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Elon Musk devised an innovative strategy to address Twitter’s financial challenges. He implemented workforce reductions, reduced cloud computing costs, introduced subscriptions, and emphasized his vision of free speech. However, despite these efforts, Twitter continues to face negative cash flow, as confirmed by Musk himself. Moreover, a competing platform is attracting users away from Twitter.
Since privatizing Twitter in October of last year, Musk has been providing sporadic financial updates. In the previous year, he projected revenues of approximately $3 billion for 2023, a significant decline from $5.1 billion in 2021. Musk now acknowledges that ad revenue has been cut in half.
Linda Yaccarino, former head of advertising at NBCUniversal, has assumed the role of CEO. However, she has not been successful in bringing a large number of advertisers to the platform, as corporations are concerned about the presence of toxic content.
Musk has also been unable to attract popular content creators away from rival platforms. While online celebrity MrBeast posts on Twitter, he reserves his videos, which attract fans and advertisers, for YouTube. Additionally, Meta’s new app, Threads, adds to the competitive landscape.
Despite reducing non-debt expenses significantly, Twitter still faces annual debt payments of $1.5 billion, surpassing the revenue forecast of under $3 billion for this year. To salvage his side gig, what other alternatives does Elon Musk, the CEO of Tesla, have? Closing Twitter’s offices would further reduce costs, but Musk opposes remote work for employees. Efforts to generate revenue through $8 per month subscriptions have not been successful, with less than 0.1% of users reported to be paying.
A more sensible approach would be to reduce debt payments. The most expensive portion of Twitter’s $13 billion debt load, an unsecured $3 billion, is linked to the secured overnight financing rate. When Musk made his offer to acquire Twitter, this rate was 0.3%, but it has since risen to 5.06%.
Yet, raising funds by selling new shares in Twitter or arranging a debt-for-equity swap would necessitate a substantial decrease in valuation.
What has proven successful? Musk’s personal Twitter account has gained even more popularity, with over 148 million followers. Additionally, as of late April, nearly 25,000 individuals were paying an extra $4 per month for his exclusive tweets. This devoted fan base might be willing to invest in Twitter at a high valuation, but it is unlikely that each individual has the $120,000 required to raise $3 billion.
If Musk still believes in his Twitter mission, he may need to consider selling a portion of his stake in Tesla once again.
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