Elon Musk’s revaluation of Twitter sounds like a sober admission of failure. A $20bn value pegged to new employee stock awards is less than half the amount he paid for the company. In reality, it is wildly optimistic. Value Twitter on the same metric as social media peer Snap and the equity is worth nothing.
When Musk closed his $44bn deal in late October, driven by what he called a desire to champion free speech, the digital advertising sector had already crashed. Between the date he offered to buy Twitter and the deal’s completion, Snap’s share price fell 65 per cent. Meta’s was down 55 per cent. Without Musk’s bid to bolster it, Twitter’s market value would probably also have halved.
Since then, ructions have intensified. While Meta’s revenue fell 1 per cent last year and Snap recorded a 12 per cent gain, Twitter’s is reported to have declined 40 per cent. The workforce is unhappy following large-scale job cuts. Parts of the crucial source code have been posted on GitHub, a hosting website for developers.
As a private company, Twitter does not have to report quarterly earnings. Because it is lossmaking, it cannot be valued on trailing profits. But Musk has previously said that Twitter’s revenue this year is projected at $3bn. Snap’s enterprise value is equal to just under four times forecast annual sales. Multiply Twitter’s $3bn by four and the enterprise value would be $12bn. This is below the company’s $13bn debt burden, leaving the equity without value.
Musk’s ambitions are undimmed. He claims Twitter will eventually be worth $250bn. It is hard to see where he will find the money to invest. He also needs cash to pay additional stock compensation while making $1.5bn of annual interest payments.
Musk is cutting costs. But the EU has told Twitter to hire more moderators to comply with EU rules. A plan to remove official user verification in favour of paid-for checkmarks will sow further confusion. At the moment, Twitter’s $20bn valuation is pure fantasy.
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