes that Musk reducing his Twitter stake would cause Twitter shares to "sell off dramatically."

Musk revealed at TED2022 in Vancouver on Thursday that "there is" a plan B if the offer is rejected, but declined to elaborate. Meanwhile, the Wall Street Journal reports Twitter's management is weighing using a "poison pill" to limit Musk’s stake in the company by allowing stockholders to purchase more shares at a discounted rate. 

Beyond the back and forth with Musk, Kelley says Stifel remains cautious on Twitter's ability to reach targets outlined at its Analyst Day, particularly the goal of 315 million monetizable daily active users by the end of 2023. The firm also doesn't believe the company's product roadmap "has been getting the attention it deserves from the advertising community."

"We're adjusting our forward estimates a bit to account for the Russia/Ukraine conflict, as well as near-term inflationary pressure. Our 1Q revenue estimates come down moderately (-0.4%), and we're lowering 2022 revenue by -1.9%, with a -1.4% reduction for 2023," Kelley added. "Our target price remains $39, which is 4.3x our 2023 revenue estimate and presents approximately 18% downside from current levels." 

The firm expects Twitter to report revenue of $5.87 billion for 2022 and $6.98 billion for 2023, down from previous estimates of $5.98 billion and $7.08 billion, respectively.