EDITORIAL
For those of you celebrating Elon Musk’s recent insane move of buying Twitter above market value and its subsequent imminent demise: Sorry, Charlie. You’re being played good and proper.
First, let’s go through what’s happened and put things in perspective. Then, let’s see what’s really going on.
What did Elon Musk pay for Twitter? In one sense, about 25% over market value. In another, equally real sense, not nearly as much as one might think.
Musk’s personal fortune isn’t in cash; in truth, he probably owns very small amounts of liquid assets. What he does hold is a massive stack of stock shares in a handful of companies, each of which he has a personal hand in managing. The majority of his money, according to Investopedia, is in Tesla, followed by SpaceX and (now) Twitter. He also has some smaller projects, like The Boring Company.
In order to finance his purchase, he sold off from between $26 and $30 billion worth of Tesla stock at its market peak. He also brought in several private investors and — this is important — funded a quarter of the deal with corporate debt from Twitter’s own balance sheet. He had also quietly acquired 9% of the total stock before the price started to rise in advance of his acquisition bid. Thus, the price tag has dropped from $44 billion to something rather like $30 billion, and again: his sales of Tesla were made when the stock value was twice what it is today.
One more consideration: When recessions approach, the ultra-rich store their money in blue-chip assets, things that never lose value. This has been the major driving force behind astronomical prices in the art market for several decades, but it also must include stable corporations. If one merely takes into account inflation, the value of a company in 2020 is worth almost 20% more today in terms of actual dollar value. While Twitter’s profit comes from leveraging its user base, it also held $8 billion in real assets at the first of the year.
If he were to sit back, appoint a CEO, and just use Twitter as a private income stream for the rest of his life, his profit from this deal would already be a handsome one.
But of course, being Elon Musk, that’s not what he’s doing. Instead, he’s harnessing his substantial following plus the combined detestation of his millions of detractors to drive Twitter usage to all-time highs, all the while reducing costs by mass layoffs and (which is far cheaper) encouraging employees to quit with his empty bombastic statements. Bear in mind: Twitter’s main revenue stream comes at present from advertising, and with all this free press and increased usage, there’s no way ad revenue is going to drop significantly in the near future — this despite five major advertisers pausing their buys.
And absolutely none of this begins to touch what innovation can bring to the Twitter brand. I’m not even going to start listing the possibilities.
But let’s say I’m wrong, at least about those things that aren’t measured in hard numbers. Let’s say advertisers continue to stay away, Twitter’s users start to go elsewhere, and so on. So what? Even with a 50% drop in ad revenue, the company can continue to pay its debts, and expenses have dropped considerably. Most important of all, Musk isn’t accountable to his investors in the way a normal C.E.O. or Chairman of the Board is; there is nobody with the power to fire him. Twitter can’t close unless he says it closes.
What’s more, Elon Musk knows this better than anyone.
So, no, Twitter isn’t going anywhere, except maybe up. Like him or loathe him, it doesn’t matter; Elon Musk isn’t going anywhere either. Celebrate his demise all you want, people: The reports have been greatly exaggerated.
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