1. I will now examine Twitter’s past financials and predict the future from them. I conclude that criticism of @elonmusk is bizarrely off base, because Musk has overnight changed Twitter’s net (profit) margin from negative 20% to approximately plus 28%, more than Apple or Google.
2. I am using annualized percentages based on Twitter’s most recent quarterly filings, for the period ending 6/30/22. These documents are freely available at the SEC’s website.
3. Annual revenue was about $4.4 billion. Annual expenses were slightly more, and fell into four major buckets: cost of revenue; R&D; sales and marketing; and general and administrative. Those are roughly 37%, 26%, 25%, and 12% of total major expenses, respectively
4. According to the company, cash expenses for cost of revenue are essentially infrastructure—hardware and third-party servers, with some employee costs, namely “operations teams.”’ Employee costs include those related to stock and option grants (i.e., non-cash expenses).
5. R&D expenses, on the other hand, “consist primarily of personnel-related costs.” The same is explicitly true of sales and marketing and of general/administrative
6. In other words, the vast majority of 63% of Twitter’s expenses are personnel costs. If we assume “primarily” is 80%, and that 20% of cost of revenue is also personnel costs, 58% of Twitter’s total costs are personnel costs.
7. When Musk took over, Twitter had 7,500 employees. Let’s guess 70% of those have left. Leaving aside pay differentials, that suggests that Twitter’s expenses have, likely permanently, dropped 41% overnight. That makes its new annualized projected profit $1.3 billion.
8. This means Twitter’s net margin, going forward, is now about 28%. By way of comparison, Apple and Google both maintain net margins in the 22 to 25% range. In other words, Twitter is now more profitable than those companies.
9. Your mileage may vary, and this is somewhat of a simplification. But it shows why Musk can win just by firing worthless losers. Yeah, sure, maybe leftist pressure will keep some advertisers away. I doubt it. When the next Current Thing arrives, they’ll be back.
10. But when you change from a negative profit margin to a margin that’s the envy of the tech world, you have a lot of room to screw up.
11. I also note that it is ignorant to say that Musk has loaded up the company with debt. The debt/equity ratio in the deal was roughly 0.3:1, when many deals are done at 1:3, or with NINE TIMES as much debt.
12. Sure, he has to make debt payments. But this isn’t some kind of knife-edge scenario as the ignorant often paint it.
13 (new). This thread having been up for 24 hours, and gotten more than 6 million impressions, the only interesting thing is that not a single person has said anything in response that legitimately suggests I am wrong in any way. (Lots of ignorant responses, though.)
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.