Twitter: uncreative destruction poses balance sheet challenge to Musk

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Elon Musk had a radical plan for sorting out Twitter’s balance sheet. He slashed Twitter’s workforce, nearly halved cloud computing costs, introduced subscriptions and championed his version of free speech. But the social media group’s cash flow remains negative, according to Musk himself. And a rival platform is scooping up users.

Since taking Twitter private in October last year, the entrepreneur has provided financial updates in dribs and drabs. Last year, he said revenues in 2023 would be around $3bn, down from $5.1bn in 2021. Musk now says ad revenue has halved.

Linda Yaccarino, former head of advertising at NBCUniversal, has taken over as chief executive. But she has not brought a slew of advertisers with her. Corporations remain anxious about toxic content. 

Nor has Musk lured popular creators away from rival platforms. Online celebrity MrBeast posts on Twitter. But he saves his videos, the content that attracts fans and advertisers, for YouTube. Meta’s new app Threads adds to the competition. 

Even after cutting non-debt expenditure by two-thirds, Twitter’s $1.5bn in annual debt payments mean costs exceed the sub $3bn revenue forecast implied for this year. 

What else can the boss of electric vehicle maker Tesla do to rescue his side gig? Closing Twitter’s offices would reduce costs further, but he is opposed to employees working from home. Efforts to raise revenue via $8 per month subscriptions have floundered. Under 300,000 people are reported to pay — less than 0.1 per cent of users.

Reducing debt payments would make more sense. The most expensive, an unsecured $3bn part of the $13bn tacked on to Twitter’s borrowings in the buyout, is tied to the secured overnight financing rate. This was 0.3 per cent when Musk offered to buy Twitter. It is now 5.06 per cent.

But raising cash by selling new shares in Twitter or securing a debt-for-equity swap would require a stomach-churning reduction in valuation. 

What has worked? Musk’s own account is more popular than ever, with over 148mn followers. As of late April nearly 25,000 people were paying an extra $4 per month for his tweets too. This army of super fans might be willing to buy equity at a high valuation. But they are unlikely to have the $120,000 each required to raise $3bn.

If he still believes in his Twitter crusade, Musk may once again have to sell some of his stake in Tesla.