Wall Street has long known that it is better to play with other people’s money. But in the case of Elon Musk, other people’s money can limit how much he can play with Twitter.
The campaign by the world’s richest person on paper to take over the social network has really taken off. The Wall Street Journal reported Monday morning that the two sides were talking to each other and could even conclude a deal on Monday. This comes after Mr Musk in an application at the end of last week revealed that he has secured $ 46.5 billion in financial support for his bid. That was apparently enough to get Twitter’s board to take an extra look after first leaning against the offer. Twitter’s stock price rose nearly 4% in early trading on Monday.
It’s still unclear what would eventually become of Twitter if Mr. Musk wins. A successful bid would put an advertising company of $ 5 billion a year in the hands of someone who has publicly questioned Twitter’s advertising business model and whose current company – Tesla – does not buy any advertising.
The self-described “freedom of speech absolutist” has also spoken out against Twitter’s content moderation practices, which are designed to keep toxic content away from the social network and make it safer for advertisers. Brian Wieser, global president of business intelligence at ad buying giant GroupM, says most advertisers working with Twitter “strongly prefer content standards” on the service.
That may not mean much to Mr Musk, who said of his own Twitter campaign that it “is not a way to make money” in an interview on stage at the Ted conference, the same day as the application describing his financial support. But more than half of that backing comes in the form of debt from Morgan Stanley and “certain other financial institutions,” according to the archive. This means that Mr Musk will have to maintain Twitter’s cash flow – and ideally grow – to service the debt. Some of that debt is in the form of margin loans backed by Mr. Musk’s Tesla shares.
It would be hard to do that without advertising. Ads account for almost 90% of Twitter’s revenue now, while data licenses provide most of the rest. The company launched Twitter Blue – its first subscription offer to consumers – last year and rolled it out to the US market in November. CEO Parag Agrawal said on Twitter’s last earnings call in February that the company has seen a “strong reaction” from “our heaviest users” for the service. But he added that Blue “is not critical” of reaching $ 7.5 billion in revenue by 2023, a goal set at an analyst meeting in early 2021.
Mr. Musk will likely have his own goals in mind, and a privately owned Twitter will only be responsible to him for achieving them. But unless Mr Musk somehow finds a way to pay for Twitter entirely out of his own pocket, he will also have to take responsibility for others.
Write to Dan Gallagher at firstname.lastname@example.org
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