What awaits Elon Musk when he buys Twitter

The social network has not made any money for two years. It is not the most popular or the most profitable social network. But Elon Musk made it personal. He will buy Twitter at all costs… Since he received the agreement from Twitter’s board of directors, the billionaire has been going around banks and investors to finance his $44 billion takeover bid. On Thursday, May 5, he claimed that he got 7.4 billion dollars from some of them, including Larry Ellison, the founder of Oracle, or the Saudi businessman, Al Walid Ben Talal.

Even for the richest people in the world, finding funding has not been easy. According to the document sent on Thursday to the SEC, the police of the American stock market, Elon Musk should allocate up to 21 billion of his personal fortune to the operation. To complete this sum, twelve banks, including BNP Paribas and Société Générale, agreed to give him two separate loans for a total of 25.5 billion dollars. The contractor therefore there is, to date, more than 46 billion dollars to complete the acquisition of Twitter.

One of his loans should still be given to him by the Morgan Stanley bank, the architect of this financial arrangement, on the condition that he give up part of his shares in Tesla. But by appealing to private investors, Elon Musk was able to lower the amount of this debt and reduce the risk of this operation for his personal fortune. A round table is more important that this loan will weigh directly on the future of Twitter. The company, in fact, will be asked to repay this debt with a margin of 6.5 billion dollars.

Also readMusk is canvassing investors to buy Twitter

The profitability challenge

For a company that hasn’t made a profit in recent years, that may be a tough pill to swallow. Elon Musk’s takeover offer comes at a sensitive time for the social network, which employs more than 7,000 people in 35 offices around the world. Twitter has been going through a period of transition since the departure of its founder, Jack Dorsey, in November. His successor, Parag Agrawal, has assured that he will remain in the post until the end of the deal, which could last between four and six months, according to New York Times.

In what state will Elon Musk found the company? Twitter still hasn’t found the formula to be profitable. Despite its 229 million subscribers, the publication of its results on Thursday, April 28, reaffirmed this. The platform is gaining users worldwide – 80% of its new subscribers are outside the United States – but has yet to fail it can also monetize them effectively.

Since its creation, Twitter has only had two years of profitability, in 2018 and 2019. Despite an estimated turnover of more than 5 billion dollars, the company still has not returned to equilibrium. Last year, it posted an operating loss of $221 million. Expenses partially related to litigation, against it against one of its former shareholders in the United States.

Twitter’s model struggles to diversify revenue streams. Currently, 92% of its revenue comes from advertising. In the last quarter, it brought in almost $ 1.1 billion, an increase of 23% compared to the same period in 2021. A stable trajectory, supported by the continued growth of the number of its subscribers.

“In five years, Twitter was able to double its turnover, developed Nicolas Rieul, president of the Internet Advertising Bureau (IAB). The platform was able to stand out from Facebook with advertisers.” But for Ned Segal, Twitter’s chief financial officer, the platform can still significantly increase its revenues to reach the 7.5 billion mark next year.

Ensure advertisers

The good business plan was upset by the arrival of Elon Musk. The billionaire says there is no “economic interest” in this operation. “It’s not for the money” that he promised to buy Twitter, he insisted at a TED conference, organized on April 14 in Vancouver, Canada. “I just have a strong intuition that having a platform that is public and open to as many people as possible is very important for the future of civilization.”

What awaits the social network is not yet clear. The entrepreneur has only expressed some vague ideas on how he intends to improve the interface, such as introducing a button to edit his tweets, or lowering the price of the paid offer. Twitter Blue to attract more subscribers. However, so far, Elon Musk has not yet discussed his strategy for the group with the board of directors.

The billionaire certainly wants to be free to speak on Twitter, but he is not a philanthropist and will not accept that the platform loses money indefinitely. “These statements do nothing to reassure advertisers,” said Thomas Jamet, director of marketing and media agency, Mediabrands, a subsidiary of IPG. Twitter cannot afford to remain a Wild West where violent content and fake news.

A contradiction that Elon Musk needs to sort out, if he wants to straighten out the margins. But other challenges await him on the advertising front. “Twitter’s management remains underdeveloped compared to its potential audience, continued Thomas Jamet. In creative terms, the content of advertisements is still relatively dry there compared to Snapchat or other media invested in video” .

The sale of mobile advertising application MoPub, owned until January by Twitter, for $1.05 billion, to AppLovin should allow it to make new investments. “Now that the sale of MoPub is complete, we will focus our efforts on improving advertising on our platform,” promised Bruce Falck, its director of monetization.

Sparse Objectives

Technological innovation remains one of Twitter’s weak points. In recent years, the platform has abandoned many projects in the experimental process. This is the case with short-lived video content modeled on Instagram’s “stories”, where Fleet, was deactivated in July 2021. The lack of change has been one of the arguments used by the activist fund that Elliott last year. , to precisely push the visionary Jack Dorsey toward the exit.

For his part, Elon Musk spoke about making the source code of the application public and the encryption of private messages, in the model of Signal messaging. He also wants to lead the hunt for fake accounts that are proliferating on the platform and spreading disinformation under anonymous profiles. Bold promises, but little return…

To move forward together, Elon Musk and Twitter’s board of directors have every interest in communicating and understanding each other. An indemnification clause provides, in fact, for the payment of one billion dollars by the first to leave the negotiating table.

Also readHere’s why Musk should maintain some form of censorship on Twitter

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