Can Elon save Twitter

The Twitter Takeover by “Free Speech Absolutist” Elon Musk has been garnering much attention. This has drawn the attention of the President Of The United States (POTUS) who has laced his comments with concerns.

My preference for Elon to build a new platform

Personally, I would have preferred for Elon to build a “new” platform from scratch. Without understanding the structure of Twitter’s business structure and IT platform, I assume that building from scratch could be easier. However, the user base will need to be built from ground zero. This would take years to ramp up but maybe this runway is not feasible given the losses and debts incurred by Twitter. However, Elon would have little difficulty drawing some of the best to work on Twitter. This new platform can be custom-built accordingly to what Elon wants and envisions. With Elon’s background in PayPal and his Tesla products, I am quietly confirmed that this can be much more than just another microblogging APP. With references made to China’s WeChat, I am sure that he can turn Twitter into a “super APP”. The potential of this APP can be well extended beyond text, videos and photos but lifestyle integration with functionalities in payment, entertainment, business, and socialization. This can be integrated with applications for Tesla energy, Tesla vehicles, Tesla insurance, boring company, Starlink, SpaceX and his various solutions.

Twitter’s Q2/2022 performance

Let us look at the finances from Twitter’s Q2/2022 earnings report:

<Extracts from Twitter’s earnings report for Q2/2022 ending 30 Jun 2022>

From Twitter’s Q2/2022 earnings report, they have incurred a net loss of USD$457 million for the 6 months ending 30 Jun 2022. Twitter’s total liabilities (Debt) increased from USD$6.752 billion to USD$7.646 billion (for 6 months period between 31 Dec 2021 to 30 Jun 2022). I have also noticed that Twitter’s assets have dropped from USD$14.059 billion to USD$13.579 billion. In this short summary, Twitter is heading in the wrong direction - an increase in losses & liabilities and a reduction in assets.

What is of greater concern is that Twitter’s free cash flow (for 6 months ending 30 Jun 2022) is at negative $162+ million, compared to a positive $311+ million for the same period in 2021.

Based on the above, it is generous of Elon to buy Twitter at a premium price of $44 billion, with each share costing an average price of USD$54.20.

<Elon’s tweet about Twitter’s daily losses amounting to USD$4 million a day>

As per the recent disclosure, Twitter is losing $4 million a day. As the new owner, he needs to stop the financial bleeding as the possibility of bankruptcy could happen as early as 2023. Thus, retrenchment is probably the first order of business. This probably explains why Elon has to sell almost USD$4 billion worth of Tesla shares to fund this bleeding business.

<News screenshot about the possibility of bankruptcy facing Twitter>

Elon’s reign at Twitter

Within the first few days, Twitter removed the old management and a good half of the current employees. While Elon has a stellar record with his companies, I would prefer to walk the ground before deciding on dismissal and other costs cutting measures. I am sure that there are some great professionals working in Twitter. Compiling their feedback for their wishlist, areas of concern and recommendations for improvement can be a needful exercise. Experience is important and at times, creates value like innovation. It is easier said than done as I am not bleeding USD$4 million a day. I am sure that Elon has a network of contacts and technopreneurs who can help stabilize the “sinking” Twitter.

Elon’s successes have always come from technology and engineering. Involving machines, these can be more straightforward as most of these are more “binary” in nature. However, Elon has been a rather polarizing figure who attracts attention (and attacks) for various reasons. There will be some folks who will steer away from Elon’s platform simply because he is Elon. Some have expressed disgust when Elon reached out to his Twitter followers to vote for the Republicans. Whether it was for a good or bad cause, there would always be trolls. Elon’s fame has made him a convenient and easy target.

Twitter’s outlook

It is still early to call the outcome of Twitter. Let us trust Elon and his team to run and optimize Twitter. Should Twitter become successful, the entire technology industry will face great scrutiny as it is proven that these tech companies may be running with excessive resources. With the current market outlook, it implies that there can be more layoffs on the way.

I wish Elon the best and it is possible for him to turn the business around. Investing with Elon at the helm will have its fair share of “unwanted” attention. Several investors have credited Tesla’s recent price decline to Elon’s Twitter overhang. As much as Elon is a genius, we need to embrace him in the totality of his ingenuity and eccentricity. While the ride will be volatile, his track record of success should give us confidence for the long haul. Since we are at it, let us learn to enjoy the ride.

I am an investor in Tesla and thus, there could be “buyer bias” in how I view this matter.