Elon Is "Saving" Twitter To Death
Elon Is "Saving" Twitter To Death
New owner Elon Musk is blowing up Twitter in record time by driving away revenue, gutting headcount to levels unable to sustain the platform, and putting the company into accelerating legal jeopardy.
It took less than a month for Elon Musk to transform Twitter (delisted: TWTR 0.00%↑) from a flawed but functional company with a slowing revenue problem to a disaster on the brink of bankruptcy.
The speed of the carnage has been shocking, even for those of us who long have chronicled Elon as a terrible manager and a worse boss with no credible plan and no accountability for his actions—the worst possible combination. As I last warned, again, in October:
Oh well, these now are concerns for Twitter’s new investors, who surely must know by now what they’re in for doing business with Elon Musk at the helm. He’s notoriously reckless, ruthless to critics, with a famously fragile ego. He seems to know little to nothing about running Twitter, and is taking on total, largely unchallenged control without a comprehensive turnaround plan or credible performance targets.
Elon Has "Freed" Twitter: Send The Ravens, 10/28/22
Elon’s first step after closing the deal on October 27th was to remove any and all challengers by firing Twitter’s top management and dismissing its board. He then fired more than half of Twitter’s 7,500 employees and most of its 5,500 contract workers. Another 1,000-1,500 quit after rejecting Elon’s “hardcore” ultimatum. The impulsive firings plus increasing failures of the remaining shell of worker staff to sustain its vulnerable infrastructure are also increasing legal risks for Twitter with safety and legal compliance, and labor law, FTC regulators, cyber security risks, and more.
Meanwhile, Elon also stepped up picking his typical fights with influential Twitter contributors and alienating half its users while adding to the alarming spike in hate speech and dangerous misinformation as soon as he took over.
This also has been driving off Twitter’s advertisers, which account for 91% of its revenue. Media Matters reported that at least half of Twitter’s top 100 advertisers stopped ads during Elon’s first two weeks—the number is likely much higher now—over concerns about brand safety. Like having their ads featured next to hardcore antisemitism and porn. Apple AAPL 0.00%↑ and Google GOOG 0.00%↑ may stop distributing Twitter’s app, citing failures in content moderation controls versus their standards.
Elon responded, as he typically does when challenged, with threats to vital advertisers and distributors which may determine Twitter's survival. Not smart. Twitter is not some vital industry juggernaut able to dictate terms, as Elon thinks he is. It’s not even the biggest or richest social media platform. If Twitter goes away, it will be missed. But que sera, sera. We’ll move on.
That won’t be so easy for Twitter’s beleaguered banks and Elon’s fellow equity investors who are stuck for the long haul as the company dies on the vine. After his first two weeks on the job, Elon admitted that Twitter was losing $4 million in revenue per day. That equates to roughly a third of total revenue reported in the second quarter, and the number is probably far worse now. This could quickly wipe out whatever cost savings Elon tried to create by firing thousands of workers—many of whom proved so critical that had to be quickly rehired. If so, Twitter may soon be losing $1 billion or more per quarter.
And If Twitter Runs Out Of Cash?
Not surprisingly, Twitter can’t absorb such a rapid and severe liquidity crunch. After paying off all its stockholders when Elon closed the sale, Twitter used most if not all
its cash on hand—last reported at $6 billion—to retire its bonds as expected (see Elon Has "Freed" Twitter: Send The Ravens, 10/28/22).
Following that, Twitter has a meager $500 million revolving credit line with a potential $1.7 billion accordion expansion to support liquidity. At the rate the company is deteriorating, it may run through that in a quarter or two.
If so, I doubt Elon will have much luck persuading its gunshy bankers to loan Twitter more cash. As I’ve noted before, the banks were already losing more than $500 million on Twitter’s loan package on spiking interest rates plus increasing concerns over Elon’s reckless “leadership” which have proven well founded (see Will Elon Dump $10 billion In Tesla This Week To Buy Twitter? Maybe Not, 10/24/22).
After crashing the company and its prospects in a matter of weeks, he’s made Twitter a worse credit risk than ever.
This also should discourage Elon’s fellow equity owners, who he already stiffed with a price he admitted was “obviously” too high. Good luck getting more cash from that happy camp.
In that case, I have speculated, again here, that Elon would likely tap Tesla TSLA 0.00%↑ for cash and resources to keep Twitter afloat—which could be indefinitely. He’s demonstrated that he’s plainly obsessed with Twitter and his insatiable need for its global spotlight on him—and on his terms. I suspect he’ll do whatever it takes, no matter what damage he causes, to keep it.
As I’ve noted before, Elon had Tesla buy failing SolarCity in 2016, and it’s operations still are losing money to this day. But unlike SolarCity, I expect a Tesla takeover of Twitter would be created via another unrestricted subsidiary—which, as I’ve described, is how Tesla’s Shanghai operations were set up (see Tesla: Into Thin Air, 1/15/20). This likely would mean Twitter’s assets and liabilities and losses would be kept separate, with no recourse for investors to seek claims against Tesla if Twitter fails.
This doesn’t make Twitter a screaming buy for potential investors in the long proposed LBO bonds now languishing indefinitely on the banks’ balance sheets. And I doubt we’re likely to see those bonds shopped any time soon.
This doesn't make it any easier for Twitter which now is paying high and escalating variable rates to those banks on the LBO bridge loans covering the interim until then. As I noted from the beginning, Twitter already couldn't support the proposed LBO debt at the original terms.
One thing we can be sure of, is that the banks will dump those bonds on the market as soon as they possibly can. That doesn’t make them a screaming buy for new bondholders, whom I already warned to "run away bravely!"
Stay tuned.
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