“I am CEO, Bi**h” was the inscription on Mark Zuckerberg’s business card during the early days of Facebook. Back then such attempts at humour were par for course in the bold and brash world of internet startups. However when it comes to Twitter, the next most popular social media company, it’s hard to see any humorous element in the pronouncements of the new CEO (or Chief Twit which he prefers), Elon Musk.
Brash decisions, that would have seasoned CEOs thinking long and hard, have come thick and fast on his taking over as the company’s boss, whether it is the poorly executed mass employee firings or pushing for unproven and untested business model changes, such as monetising it’s features instead of relying on ads. But should that be surprising given the way it all started?
Well begun they say is half done. However the way Elon Musk began his quest for promoting free speech at Twitter, was anything but well begun. From making an immediate U-turn on his decision to take over the platform to trying to wriggle out of the deal within a few months, and then finally going ahead to avoid embarrassment and penalties in the courts, his actions have been a bundle of contradictions.
Musk’s urgency to experiment with drastic business model changes seems to be the result of the poor timing and hence elevated valuations for this deal. Since April 13 (the day before Musk made his $44 billion offer for Twitter), social media giant Facebook (Meta Platforms) has seen its stock crash by nearly 55 per cent. Snapchat is down 70 per cent. Twitter has been acquired at a 20 per cent premium to its April 13 price. Thus while Facebook today is quoting at 1.9 times trailing EV/revenue and Snapchat at three times, Musk has acquired Twitter at 8.5 times revenue!
Unfortunately for him, the problems don’t end at overpaying for a social media platform he probably never meant to acquire but also that the deal has been funded with a lot of debt. Part of the acquisition was funded by selling overvalued Tesla shares before they crashed in recent months. Based on Twitter filings, Twitter net debt would have increased by around $11 billion now post the deal versus close to zero net debt earlier.
Thus the interest costs and finally the debt as well will have to be funded by Twitter’s cash flows, or in their absence by Musk at some time over the next few years. This factor may already be pressurising him now, and at some time will impact Tesla shares as well more severely if he is unable to turnaround Twitter from here. Maybe this explains the haste to make Twitter profitable and the trial and error decisions.
Take, for example, his decision to charge for blue ticks. It is the core responsibility of a social media platform to ensure authenticity of information posted, although it may not be possible to ensure it 100 per cent.
Blue ticks are one way to ensure verification and at least give scope to hold a person accountable for posting incorrect information or outright fake news. That the numbers don’t add up on what worthwhile contribution charging for blue ticks can make to the topline and bottomline is a different topic altogether.
Fake news
While Musk has said Twitter handles engaged in impersonation, without specifying parody, will be suspended, he needs to realise that imposters need only a short window of time to post fake news and have an impact.
In 2008, fake news posted in CNN’s iReport (citizen journalist initiative) by a teen that Steve Jobs had suffered a heart attack, was enough to cause mayhem in the stock and losses for many, till the news was officially denied. Further, logic and common sense dictate that it will be easier for Twitter to verify one genuine account rather than suspend 100s or more of imposter accounts on a daily basis! Musk’s style of functioning besides causing confusion for all stakeholders — employees, subscribers, advertisers, and bankers (to the deal) — also raises questions on whether a social media platform with Twitter’s global clout, is too important to be left in the hands of one individual. How Musk shapes his legacy from here will give answers to that.
With great wealth Elon Musk bought great power via Twitter. With great wealth and great power come great responsibilities. While its too early to write this acquisition off, his actions so far are not inspiring confidence.