Since going public in 2013, Twitter has been profitable only sporadically. Does your purchase by Elon Musk offer more positive financial prospects for the social network?
In mid-April, the billionaire stated during an interview at the Ted2022 conference that his decision to buy the company has no economic motivations.
“It’s not a way to make money,” defended the Tesla CEO. “I simply have a strong intuition that having a platform that is public and open to the greatest number of people is extremely important for the future of our civilization,” he said.
On the New York Stock Exchange just under 9 years ago, Twitter had losses every year, except for 2018 and 2019, when the group made just over $1 billion in profit.
Bought by Musk for 44 billion dollars, it is a modest company in relation to Facebook, whose market capitalization is more than 500 billion dollars.
Twitter’s revenue comes mainly from advertising, but the platform does not attract enough Internet users to earn significant revenue.
At the end of 2021, Twitter had 217 million “monetizable” users, that is, exposed to advertising on the platform, a far cry from Facebook’s nearly 2 billion users.
Twitter will publish its first-quarter results on Thursday. Wall Street predicts earnings of three cents per share and earnings of $1.2 billion.
Even if profitability does not seem to be Elon Musk’s priority, the richest man in the world will at least try not to lose money, particularly since part of the purchase will be financed with his own resources.
In a document presented to the market’s regulatory authorities last week, the businessman said he had 46.5 billion dollars: 21 billion from his personal fortune and the rest from loans from Morgan Stanley bank and a banking group formed by Société Générale and the BNP Paribas.
Musk didn’t elaborate on how he plans to increase Twitter’s revenue, except for a tweet in which he suggests lowering the price of the network’s paid version, Twitter Blue, currently $2.99 a month; grant a certified account to paying subscribers and suppress advertising to those users.
Shortly after, he deleted the message.
Another avenue would be to reduce the number of Twitter employees, which could meet its desire to ease the moderation of content on the platform.
At the end of 2021, the Californian group had 7,500 employees worldwide. According to a study by the New York University School of Commerce, Twitter employed around 1,500 moderators in 2020.
It could also look to increase user growth and advertising revenue, or develop new paid features on the platform.
“He has his own plan in mind,” says Angelo Zino, an analyst at CFRA. “If you can implement a model with subscription offerings while keeping the free options, it might work,” he said.
By financing a major part of the purchase with credits, Musk will increase Twitter’s debt level.
The financial rating agency S&P indicated on Monday that it may lower the social network’s credit rating, currently at BB+, and put it on a negative outlook.
For Zino, the main question is not so much about Twitter’s debt but how Musk’s personal contribution will be made.
The billionaire could partner with other investors so as not to jeopardize part of his fortune.
“If he can bring in other bright spirits” to the company, “it will probably increase its chances of success,” Zino concluded.