Reuters, 4 October 2023:
NEW YORK, Oct 3 (Reuters Breakingviews) - X is still worth something, but not for the people running it. Boss Linda Yaccarino is set to present her plans for the social network formerly known as Twitter to bankers holding nearly $13 billion of its debt, the Financial Times reported. Looming over talks is the likelihood that X’s value is substantially less than even that figure.
This week’s meeting with seven banks led by Morgan Stanley (MS.N) that supported Elon Musk’s $44 billion acquisition of the platform caps off a tumultuous first four months for Yaccarino, a former advertising executive at Comcast-owned (CMCSA.O) NBCUniversal. That includes a contentious interview last week in which she seemed caught off-guard by Musk’s announced ambition to charge X users a monthly fee to combat bots.
Despite Musk’s big pronouncements about pushing into subscriptions, X has historically relied on advertising, which contributed over 90% of revenue when it was a public company. But that business is spiraling, and the platform’s shifting policies could threaten more branding deals. In July, Musk posted that cash flow was negative because of a 50% drop in advertising sales.
The apparent strategic disconnect between the company’s ad-focused chief executive and its subscription-hungry owner comes as valuations are falling. TikTok parent ByteDance was recently valued at $224 billion, down by about a quarter from a year ago, the Information reported. Disappearing messaging app Snap’s (SNAP.N) market value has slumped by more than 10% over the past year.
Put it all together, and X isn’t just worth less than Musk paid for it, but likely less than its debt. Assume that the company’s revenue last year was $4.7 billion, based on results before it was taken private. If advertising has dropped by half, then this year’s sales should be a bit over $2.5 billion. Put that on the same enterprise-value-to-sales multiple as Snap, which is down to a mere 3 times, and X is worth around $8 billion.
The company is so far covering its hefty interest payments of $300 million per quarter, and Yaccarino sees profitable days ahead. But between Musk’s impromptu product shifts and the need to woo back advertisers, her task is daunting. If things deteriorate further, the company’s bankers - already nursing billions in on-paper losses - face the prospect of taking back the keys to a diminished platform that is worth less than even their claim on it. Like a financial black hole, X threatens to consume most of whatever value it once had.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
The seven banks which reportedly facilitated Musk’s US$13 billion loan arrangements so that he could purchase Twitter Inc/“Twitter” now known as X Corp/“X”:
Bank of America
Barclays
BNP Paribas - $6.5 billion term loan facility
Mizuho - $500 million revolving loan facility
Morgan Stanley - $3 billion secured bridge loans
MUFG - $3 billion unsecured bridge loans
Societe Generale.
[Reuters, 7 October 2023]
BACKGROUND
USA Today, 4 October 2023, excerpt:
X, formerly known as Twitter, has lost most of the guardrails it once had. Massive employee cuts, in particular, to content moderation teams, more divisive content, the removal of state-affiliated media labels, and a blind allegiance to free speech by Elon Musk have made the platform much more susceptible to misinformation and disinformation. COVID, Russia’s invasion of Ukraine and the 2024 election are all vulnerable topics…..
Dana Taylor:
Pivoting to the 2024 US presidential election, there are quite a few nefarious forces out there including both state and non-state actors who are chipping away at American's confidence in election integrity and would like nothing more than to see the US democracy fail. Elon Musk also recently announced he was cutting X'S global election integrity team in half. Is it looking worse than 2020? And if so, how?
Josh Meyer:
For the story that I wrote, I talked to a lot of experts in, I do think there was a tremendous amount of concern that this could be the worst one ever. Hopefully that won't be the case, but we have a lot of state run actors now. We've got China, Iran, and, of course, Russia looking to meddle in the election. You've got a lot of right-wing extremist groups doing it. Some of the security information specialists that I talked to said you even have kids in their parents' basement who could manipulate things…..
According to Fiber in 2021 there were 5.8 million Twitter users in Australia.
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