28 December 22
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Twitter isn’t heading toward a happy financial equilibrium.
Musk’s behavior raises many questions, such as Why?, Why?, and Why?! And Is he going to bankrupt this thing? He looks like he is trying to: On Tuesday evening, Musk vowed to resign as CEO of Twitter “as soon as I find someone foolish enough to take the job!” He and whoever is foolish enough to succeed him certainly face a challenging year ahead. The once–richest man on Earth took over a company losing $220 million a year and multiplied its losses by 10, if not more, according to one analyst’s estimate. Twitter looks likely to bleed users, advertisers, and money for the foreseeable future. But the social network is Musk’s to fund, not just run. And he’s one of the few people on the planet with essentially limitless amounts of money to lose.
Musk’s Twitter purchase never made much financial sense. The company’s core microblogging product has scarcely changed since its debut in the mid-aughts. Its user base has stopped expanding in the United States. Its engagement levels are declining. And the company—less than one-third the size of TikTok and one-tenth the size of Facebook, as measured by monthly active users—has turned a profit in just two of the past 10 years.
But Musk bought the platform for personal and ideological reasons, not financial ones. In the spring, he bought a large chunk of the site’s shares, promising to push Twitter to be friendlier to the political right. Shortly after that, he offered to take the company private, to turn it into “the platform for free speech around the globe,” he wrote in a letter to its then-chair, by which he seems to have meant the platform for anti-Semitism, racism, and white-nationalist incitement. Plus, Musk is an impulsive rich dude who just really, really loves to post: suggesting we nuke Mars, defaming a hero who saved a bunch of schoolkids, making “boner” jokes at Bill Gates’s expense, getting in a fight with the Securities and Exchange Commission by falsely claiming he had “secured” funding to take Tesla private at—deep breath—$420 a share.
In Musk, idiosyncratic ends had endless means. And in April, he offered to buy Twitter at—inhale again—$54.20 a share, significantly higher than its share price at the time. Twitter’s executives naturally took the offer. The price tag might have been hefty, but the plan was a straightforward one: Get control of Twitter. Narrow its losses. Expand its revenue base. Make the company profitable. Hold it, sell it, or, most likely, have it go public again. Make bank.
On the cost side, Musk did trim the budget, if as erratically as possible. He purged more than half of the company’s workforce, firing many employees outright and asking those remaining to sign up for an “extremely hardcore” cultural reset. This produced “significant savings,” Drew Pascarella, who teaches corporate finance to M.B.A. students at Cornell, told me, adding that Musk also seems to have positioned the company to renegotiate its rent and other contracts.
But Musk has slashed Twitter’s income as erratically as possible too. Nearly all of the social network’s revenue comes from advertisements. Numerous deep-pocketed companies—Chevrolet, Ford, Jeep, BlackRock, Citigroup, Chanel, Nestl é, Coca-Cola, Merck, Verizon, Wells Fargo, the list goes on and on—have pulled or paused advertising in the past two months. Dan Ives, an analyst at Wedbush Securities, told me he estimated that Musk’s takeover has cost the company as much as $4 billion. “That’s a gut punch,” Ives said.
Those companies have stopped putting ads on the site, I would note, because of Musk. “Twitter has had a massive drop in revenue, due to activist groups pressuring advertisers,” Musk himself wrote on Twitter. “Extremely messed up! They’re trying to destroy free speech in America.” He also insisted that hate speech has declined during his tenure. But independent researchers have found the opposite. After his takeover, use of the N-word increased by 202 percent; the use of homophobic, misogynist, and transphobic slurs went up at double-digit rates; the use of the slur groomer has increased exponentially. Coca-Cola does not want to put its ads next to vile terminology and anti-Semitic Pepe memes, including ones Musk himself is posting.
Plus, Musk loaded Twitter up with debt—some $13 billion of it—when he acquired it via a leveraged buyout. The company is going to need to make loan payments, roughly $1 billion a year, even if it is running in the red. It has options. Musk could write the checks; he is “unfathomably wealthy,” Pascarella told me. “While most of his wealth is not liquid, I have no reason to believe he won’t be able to come up with several billion dollars of cash if need be.” Musk could buy the debt from the company’s creditors. He could raise new equity investment, something he seems to be trying to do already. Or, in an extreme case, Twitter could go bankrupt.
Right now Musk is using “Tesla stock as his personal ATM machine to fund the losses from Twitter,” Ives noted. But his behavior has cratered Tesla’s stock, which has dropped 42 percent in the past six months. (By comparison, shares in Toyota are down 13 percent and Ford’s stock is flat.) If Tesla becomes even more distressed, that could be a problem; the company’s shareholders are uneasy and rightly angry. A broader economic downturn could hurt the carmaker and the social network alike. Perhaps the most personally salient risk for Musk is that he could end up losing control of Tesla.
Musk keeps personally funding this thing that he bought, hates, and is ruining is not exactly a happy financial equilibrium. Some adult needs to come in to return the social network to that general plan: keep it running, cut losses, and get it ready to go public again several years down the road. Good luck to whoever is foolish enough to want to do that.
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