The Twitter takeover by billionaire Elon Musk is currently causing more concern for the news service than brilliant numbers.
When the South African billionaire Elon Musk acquired the online news service Twitter last April, the company had 7,000 employees. Despite $5.1 billion in revenue in 2022, Twitter has only been in the black twice in the last ten years. That’s why Musk started the red pencil. Twitter currently has 2,300 employees, as Musk himself tweeted on Saturday.
But is the downsizing enough to get the faltering company back on track? An initial interest payment of $300 million is due by the end of January.
The reason: Musk not only shelled out the $44 billion with which he bought Twitter out of his own pocket, but also took out a loan of $13 billion. This is factored into the Twitter books via a complicated construct.
An analyst quoted in the Guardian assumes that Twitter can pay the loan – at least this time. Rather, the question is how long Twitter can service this debt.
The turnaround is a long time coming
When Musk took over the intelligence service, he portrayed himself as the savior who would restructure the company without it having to go under US bankruptcy protection.
This construct allows a struggling company to restructure without creditors – like Musk’s – being able to reclaim their debts during this time. On the other hand, the company is also subject to strict official regulations during this time.
This is exactly what Twitter could still flourish if it doesn’t manage the turnaround. Because Musk has done more harm than good to the company so far. Twitter makes up 90 percent of its revenue from advertising, but according to the latest figures, advertising volume has plummeted by 40 percent.
The reasons: the problems with the relaunch of the “verified accounts”, the return of previously banned profiles such as that of Donald Trump – and of course the personal tweets from Musk, who turned out to be politically right-wing and thus the trust of advertisers in the Platform hasn’t exactly strengthened.
Musk doesn’t want to sell shares
Musk assured last week that Twitter had over $1 billion in cash. This makes it easy to settle the interest payments due at the end of January. But: Before its takeover, according to the Wall Street Journal, Twitter had two billion dollars in cash and only $600 million in net debt.
Musk is – which is to be expected – nevertheless confident and explained in a podcast that the company is no longer immediately threatened with bankruptcy.
But should you believe him? That Musk has a big mouth can be seen from tweets from 2018, which are now catching up with him. At that time he announced that he would take one of his other companies, the carmaker Tesla, from the stock exchange because he had found private investors. However, as it turned out later, there were no firm commitments.
Protect image as a business genius
So what will happen to Twitter? If cash flow doesn’t improve quickly, Musk could be forced to inject more private capital. To do this, he would have to sell more Telsa shares, which he says he currently does not want to do.
But the alternative scenario is probably a lot worse for the narcissist Musk: Twitter cannot service the debt and is under official bankruptcy protection. For Musk, it’s ultimately about protecting his image as a business genius. (rae)