Is social media platform "X" now a financial blackhole threatening to consumer its investors & 'inconvenience' its bankers?

 

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.

Twitter continues to be plagued by its out-of-his-depth new owner

 

A forlorn tweet sent shortly after 2am, read & retrieved at 2:53am AEDST on 30 December 2022 in Australia.

New York Times, 28 December 2022:

Twitter users in widespread locations said they were having problems with the service on Wednesday evening, days after Elon Musk said he had shut down one of the company’s data centers in Sacramento. The issues primarily hit users of the company’s site for desktop computer users, according to Down Detector, while some complained that its mobile app also experienced trouble.

The cause of the outages was not immediately clear. Some users reported that they had been logged out of Twitter, while others said they could not view replies to their tweets but had access to other parts of the service. Other users said they had encountered error messages while scrolling through their timelines, the primary feed of tweets that people see when they log in to Twitter.

The errors began around 7 p.m. Eastern time, according to Down Detector, a service that monitors web outages. The hashtag #TwitterDown trended on the platform as users reported their experiences with the outage.

“The problems with Twitter exhibit in multiple countries and are widespread,” said Isik Mater, the director of research at NetBlocks, an internet monitoring service. “The platform API is affected, which serves the mobile app as well as many aspects of the desktop site,” she added, referring to the interface on which Twitter operates.

Mr. Musk, who bought Twitter in late October for $44 billion, said on Saturday that Twitter continued to work smoothly, “even after I disconnected one of the more sensitive server racks.” The billionaire has been focused on reducing Twitter’s costs, eliminating contracts with vendors, laying off employees and reducing the company’s real estate footprint.

According to the Bloomberg Billionaire Index as of 30 December 2022 Elon Musk's wealth has fallen by $132 billion in 2022 and now stands at $138 billion. Yahoo! News stated on 30 December 2022: "Elon Musk has seen his net worth plummet by more than $200 billion over the last 13 months, marking the biggest loss of wealth in modern history." 

Elon Musk no longer the richest man in the world - seems to be finding it extremely difficult to herd cats

 

Elon Musk has disclosed that he had sold another $3.6 billion worth of Tesla stock. Credit...Matt Rourke/Associated Press. The New York Times, 15 December 2022.

The Saturday Paper, from the pen of the emails editor, 16 December 2022:

Musk loses $100bn in a year

What we know:

• Musk’s net worth has fallen below that of France’s Bernard Arnault, chairman and CEO of luxury goods maker LVMH (CBS);

• His wealth has dropped by more than $US100bn this year, more than the GDP of Bulgaria, Croatia, Iceland and Uruguay;

• Musk this week sold about $US3.6bn in Tesla shares, despite declaring earlier in the year he had no further plans to sell shares (CNBC);

• It comes as he takes legal action against the holder of a Twitter account that tracks his private jet, and suspends the user, a month after declaring he would allow it to keep running (BBC);

• Musk has meanwhile allowed a host of contentious fringe figures to rejoin Twitter, apparently including anti-vaxxer Pete Evans (Crikey);

• As advertisers flee the platform and revenue crumbles, Twitter has reportedly stopped paying rent on offices and is considering not paying severance packages to former employees (New York Times);

• Musk has sacked more than half of Twitter’s workforce, including reps who oversaw relationships with advertisers, staff in charge of complying with regulations, and a team devoted to enterprise products that brought in hundreds of millions a year (Bloomberg);

• Musk’s vast borrowing to overpay for the acquisition means he faces $US1.2bn a year in interest payments, at a variable rate, with the first cheque due to the banks at the end of January;…..

The Guardian, 16 December 2022:

A number of prominent journalists who have reported on Twitter and its new chief executive, Elon Musk, appear to have been suspended or banned from the platform.

In a series of evening tweets, Musk wrote that sharing his real-time location on Twitter was forbidden, and accused journalists who he alleged had been sharing information about his location of posting “assassination coordinates”.

Accounts of tech journalists at CNN, the Washington Post, Mashable and the New York Times were suspended in quick succession on Thursday evening. All had recently published articles about Musk’s suspension of a Twitter account that had shared publicly available data about the movements of his private jet. Each of these articles had highlighted the tension between Musk’s stated commitment to “free speech” and his choice to ban an account that he personally disliked.

The Twitter account for rival social media company, Mastodon – which some Twitter users have migrated to after Musk’s takeover of Twitter – also appeared to have been suspended.

Links to individual Mastodon accounts also appeared to be banned. An error message notified some users that links to Mastodon had been “identified” as “potentially harmful” by Twitter or its partners.

Ryan Mac, a New York Times tech reporter, wrote on a new Twitter account that he was given “no warning” before his account was suspended and that he had received no communication from the company about the reason his account was “permanently suspended”…..

Read the full article here.

Musk or one or more of his companies appear to have been involved in an impressive amount of litigation, according to Wikipedia and, on 16 December Bloomberg Law reported:

Twitter Inc. has parted ways with Regina Lima, its former head of international legal and sole remaining deputy general counsel, as Elon Musk continues to overhaul the embattled social media company.

Lima’s departure—confirmed by four sources familiar with Twitter’s operations—comes as the company nears the two-month mark of Musk’s turbulent takeover.

Lima didn’t immediately respond to a request for comment. She was based in Miami before being summoned to Twitter’s San Francisco headquarters last week.

Most of Twitter’s roughly 200-employee legal staff has either been laid off, resigned, or otherwise departed during that time. The reductions in force come as the company copes with a variety of legal and regulatory entanglements.....

A PERSPECTIVE: The petulant 'child king' Elon Musk

 

Elon Reeve Musk
IMAGE: The Wall Street Journal, 11 July 2022

Tumblr, 22 November 2022:

numberonecatwinner

I was an intern at SpaceX years ago, back it when it was a much smaller company — after Elon got hair plugs, but before his cult of personality was in full swing. I have some insight to offer here.

Back when I was at SpaceX, Elon was basically a child king. He was an important figurehead who provided the company with the money, power, and PR, but he didn’t have the knowledge or (frankly) maturity to handle day-to-day decision making and everyone knew that. He was surrounded by people whose job was, essentially, to manipulate him into making good decisions.

Managing Elon was a huge part of the company culture. Even I, as a lowly intern, would hear people talking about it openly in meetings. People knew how to present ideas in a way that would resonate with him, they knew how to creatively reinterpret (or ignore) his many insane demands, and they even knew how to “stage manage” parts of the physical office space so that it would appeal to Elon.

The funniest example of “stage management” I can remember is this dude on the IT security team. He had a script running in a terminal on one of his monitors that would output random garbage, Matrix-style, so that it always looked like he was doing Important Computer Things to anyone who walked by his desk. Second funniest was all the people I saw playing WoW at their desks after ~5pm, who did it in the office just to give the appearance that they were working late.

People were willing to do that at SpaceX because Elon was giving them the money (and hype) to get into outer space, a mission people cared deeply about. The company also grew with and around Elon. There were layers of management between individual employees and Elon, and those managers were experienced managers of Elon. Again, I cannot stress enough how much of the company culture was oriented around managing this one guy.

Twitter has neither of those things going for it. There is no company culture or internal structure around the problem of managing Elon Musk, and I think for the first time we’re seeing what happens when people actually take that man seriously and at face value. Worse, they’re doing this little experiment after this man has had decades of success at companies that dedicate significant resources to protecting themselves from him, and he’s too narcissistic to realize it. …...

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