Scott Kessler, global lead analyst for TMT sector companies at research firm Third Bridge, suspects there could be job losses at Twitter after the deal.
Elon Musk’s push for ‘free speech’ could mean less content moderation, Kessler points out, although that could also scare off advertisers.
Also, Musk may need to use Twitter’s cash flow to service the debt he’s using to partly fund the deal.
- Yesterday’s press release indicated that Musk would use more than $25bn in debt and margin loan financing to buy Twitter. It already has $6bn in debt. However, the company generated only around half a billion dollars in adjusted free cash flow over the past three years combined. Last year Twitter generated negative adjusted free cash flow of more than $350m. Pre-pandemic, in 2019, the company generated less than $800m in adjusted free cash flow. This suggests that Musk may look to layoffs to help generate cash flow.
- Twitter has some 7,500 employees, and prioritizing free speech and open source algorithms could lead to considerable layoffs, especially around content moderation efforts. Musk would be able to build out his vision and save money at the same time. Experts we’ve spoken with have indicated that the health and safety initiatives within the company have taken up considerable resources.
- However, the potential importance of cash flows could cause Musk to be less aggressive in terms of shifting Twitter’s business model from advertising to subscriptions. Nonetheless, less content moderation may prompt advertisers to pause or reduce their spending on Twitter.
Shares in Tesla have tumbled over 9% today as investors fret about the impact of the Twitter deal on the electric car maker.
Elon Musk’s financing package includes a $12.5bn loan secured against his Tesla stake. It also includes $21bn of cash, which has raised the possibility Musk might need to sell some Tesla shares to raise equity if he doesn’t line up other investors.
The FT has more details:
In morning trading on Tuesday, more than 18mn Tesla shares changed hands, worth more than $16bn. That was more than four times the level of the next highest traded stock by value: iPhone-maker Apple.
Musk and his bankers at Morgan Stanley have been sounding out other investors who may want to invest in a privately held Twitter alongside him, which would reduce the size of the cheque he ultimately has to write himself, according to people briefed on the matter.
Shares in Twitter have dipped in early trading, away from Elon Musk’s deal price of $54.20.
Twitter shares are down 1.8% at $50.74, having yesterday jumped over 5.5% as news broke that Twitter was accepting Musk’s offer.
As flagged earlier, the gap between the stock price and Musk’s offer may reflect some risk that the deal doesn’t complete.
Tech shares are under pressure generally, though, with the Nasdaq Composite down 2% as investors brace for results from Big Tech firms such as Apple, Microsoft, Amazon and Alphabet this week (including Alphabet after the market close).
Could Donald Trump, Katie Hopkins, David Icke and Alex Jones all be welcomed back to Twitter once Musk has taken control?
These are just some of the Twitter accounts that could be reinstated if the platform’s new owner-in-waiting, “free speech absolutist” Elon Musk, practices what he preaches, our global technology editor Dan Milmo writes.
All of those accounts have been permanently suspended from the platform for infractions that include, most notoriously, the former US president’s alleged support for the Capitol riot on 6 January last year. Their reinstatement now appears to be back in play given that the world’s richest man has agreed a $44bn (£35bn) takeover of the platform that banned them and has stated that “free speech is the bedrock of a functioning democracy”.
Trump said on Monday he has no intention of rejoining Twitter and is sticking with his rival TRUTH Social network, but Musk may give him an opportunity to recover his more than 88 million followers.
Speaking at a TED conference this month, Musk said he was was “very cautious with permanent bans” and would prefer a timeout system for account holders who break Twitter’s conduct guidelines. Given that Hopkins, a British rightwing commentator, was permanently suspended for breaching the site’s “hateful conduct” policy, her readmission would immediately lessen the stringency of rules in place to prevent threats against people on the basis of “race, ethnicity, national origin, caste, sexual orientation, gender, gender identity, religious affiliation, age, disability, or serious disease”.
Here’s the full story:
Brussels has warned Elon Musk that Twitter must comply with the EU’s new digital rules under his ownership.
