Now that block bot has had time to do its thing, here's a dispassionate look at the Twitter deal.
The purchase price was north of $44b. That amount was raised w/a combination of $12.5b in financing, $21b in equity, & the remainder from a loan secured against his Tesla stock.
A few notes:
First, the loan is secured on stock that is down from $361 at the time of the original deal to $228 yesterday, a 37% drop.
Why is that drop important?
As the loan is secured AGAINST Tesla stock, he had to commit MORE stock than he originally negotiated.
Further, he's likely using the same loan agreements that he's been using to fund a cash-poor, stock-rich lifestyle (not unusual among the wealthy) - meaning that the bank can FORCE him to sell stock or cover the difference w/more stock/cash if the price drops.
This creates a precarious financial balance:
If Twitter doesn't earn, that will negatively affect Tesla stock prices, which could force a cover w/more Tesla stock or cash which would put further downward pressure on Tesla stock.
You know that scene from the HBO miniseries "Chernobyl" where Valery explains to the court how a "positive void coefficient" created a self-reinforcing buildup of heat that ended w/the #4 reactor blowing itself apart?
Musk has that as ~1/4 of his Twitter financing.
Second, in addition to the purchase price, Musk now pays the buyout packages & fully-vested stock prices of the employees he wants to fire.
For JUST the top three executives he's already fired, that's ~$200 million. That gets added to the debt which goes on Twitter's books.
Third, Musk isn't going to take on Twitter's debt as personal debt. That means it goes on Twitter's books, which already weren't looking too good.
Operating at a loss for most of its history, Twitter has JUST started to eek out profits, but now that's not enough.
Conservatively, financing that debt will cost about $1b a year.
Last year, Twitter lost $221m. The year before, $1.1b. Covering that debt doesn't look likely in the short term.
Musk said he plans to double revenue within three years, but that says nothing about PROFIT.
Fourth, ad sales account for about 92% of Twitter's revenue.
Those ad sales only went up once Twitter started aggressively going after troll and bot accounts.
No brand wants its ads posted in a stream of people writing the worst-possible thing they can think of to write.
This is why, even though Musk courted the "burn it down & post everything" crowd, his statements to the advertisers - that it WASN'T going to be a free-for-all-hellscape - are quite the opposite.
Musk can't forever finance the debt w/o any hope of seeing a return on investment.
Doing so would endanger not only Twitter, but Tesla & all its connected companies. (See #1)
Musk knows that Twitter needs to EARN.
To earn, it needs ADVERTISERS.
To have advertisers, Twitter CAN'T be another Parler, Gab, Gettr or Truth.
Now we have a better picture of the buyout:
- Musk bought a business w/dubious profit prospects
- promising changes that could destroy the revenue it already has
- to court an audience who will turn on him if he DOESN'T
- W/a positive void coefficient of financial hardship
To be fair, Musk can pull it off.
I'm a financial dilettante who hasn't seen the inner workings of Twitter.
Maybe he sees a quick way to turn around the company & stave off financial Armageddon.
Maybe he has a pivot will greatly widen revenue streams w/o driving up costs.
Maybe he's playing a long game & is willing to live with a financial Sword of Damocles to see through something he thinks is important.
But to an outsider, it looks like a rich man bullied himself into making a bad deal.
Still, he is right in saying that Twitter has a big part to play in discourse around the world.
Sure, we can all move elsewhere, but first I think we watch what he does.
I can honestly say, good luck Mr. Musk
Source:
Some potential investors were told Musk plans to cut 75% of Twitter’s workforce, which now numbers about 7,500, and expects to double revenue within three years, a person familiar with the matter said earlier this month.
economictimes.indiatimes.com/news/internati…
Source:
" Musk owns approximately $28 billion in Tesla stock ... But to fund his lifestyle, Musk needs cash. And to get that cash, he's turned to loans, granted to him because he uses his Tesla stock as collateral."
inc.com/don-reisinger/….
Source:
"$US21 billion of his own money into the deal's funding package. He raised a further $US12.5 billion via a lone(sic) secured against his shares in Tesla
US investment bank Morgan Stanley provided the final $US13 billion in debt financing."
abc.net.au/news/2022-10-2…
Source:
wired.com/story/elon-mus…
Source:
forbes.com/sites/petercoh…
Source:
nbcnews.com/business/busin…
Source:
variety.com/2022/digital/n…
Source:
Twitter generated $5 billion revenue in 2021, an 35% increase year-on-year 92% of Twitter’s revenue came from advertising in 2021 Twitter posted a net loss of $221 million in 2021, an 80% reduction on the $1.1 billion loss it reported in 2020
businessofapps.com/data/twitter-s…
Share this Scrolly Tale with your friends.
A Scrolly Tale is a new way to read Twitter threads with a more visually immersive experience.
Discover more beautiful Scrolly Tales like this.