Musk and Twitter; Twitter and Musk. A stormy idyll that seems to have signed its last chapter. Or not.
Silly, there’s been over three months of continuous soap opera which, except for one new storyline twist and of course never ruled out, will end with their separate paths. Or, at least, less together, because it must be remembered that Musk remains the second largest shareholder of the social network company.
Elon Musk announced this week that he is ending his twitter purchasenews that caused the company’s shares to fall more than 6%, putting them at a low of $36, well below the $54.20 Musk was offering in his attempted purchase.
It’s not just Twitter bots to blame
On the horizon, a tumultuous medium-term future that seems almost certain to go to court. Musk ended the deal based on Twitter’s denial to provide complete data about fake bots or spam accounts. This data is essential because it determines how many of your users can actually be monetized.but they also seem to have served as an excuse on a silver platter for a Musk who has seen how many other of his businesses have changed in a matter of weeks due to the current economic environment.
Let’s start by getting inside Musk’s head. The concern about bots is legitimate. Most of Twitter’s revenue comes from advertising (93% in the first quarter of this year). If Twitter can’t guarantee that the majority of the ad audience is human, the price companies are willing to spend on ads is dramatically reduced.
Twitter has long claimed that the number of bots was less than 5% of the total number of users, but Musk wanted to confirm those numbers for himself and ended up variously claiming that was wrong.
It is not the first time Twitter is struggling to ratify its own data. In the first quarter of this year, it reported monetizable daily active users (mDAUs) of 229 million. However, they also had to revise the previously reported mDAUs for the last five quarters due to an error in the way they were calculated. This error leads to diminishing confidence in management’s ability to report its users accurately. All this within a board of directors which has not finished displaying a clear course and which, after obtaining Dorsey’s Departuresailed with the appearance of looking for sale.
However, one cannot ignore from the equation that Musk saw along the way what was his biggest stronghold, with which he intended to make the purchase, devalued. We are, of course, talking about Tesla shareswhich for a variety of reasons—including the current environment, earnings, but also Musk’s exposure from buying Twitter—has fallen from around $1,000 per share in April to $700 today.
On the other hand, the Twitter address won’t pass up a bid of $54.20 per share and has already said it will at least exercise the commission claim for breaking the billion dollar deal that Musk pretends not to pay. Twitter’s board of directors responded by issuing a letter stating that Twitter had not violated any of its contractual obligations. He also claimed that Musk and his team “knowingly” and “willingly” violated the terms of the original contract.
Everything indicates that things will go wrong and that it may end up in court.
Although not legally required to do so, the letter did not reveal whether Twitter had in fact provided Musk with the user data he requested. Whether or not that was intentionally left out, it leaves those of us on the outside wondering what’s really going on.
How can the soap opera continue?
As mentioned above, this acquisition is likely to end up in court. This battle would result in significant legal costs and attrition in many ways from Musk and Twitter executives.
Different analysts have proposed ways to solve this problem:
- Musk (or Twitter) pays the $1 billion breakup fee, and each entity goes its own way without the long, drawn-out court battle.
- The courts are forcing Twitter to reveal the data Musk wants, which still leaves open the question of whether the address was true or not, leaving Musk a door to go back further.
- The courts are siding with Twitter, and Musk should decide if he wants to pursue the acquisition.
Neither option is ideal, and with growing animosity between the two sides, each may want to agree.
The outcome of this war between Musk and Twitter has enormous consequences: The lawsuit would determine who controls one of the most influential social networks in the world – with its problems, but – and how the company, which had problems long before Musk, will make money and continue to grow or nope.
Twitter’s board has a fiduciary responsibility to its shareholders — that’s why it agreed to the original deal, and that’s why it’s going to court to enforce it — but Twitter isn’t. any for-profit business. It’s a globally significant communications platform that, on top of that, has enough issues to be profitable.
For now, it seems like everyone is a loser. The Twitter address is a tightrope. The layoffs began amid the current economic situation. And its advertisers don’t want to spend money until the drama is resolved, hurting Twitter’s business.
Musk remains Twitter’s second largest shareholder
Musk is also losing because he agreed to buy the company for $44 billion and now he wants to jump ship. He has a court case ahead of him because he offered and pressured the sale at the agreed price, secured financing for it, signed a binding agreement to buy it and now wants to leave.
Musk’s other companies – Tesla and SpaceX – are partly exposed for this. Added to this is that he is still the second largest shareholder, so he also loses with this depreciation of the shares.
Twitter accounts aren’t flattering either
Unlike user data, financial data is much easier to audit. However, they aren’t much better either.
In the first quarter, revenue grew 16% year over year to $1.2 billion. But spending grew faster, by 35%. This increase is mainly due to a staggering 60% increase in equity compensation, diluting shareholders.
Additionally, Twitter was profitable in the first quarter, but only because it sold MoPub (a mobile ad serving platform) for $1.05 billion. Without it, it would have lost about $128 million in the quarter..
Could another buyer appear?
So, the other question that lingers in the air is whether another potential buyer might appear on the horizon. weeks ago we already made a fictional game about it.
First, possible candidates who might be more realistic should be eliminated so as not to fall into a possible monopoly conflict that would prevent the purchase from being approved by regulators. This practically excludes Meta or Google, but surely also Microsoft, the giants who already have legs in the social networks and the advertising market.
Amazon has never exposed itself too much to the shopping possibilities of a social network, but given its enormous economic capacity, it could never be left out of the equation.. Current Amazon CEO Andy Jassy said a few weeks ago that “it looks like someone else is going to own Twitter” when asked on CNBC.
Although, say, more than Amazon, the real contender from the e-commerce giant is its founder. Jeff Bezos bought the Washington Post with his personal fortune to run it separately from Amazon, and he has enough money to run something like that. Amazon has been making bigger and bigger acquisitions lately, like MGM, which closed this year. It could be a game to see how many deals he could get from regulators in Washington. Also, Amazon doesn’t have many matches with Twitter.
Investment group Elliott Investment Management is still on Twitter’s shareholder list. It was a headache and onstage review for Jack Dorsey and, if they had the money, you can’t say they wouldn’t like to have all the cake.
Salesforce, after its acquisition of Slack, could be another great candidate, even if all the purchases it has made in recent years could jeopardize a new mission. However, he has ties to Twitter, whose board includes Bret Taylor, who also sits on the Salesforce board.
Oracle has a similar approach, although a big but. He tried to take over part of TikTok in 2020, when Donald Trump wanted to make it part of the Chinese American social network. But like Microsoft, Oracle is in the midst of a big acquisition; agreed to buy Cerner for $28.3 billion last year and has yet to clear all regulatory hurdles. Another consideration: co-founder Larry Ellison is close to Musk, with a large stake in Tesla and a seat on its board, in addition to being one of the tycoons who would help finance the purchase.
PayPal also surprised investors when it considered acquiring social media company Pinterest last year, so… speculating: why not Twitter? It is looking for acquisitions to diversify. Could you consider buying Twitter and introducing your shopping and payment platform to the social network?
What has become clear to us over the past three months is that with Musk and Twitter, anything can be. And, of course, the soap opera may have only signed its prologue.