Jeff Chiu / AP
Before Elon Musk took over Twitter, it was hardly a gangster business. The company is only occasionally profitable. Its user base and ad revenue are tiny compared to social media competitors like Facebook and TikTok.
The looming possibility of Twitter bankruptcy, however, is not a fate someone has ever seriously discussed.
Now, however, under Musk’s tumultuous leadership, the shrewd billionaire has told employees that bankruptcy could be imminent if Twitter doesn’t start making more money.
How could this be the case, and what exactly has changed?
In taking the company private in a $44 billion purchase of Twitter, Musk cashed out some of his Tesla stock and also took on $13 billion in debt for the social platform, which is a sign of that. Big deal for a company the size of Twitter.
For context, the debt equals about seven times the company’s projected earnings for 2022.
It’s basically a giant credit card and the annual payout is $1 billion.
And that’s a problem for Twitter, because of its cash flow last year to pay for things like debt payments merely 632 million dollars.
So where will the rest of the money come from?
Why Bankruptcy Might Be a Concern for Twitter
Andy Wu, an assistant professor at Harvard Business School, said: “Hypothetically, it’s likely he could use more Tesla stock to salvage Twitter or move into his group of co-investors. , who probably won’t have any trouble finding the money,” said Andy Wu, an assistant professor at Harvard Business School who has researched the Musk takeover.
But if Musk and his supporters don’t think Twitter is worth the extra money, an attractive debt settlement that could help settle a bankruptcy case is in the best interest of the company, Wu said.
“The saying, ‘if you owe the bank $100, that’s your problem, but if you owe the bank $100 million, it’s the bank’s problem’ applies here,” Wu said. , explaining that investors and other lenders could take over the company. if Twitter goes through a bankruptcy proceeding, with Musk still its chief executive officer. “Bankruptcy will also allow Musk to refinance, which will make the company more financially stable.”
Since Musk closed the deal to acquire Twitter, financial analysts have pointed out that he overpaid. Musk’s efforts to get out of the deal show that he was skeptical of the $44 billion price tag.
Investment firm Wedbush Securities said the deal represents “one of the highest-paid tech acquisitions in history,” pegs Twitter’s fair value at nearly $25 billion.
Knowing this, pushing Twitter into bankruptcy could at least help Musk restructure the debt in his favor.
Adding to the pressure on the company is ongoing turmoil internally, with the departures of a slew of top executives, some of whom are responsible for things like platform safety and comply with federal regulations.
The staffing turmoil, plus major advertisers such as General Motors, Pfizer and United Airlines that have halted advertising amid the chaos have added to the strain on the company. This is despite Musk’s assurances to the companies that he won’t let Twitter turn into a “free hell for all”. About 90% of Twitter’s revenue comes from advertising.
But ownership of Musk continues to be difficult, and Harvard’s Wu is skeptical that Musk and his investors will let Twitter go away entirely.
Even if it went bankrupt, Twitter itself could still function fairly normally, he said.
“Beyond the potential financial return, my feeling is that Musk and his co-investors are both ideologically driven, that they are actually driven by values,” said Wu.
Musk has described himself as a “liberalist,” and he has often criticized censorship of speech on platforms such as Twitter, which he says limits the market for ideas.
Wu said he feels that Musk and his supporters are “ready to lose money because of that fight.”
‘Eight bucks is not a prohibitive cost for scammers’
Questions about Twitter’s long-term financial viability are real. Musk has previous estimate that the company is losing $3 million per day.
Musk went to great lengths to make Twitter a cheaper place to run, like give birth to half of the company’s employees, or approximately 3,700 jobs.
But that doesn’t change what Musk sees as the company’s core problem, which is that the company has only one primary way of making money: online advertising.
It’s an unfortunate reality for the company right now, considering it’s a rough time in the online advertising business. A dramatic drop in ad spend has shaken the tech industry. Owner Facebook Meta laid off 11,000 people. Snap has laid off 20% of its employees. Other ad-dependent tech companies like Spotify and Google’s YouTube are feeling stifled.
So Musk’s solution was to revamp a service called Twitter Blue by charging $8 a month for the coveted blue check. In this way, Musk has argued, being “verified” on Twitter is no longer exclusive to the elite and more people using the service will be authenticated.
So far, the show’s launch has had the exact opposite effect. A series of accounts impersonating star athletes like Lebron James, former President Trump, and companies including Eli Lilly and Pepsi, have highlighted how quickly the check option to sell blue can be used to spread deception.
In an effort to stem the proliferation of impostors, Twitter appears to have put Twitter Blue on hold. Service is no longer available for purchase and entry its websiteTwitter notes that “accounts created on or after November 9, 2022 will not be able to sign up for Twitter Blue at this time.”
Twitter, apparently without any communications staff in the wake of the mass layoffs, did not respond to a request for comment.
For now, Twitter Blue is a far cry from the monetization initiative Musk had hoped for. But for Rachel Tobac, who runs Social Proof Security, a company focused on preventing manipulation of social networking sites, if Twitter Blue is to be revived, the money earned from the new service is of little importance. most important.
“Eight dollars is not a prohibitive cost for scammers,” she said. “It’s essential for Twitter to figure this whole thing out officially.”
Imagine, Tobac said, if an emergency services account with a green check was opened by an impostor and began to reject harmful advice about shelters during a natural disaster.
Tobac is also concerned disinformation agents are paying $8 to cause confusion and discord regarding an election – something fresh on her mind, as the country awaits its conclusion. the final results of several key midterm election races.
“We now have people making jokes, impersonating the president, impersonating Nintendo, and Elon Musk is laughing at those jokes because he thinks they are funny,” she said. “It wouldn’t be fun for someone to pose as an election official and interfere and cause interference in the election results.”