The deal to sell Twitter to Elon Musk was made official this week in an operation estimated at $44 billion, but the purchase process could still take some time to complete. In addition to the business being subject to regulatory approvals from the United States, the entrepreneur will still need to shell out a gigantic fortune.
Musk is the richest person in the world, but he’s already being dubbed “America’s Most Indebted CEO”. This is because much of the money for the purchase of the social network will come from its own equity. The businessman is pledging to direct about $21 billion of his fortune to fund part of the acquisition. But what about the rest? Understand what is at stake.
How much money does Musk have?
The entrepreneur’s net worth is estimated to be around $250 billion. The amount basically comes from the division:
Most of Musk’s wealth comes from his shares in Tesla, the electric car company he founded. Another part comes from his stake in SpaceX, also founded by the entrepreneur with a focus on the aerospace market. Company, valued at nearly $5.7 billion.
Has Tesla Entered the Twitter Purchase Agreement?
In the agreement with Twitter, closed last Monday (25), Tesla shares entered as part of the guarantee of a $ 12.5 billion bank loan made by Musk for the acquisition of the social network.
This Friday (29), it was announced that the executive sold about US$ 4 billion of his shares in the electric car company. It is believed that this was done to raise more money for the Twitter business.
Challenge: the point is that since the beginning of the month, when Musk announced that he had bought 9.2% of Twitter, Tesla shares have dropped about 20%. This indicates that the market is worried about the entrepreneur’s new acquisitions.
The manufacturer’s share price plummeted 12.2% on Tuesday alone (26), the day after the closing of the Twitter purchase agreement. The percentage represented $21 billion less in the value of Musk’s stake in Tesla. In total, more than $125 billion was wiped out of the automaker’s market price with this drop.
In response to a comment about his Tesla shares, Musk tweeted, “No more TSLA sales planned after today.” Did he want to calm the market?
No further TSLA sales planned after today
— Elon Musk (@elonmusk) April 29, 2022
Is Musk in debt?
To buy Twitter, the financial transactions linked to the entrepreneur will be very high.
An estimated $90 billion of shares he owns are already involved in loans, according to research by Audit Analytics. That is about a third of his fortune.
Hence the nickname “Most Indebted CEO”. All this movement makes Musk the biggest debtor of stocks in dollars, considering the executives and directors of America.
With this scenario, the purchase of Twitter arrives as another debt in Musk’s financial portfolio. And Tesla investors remain concerned that the entrepreneur will have to sell more shares to finance the acquisition of the social network.
Investment in Twitter can be a trap?
According to a report by Fortune, Twitter revealed that it had a financial loss in the first quarter of this year (spent more than it earned). The company pointed to a 35% increase in quarterly costs and expenses, in addition to “burning” $35 million in cash in the same period.
What kept Twitter “alive” in recent months was the inflow of US$ 970 million in profit from the sale of its subsidiary MoPub – monetization platform, in January.
The social network also claimed that the totals of monetizable daily active users were wrong. That is, the volume of people generating money on the platform is not as high as the company believed it to be.
Adjusting the calculations, Twitter found 1.9 million fewer users within the category in the last quarter, as certain duplicate accounts were incorrectly accounted for. This sum also needed to be adjusted in the 2019 reports, which were faulty.
Challenge: For this whole context, there is fear that the social network will continue to cause more damage than profit.
What will be the future of the social network?
In February of this year, Twitter had set a goal of at least doubling its annual revenue to $7.5 billion or more by 2023, the Fortune report noted. In 2020, the company managed to generate US$ 3.7 billion.
The guidelines for Twitter’s next two years, however, were shelved shortly after Elon Musk’s purchase announcement. The social network also canceled its traditional quarterly earnings conference call, which would take place last Thursday.
Challenge: with the purchase, the billionaire will have a long way to go to make Twitter work. Paid posts and user subscriptions can be some alternatives for Musk to profit from Twitter.
Who will be in charge of Twitter?
It is still an unanswered question. The company’s current CEO, Parag Agrawal, said on Wednesday (27), after the acquisition agreement of Musk, that:
“I took this job to change Twitter for the better, correct the course where we need it, and strengthen the service. Proud of our people who keep doing the work with focus and urgency despite the noise”, (in direct translation into Portuguese).
I took this job to change Twitter for the better, course correct where we need to, and strengthen the service. Proud of our people who continue to do the work with focus and urgency despite the noise.
– Parag Agrawal (@paraga) April 27, 2022
*With information from The Guardian and Reuters.