Tesla CEO Elon Musk buys Twitter
The richest man in the world wants to realign the short message service.
Elon Musk’s $44 billion acquisition of Twitter is the third-largest tech acquisition of all time, and there has never been a major leveraged buyout before.
Musk has already secured $25.5 billion in loan commitments from a consortium of banks led by Morgan Stanley. And for a good part of the remaining sum, Musk will probably have to borrow Tesla shares.
The problem: such a “leveraged buy-out” entails high follow-up costs, which severely restrict Musk’s room for maneuver in implementing the apparently planned major changes on Twitter.
Bloomberg expert and former investment banker Matt Levine shows this in a rough calculation: according to his analysis, Twitter will have to pay a billion dollars in interest annually. This would leave less than a third of the projected cash flow of $ 1.43 billion for investments for the current year.
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So Twitter has to continue to make a lot of money just to bear the debt.
More freedom of speech, different advertising
“Freedom of expression is the cornerstone of a functioning democracy,” Musk said in the press release about the Twitter purchase. He also stated that he would not have excluded, for example, former US President Donald Trump from the platform.
The course seems clear: fewer users will be blocked in the future, Twitter will also offer more radical and untruthful messages a larger platform again. The greater transparency promised by Musk in the algorithms is also aimed in a similar direction: instead of moderating, Twitter simply discloses everything.
From the point of view of the pure numbers, this is a good thing for now: Twitter would have more users who spend more time there and fight even more heated controversies. There are currently 217 million users worldwide who are active every day.
However, this will also drive away advertisers. Chanel, Hugo Boss or Mercedes do not like to place their ads for perfume, suits and luxury cars next to false statements about the corona pandemic and right-wing extremist agitation.
Twitter generated about $4.5 billion in advertising revenue in 2021 – 85 percent of which comes from brand advertising. “Brands are becoming more and more aware of the reputational risk of risky content or misinformation and are shifting marketing expenses into secure channels,” says Kelsey Chickering, an analyst at Forrester.
More direct advertising and subscription models
One way out for Musk’s Twitter could then be to earn on the added users via direct advertising. Here, advertisers do not pay for the number of users to whom an advertisement is displayed, but for the users who actually click on the advertising link. For this advertising, customers pay significantly more money, the business field could grow with more radical users and advertisers interested in these.
More about the acquisition of Twitter:
Currently, however, Twitter only redeems 15 percent of the advertising budget, because direct advertising hardly gets along with the short message medium. On Twitter, discussions and content-related interactions with often strange people are in the foreground. A significantly worse advertising environment for coupon promotions and shop links than, for example, the image medium Instagram, where immediately below and above models and influencers present the products in a supposedly natural environment.
As a further way out, Musk could expand the payment models, such as Twitter Blue, which was introduced almost a year ago. Users receive additional functions for three dollars a month, for example, to be able to better organize tweets themselves.
But even that does not pay off so far. The US bank Wells Fargo estimates that the monthly fee would have to be almost six dollars for Twitter to be financed by user contributions – far too much money for a short message service. The user base would also shrink significantly with a mandatory contribution.
More: The richest person in the world buys Twitter – to realize his radical ideas