Can Twitter become more profitable under Elon Musk?

Despite its political and cultural influence, Twitter is struggling to make a profit – Copyright AFP Ishara S. KODIKARA

Daniel HOFFMAN

Since its IPO in 2013, Twitter has only occasionally made a profit, even though it plays a prominent role in politics and culture around the world.

The company’s announcement on Monday that it had reached a deal with Tesla boss Elon Musk to buy it outright raises the question of whether this will lead to a brighter financial future for Twitter?

Musk played down economic considerations as a motivation for his purchase, saying earlier this month at the TED2022 talk that “it’s not a way to make money.”

Musk continued, “It’s just that my strong, intuitive sense is that having a broadly inclusive, maximum-trust public platform is extremely important to the future of civilization.”

Listed on the New York Stock Exchange for just under nine years, Twitter has posted a net loss every year except 2018 and 2019 when it made a profit of just over $1 billion.

Musk pays more than $44 billion for the company, an amount dwarfed by Facebook’s valuation of more than $500 billion.

Twitter’s revenue comes mostly from advertising rather than its user base, which isn’t large enough to build its finances.

At the end of last year, it claimed 217 million so-called “monetizable” users, who are exposed to advertising on the platform. This is far from the 1.93 billion Facebook subscribers.

Twitter is expected to release its first quarter results on Thursday. Wall Street forecast earnings of three cents per share and revenue of $1.2 billion.

– Profitability not a priority –

While Twitter’s business prospects may not be his primary concern, the world’s richest man will at least be looking to not lose money, especially since part of the acquisition could be financed by its own funds.

In a securities filing released last week, Musk pointed to a $13 billion credit facility from a financing consortium led by Morgan Stanley, a separate $12.5 billion margin loan from the same bank, as well as $21 billion of his personal fortune as being behind the deal. .

Mr. Musk has not yet detailed how he plans to increase Twitter’s revenue.

However, in a tweet, he suggested lowering the price of Twitter Blue, the paid version of the network which costs $2.99 ​​per month, granting a certified account to paying subscribers, and removing advertising for those customers. He then removed the message.

Another option in Musk’s hands would be to downsize, which could align with his desire to ease content moderation on the platform.

At the end of 2021, Twitter, which is based in San Francisco, employed 7,500 people worldwide. It also had around 1,500 moderators worldwide in 2020, according to research by New York University Business School.

Musk could also be looking to accelerate user growth and therefore ad revenue, or add new paid features to the platform.

“He has his own plan in place. If he can keep a model with a subscription offering alongside free options, that could work,” said CFRA analyst Angelino Zino.

– Debt worries –

By funding a significant portion of the acquisition with bank loans, Musk will increase Twitter’s leverage, and on Monday S&P Global Ratings warned it was considering lowering Twitter’s rating from BB+.

Zino noted that Musk could ultimately collaborate with other investors so as not to commit his fortune alone.

“If he brings other great minds to the equity side, there might be a greater likelihood of success on his side,” he said.

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