PayPal, Tesla, SpaceX, Starlink, The Boring Company: Elon Musk has been associated with a string of hi-tech companies, each of which has broken new ground. His ability to drive talented teams of engineers to “imagineer” new things catapulted him to #1 in global rich persons lists. Forbes estimated Musk was worth $304 bn plus hundreds of millions in change in January 2022.
In October, after six months of back-and-forth and legal manoeuvres, Musk bought Twitter. Since then, his personal fortune has plummeted. He is no longer #1 on the Forbes billionaires list (he’s #2, so he’s not destitute) and his net worth has dipped to a “mere” $169 bn (Dec 16).
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Musk paid $44 bn for Twitter, putting up $29bn of his own cash after selling 8 million Tesla shares to raise part of the total consideration. He also borrowed around $14 bn from sundry lenders. Servicing that debt could set Musk and Twitter up for future grief.
Twitter (or Musk as its owner) has to find $1.3 bn a year to service the debt. It’s impossible to visualise a scenario where the company can organically generate enough free cash to service that debt from normal operations. In 2021, Twitter had total revenues of $5 billion, net losses of $221 million, and free cash flows of $630 million, with interest costs of $50 million. It has a revenue CAGR of just under 15 per cent (2016-21).
But after all, Musk can find the cash and his personal net worth has been hit by more than the direct financial implications of an overvalued leveraged buyout. He has made a series of high-profile missteps at the social media platform and the investor-perception is that he’s neglecting his other businesses in his obsessive focus on the social media platform.
Musk sacked Twitter staff in droves immediately after taking charge. He then asked quite a few of them to rejoin work. He ran polls (and withdrew them) and instituted schemes that didn’t fly well, such as a “paid blue tick” scheme that triggered widespread impersonation. His tinkering with the code at the back-end has led to a breakdown of the two-factor authentication. He reinstated former president Donald Trump on the basis of a poll, even as damaging news surfaced about Trump’s holding onto classified documents and multiple tax indictments against Trump’s company.
In the latest instalment of Twitter-related news, Musk has de-platformed several journalists, who have at some stage written about him. This is apparently for references to an account which tracks his personal jet. He has banned that account, which is run by a college student, although it uses easily available public information.
Musk has also run a poll asking if he should step down as Twitter CEO. Around 17.5 million users voted, and a decisive 57 per cent majority said he should indeed quit as Twitter CEO. Musk now says he will run another poll restricted only to Blue accounts.
All the shenanigans have led to an exodus, with prominent Twitterati setting up alternate social media accounts on platforms like Post and Mastodon. Musk has tried to stem the exodus by blocking references to alternative social media platforms such as Mastodon, Post and Instagram on Twitter. The UN has condemned the suspensions and it has wrecked perceptions that Musk would live up to his claims of promoting free speech. The EU says it could sanction Twitter for multiple violations of the Digital Services Act.
While Musk’s actions on the social media platform have dominated the discourse, investors in Tesla have been spooked. The market value of Tesla has fallen by 62 per cent since January. It has dipped by 58 per cent since Musk announced his intentions of buying Twitter and fallen by 33 per cent since Musk actually took over (Oct 27). Musk has sold close to 4 per cent of his stake in Tesla to raise money for Twitter – he continues to hold 13.4 per cent.
There was a generic pullback across stock markets as the Fed raised US interest rates. But the Nasdaq 100, which tracks tech stocks, has fallen by less than 1 per cent since Oct 27, while Tesla has nosedived 33 per cent. Musk has had to face questions from Tesla investors and there are rumours of arguments with Tesla Board members with speculation that he is under pressure from Tesla’s board to pull back from Twitter. The car maker faces increasing competition as others move into the electric vehicle space and the launch of new models has been delayed. It is also contending with safety issues centred on its driver assistance system (which is touted as making it autonomous).
Running twitter isn’t rocket science, which Musk is obviously capable at. It seems the management skills that made a success out of SpaceX and Starlink might not be a good fit with a social media platform.
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