EU’s commissioner for the internal market, Thierry Breton, says Elon Musk knows well that companies operating in Europe must stick to its rules, including the Digital Services Act which will force major technology firms to tackle illegal and harmful content online.
Failure to comply with the DSA, agreed last weekend, could mean a fine, or even a ban — a sign that we could see a global regulatory battle over Twitter’s future.
European Commission spokesperson Johannes Bahrke has echoed this point at a news briefing:
“Our Digital Services Act applies to all major platforms, to ensure their power over public debate is subject to democratically validated rules to better protect fundamental rights online,”
The DSA is expected to come into force in 2024, and includes:
- Banning advertising aimed at children or based on sensitive data such as religion, gender, race and political opinions.
- Allowing EU governments to request removal of illegal content, including material that promotes terrorism, child sexual abuse, hate speech and commercial scams.
- Forcing social media platforms to allow users to flag illegal content in an “easy and effective way” so that it can be swiftly removed.
A company failing to comply could be fined up to 6% of its global turnover, or be banned from operating in the EU for repeatedly breaching the rules. Twitter posted annual revenues of $5bn last year, meaning it could be fined around $300m.
Breton has also told the Financial Times that Elon Musk must follow rules on moderating illegal and harmful content online.
Breton said he wanted to offer a “reality check” to Musk’s plans for less stringent moderation, saying:
“We welcome everyone. We are open but on our conditions. At least we know what to tell him: ‘Elon, there are rules. You are welcome but these are our rules. It’s not your rules which will apply here.’”
Responding to the news of Elon Musk’s deal, Downing Street said that “regardless of ownership, all social media platforms must be responsible”, PA Media reports.
“That includes protecting users from harm on their sites,” the Prime Minister’s official spokesman said.
“It is too early to say what – if any – changes will be made to how Twitter operates.
“It remains an important tool, it’s used by world leaders, and we will continue to work with them to make sure it continues to improve.”
It was “entirely a matter for Twitter” whether former US president Donald Trump’s account was reactivated, the spokesman added.
Andy Burrows, the head of child safety online policy at children’s charity the NSPCC said urgent clarity was needed over what approach a Musk-led Twitter would take to tackling online abuse.
Burrows says ‘proper regulatory guardrails’ are needed, with appropriate checks and balances to ensure platforms tackle illegal behaviour:
Twitter co-founder Jack Dorsey has backed Elon Musk’s controversial $44bn (£34bn) takeover of the micro-blogging platform, describing the billionaire as “the singular solution I trust”.
The 45-year-old, who co-founded the company in 2006 and floated it on the New York Stock Exchange in 2013, said it has been “owned” by Wall Street and that Musk’s deal struck on Monday to take it private was the “correct first step”.
However Dorsey, who stepped down as Twitter chief executive in November and will receive a $978m payout for his 2.4% stake when the deal is completed later this year, said that ultimately “in principle I don’t believe anyone should own or run Twitter”.
“It wants to be a public good at a protocol level, not a company,” he said, in a series of tweets.
“Solving for the problem of it being a company however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.”
Parag Agrawal, who took over from Dorsey as chief executive, has told staff that their jobs are only safe for about the six months it will take to get the deal is done.
“Once the deal closes, we don’t know which direction the platform will go,” said Agrawal, who is in line for a $38.7m pay package due to a “change of control” clause in his contract.
London mayor Sadiq Khan has warned this morning that ‘free speech cannot mean a free pass for hatred’ – a sharp reminder of the importance of moderating online communities.
AJ Bell’s Russ Mould also has a neat Wilde analogy for the Twitter deal:
“It isn’t a case of the unspeakable in pursuit of the uneatable, as Oscar Wilde once described fox-hunting, but Elon Musk’s campaign to buy Twitter could be seen as the unpredictable chasing down the unprofitable.
“A price tag of $44 billion compares to forecast net profit of just $112m in 2023 and $324m for 2023, equivalent to a price/earnings ratio of well over 100 – a huge premium relative to a US equity market which trades on forward multiples of earnings in the mid-20s (and mid-30s, according to Professor Robert Shiller’s cyclically adjusted price earnings, or CAPE, ratio).