Elon Musk has supplied to purchase Twitter for $43 billion. Musk, the world’s richest individual, says he desires to show Twitter right into a privately owned firm as a result of he “imagine[s] free speech is a societal crucial for a functioning democracy.”
Do you have to take him critically? Sure. And no.
The quick model of the “sure” case is that Musk — who’s at the moment value an estimated $273 billion, because of the hovering worth of Tesla, his publicly held electrical automobile firm — has the assets to purchase Twitter.
Twitter, in contrast to different public tech corporations like Fb and Google, doesn’t have a monetary construction that provides its founders and administration management of the corporate with out proudly owning a majority of its shares. So in concept, if sufficient traders who personal Twitter shares wish to settle for Musk’s bid, he’ll personal the corporate.
The quick model of the “no” case is that simply because Elon Musk says one thing doesn’t imply it’s so — even when he’s speaking about his personal cash. Musk is, at a minimal, maddeningly inconsistent. In 2018, for example, he introduced — on Twitter — that he wished to show Tesla into a personal firm and that he had “funding secured.” Which turned out to not be true.
Extra not too long ago, Musk has: acquired a 9 % stake in Twitter; agreed to hitch the corporate’s board; determined to not be part of the board; tweeted out erratic proposals to “enhance” the corporate, like turning a part of its headquarters right into a homeless shelter. He informed traders in a Securities and Alternate Fee submitting: “After the previous a number of days of considering this over, I’ve determined I wish to purchase the corporate and take it non-public.”
Who is aware of what he’ll suppose a number of days from now?
Even shorter: Musk has supplied $54.20 per share for Twitter, which was buying and selling for $45 per share Thursday morning earlier than his supply grew to become public. However Twitter was buying and selling for greater than $70 per share a yr in the past. Buyers could merely determine that Musk’s supply isn’t adequate, and nothing else occurs.
So there’s no manner of telling what’s actually going to occur within the close to future. Musk says his supply is a one-time-only factor — a “greatest and closing” supply. “I’m not taking part in the back-and-forth sport,” he wrote this morning. However, once more, he’s Elon Musk. So taking him at his phrase, even when these are phrases he writes in a securities submitting, isn’t advisable.
Twitter, for what it’s value, does should take Musk not less than semi-seriously. The corporate put out a launch this morning saying that they noticed his supply and can contemplate it. It’s additionally possible that they knew this was coming: Twitter CEO Parag Agrawal warned that “there will likely be distractions forward” on Monday when he introduced that Musk wasn’t taking a board seat, in any case. Immediately’s information looks like a significant distraction!
It additionally wouldn’t be a shock if another person made a bid for Twitter now that Musk has put it into play. Then once more, many of the massive tech corporations that would afford Twitter and can be semi-logical acquirers for it will set off actual antitrust scrutiny in the event that they tried to purchase it. And a billionaire shopping for Twitter and doing no matter he desires with it will be simply wonderful, legally talking. If the board and traders log out on Musk, there wouldn’t be an apparent manner for regulators to stop it.
However right here’s the opposite factor: Despite the fact that he’s Elon Musk, he could have a degree. Twitter might be higher off as a personal firm.
That’s not due to Musk’s assertion that Twitter ought to be the “platform without spending a dime speech across the globe.” My colleague Whizy Kim has already defined why you need to be cautious when the world’s richest individual claims to be a free speech advocate.
However Musk isn’t the primary individual to make the argument that Twitter shouldn’t be a public firm. Twitter traders have primarily been making that argument for years with their lack of enthusiasm. And I’ve heard of Twitter execs who’ve toyed up to now with the thought of discovering a personal proprietor for the corporate.
That’s as a result of it’s not a wild level to argue that Twitter has monumental energy as a messaging platform (see, for example, Donald Trump) however restricted prospects as a enterprise. In a nutshell, Twitter has the identical enterprise mannequin — free and supported by advertisers — as Google and Fb. However it has a lot, a lot much less attain than these corporations, so advertisers aren’t going to provide it as a lot assist.
That’s why Google introduced in $257 billion final yr, and Fb introduced in $117 billion —and Twitter did $5 billion. And it’s why Google is value $1.7 trillion, Fb $583 billion, and Twitter $36 billion.
One argument in response to that disparity is that Twitter shouldn’t be a free, ad-supported enterprise — that it ought to be one thing that individuals pay to make use of. However it’s simple to think about that if Twitter value cash to make use of, most of Twitter’s customers would determine that they’d slightly spend their cash on absolutely anything else. Which might imply the remaining, paying customers can be speaking to a good smaller viewers — which might defeat the enchantment that Twitter had for them within the first place.
However Twitter isn’t the world’s worst enterprise. It’s simply not an ideal one. Final yr, it roughly turned that $5 billion in income into about $273 million in revenue — a 5 % margin.
That’s extra worthwhile than, say, your common grocery retailer. However nothing like what public traders count on from a super-powerful, world-shaking Silicon Valley tech platform. However a personal proprietor who isn’t consumed with turning Twitter right into a revenue heart may be completely pleased with that.
Whether or not Twitter staff — and specifically, its in-demand engineers — can be joyful at an organization that doesn’t supply the prospect of getting wealthy from inventory choices and grants can be one other query. We may have a lot extra within the coming days.
However, yeah: Generally billionaires purchase issues as a result of they wish to earn a living from them, and generally billionaires purchase yachts, which received’t make them any cash. And for those who’re the world’s richest individual, Twitter will be your $43 billion yacht.
Replace, midday ET, April 14, 2022: This story has been up to date with the response from Twitter.