$13 Billion actually.
> and now is facing annual $1B interest payments
Estimated to be 10% APY given where CCC Debt was in April. But the details are sketchy and I haven't been able to get a better estimate than that. I've heard rumors of 50% fixed + 50% adjustable, meaning some of that debt can be as high as 16% right now (today, CCC Debt is going for 16% APY).
So we're looking at $1.3 Billion to $2 Billion in interest payments alone (let alone principal) by my estimate. I've been curious if anyone out there has been able to get a better estimate on Twitter's LBO debt.
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In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate).
This buyout may be headed in the same direction, and if it is, I conjecture it will have serious negative repercussions for Musk personally and his other companies. Everyone insists he's playing 5D chess with his moves, but a lot of his success depends upon the strength of his "reality distortion field."
In a very real way, he is successful because people think he's successful. A small failure here and a merger with another company there are merely blips. But a major failure that can be reasonably attributed to his "drinking his own kool-aid"[1] will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk.
[1]: Yes I am aware of the origin of the phrase.
Who is stupid enough to make these loans? How can they not see they won't get their money back?
I suspect it is a tax thing/way to move money, isn't it?
I wish I was this good at business.
"Making a small fortune is easy. You just have to start with a large fortune and then go into business."
I have no idea what average salary was there, but it looks to me like the layoffs don't even cover that.
At least one source I found says the average salary of Twitter employees is $97k. (US only total compensation is closer to $300k with an average of $270k. But a lot of that is probably stock options which now must be paid in cash).
So I would imagine the total savings are closer to $250m compared to when Twitter was public but maybe a lot more in savings vs what Twitter would have bled considering the stock options portion of the compensation would have had to have been cash.
So he might have had to sell ~$20B in stock to pay that extra $13B.
For this Twitter purchase, a lot of it was purchased using some Tesla stock as collateral, but he probably has a personal limit to how much stock he wants to leverage, and he continues to have a fiscal duty to Tesla investors to not over-collateralize his position on TSLA[1], so he probably tried to put as much of the company itself up as collateral for the loans he needed to take it private.
Note that Tesla's 10-Q [2] supports this theory: "If Elon Musk were forced to sell shares of our common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline."
Now this has happened before, particularly with Toys-R-Us when a private equity firm came in and did the same thing, using the business itself as collateral to get the loan that pays for all of the currently-public shares. This didn't particularly end well for the company[3].
0: https://www.sec.gov/Archives/edgar/data/1318605/000156459022...
1: if Tesla's stock price drops below the limit price the banks that have loaned to Musk have placed on their collateral, then the banks might not make back their loan amount+interest. There is a fiscal duty here because such an event with millions of TSLA entering the sell market, even over weeks, will tank the value of the stock
2: https://www.sec.gov/Archives/edgar/data/1318605/000095017022...
3: https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...
Some advertisers have paused buying, and the $8 blue check thing could help a little but there is major ground to make up and I don't know how it get's done in the short term. I'll be getting some popcorn, but I am rooting for Musk to figure this one out.
Twitter has 450 million users that log in at least once a month.
450,000,000 MDAU * $8 * 12 months = 43.2 Billion/year
But they won't sell 450 M check marks. If we take that 100% down to 1% (4.5M), you're back down to $432 MM / year, which isn't enough to cover the interest payment.
Are there even 4.5M who want a check mark? The current estimate is 420,000. That would be $40 MM / year. If you payed 10 people $200,000/year to support and develop features for the check mark, that would be $2 MM/year, and your profit would be down to $38 MM / year.
Let's say that you had one low wage screener for every 10,000 check marks (to make sure they have a good time and don't see too much spam) That would be 42 employees, add another 3 for management (but they get paid more). The screeners cost $20,000 each because they're offshore, so that's $840,000. Add another $200,000 for their management and that's another million a year down the drain.
If you want to run your own numbers, here's a sheet (make a copy): https://docs.google.com/spreadsheets/d/15WtfofzrEWE65nQH63_Z...
Get advertising completely out of the business model.
If they can cut costs and give people reasons to subscribe, it might work, but if I were the investor being pitched I would certainly have very pointy questions about their conversion rate. Personally I'd amp it to a straight $9.99 and cut all the ads for a subscriber, and the primary focus of my engineering over the next year would be trying to figure out how to incentivize subscriptions, preferably with new useful things not locking away too many existing features behind walls.
Still, I'd love to see one of these social networks succeed on a model where their users pay them money, instead of their subscribers. The incentives are just too perverse when the money comes from ads.
[1]: https://www.prnewswire.com/news-releases/twitter-announces-f...
Nobody is going to pay a monthly fee for a checkmark, I feel like I must be missing something because intelligent people are looking at this plan as if it's sensible while it sounds absolutely ludicrous to me.
[0] https://techcrunch.com/2017/01/12/app-net-the-ambitious-proj...
I doubt that 50% of the blue checks will pay, way less the ones without.
And Twitter still needs to verify the blue checks otherwise it becomes useless.
Average ad revenue on social networks for US people is about 10x the worldwide average.
This there are two confounding problems with paid Twitter: 1) If you let users that can afford the $8/mo pay to not see ads, you will lose more ad revenue than you gain in subscription fees. 2) The people that are bringing in less ad revenue than a subscription probably won't subscribe.
To think about it another way: if 25% of active Twitter users subscribe to the plan at $8/mo, they'll double their revenue.
My gut says that that's way optimistic, and a more reasonable expectation is 5-10% conversion. Even if you assume 5% conversion, that's a 20% increase in revenue coupled with a ~50% reduction in labor costs.
They sold Twitter at the perfect overvalued moment, for more than it was overvalued at. They’d be idiots not to do their best to close the deal.
It’s like if you sell a house last year at sky high prices, you shake on it with someone offering you a million more than the house is worth and the house is leveled by Godzilla in the meantime.
I agree.
Yet, if the argument in these comments is that Elon Musk is the Bad Guy(tm) because he overpaid for Twitter just as the Federal Reserve decided to start cranking up rates and as the world descends into recession, that argument ignores the elephant in the room.
And also, they did not knew Must will be so boneheaded about it all. He could have actually tried to make it look like he means to make twitter work.
Agrawal himself had 2.3% of the company, and gets a billion+ dollar cut of the sale.
Imagine how you would feel if you passed on the deal and twitter stock followed Facebook and other tech down the drain.
Edit: this is incorrect. Dorsey had ~2.3%, not Agrawal.
~500'000 out of ~765'000'000 outsanding shares = 0.065%
https://www.nasdaq.com/market-activity/insiders/agrawal-para...
(I previous gave a wrong number calculated using a different source - removed to avoid confusion)
Agrawal had 2.3% of the company, and cashes out over a billion on the sale.
Edit: this is incorrect. Dorsey had ~2.3%, not Agrawal.
Year Net profit / loss ($mm)
2012 -79
2013 -645
2014 -577
2015 -521
2016 -456
2017 -108
2018 1206
2019 1466
2020 -1136
2021 -221Or do you mean, "They were on track to be profitable?"
See Q2 2022 Results here, net loss was $270 million -https://s22.q4cdn.com/826641620/files/doc_financials/2022/q2...
It's still an open question whether Twitter will succeed with Elon, but it definitely wasn't a healthy company prior to the purchase.
Sucks for the employees that are collateral damage though.
personally I have already downloaded my data & started deleting my old tweets/likes: https://tweetdelete.net
who know where musk will sell this data to.
Heck, even cesspools are great if you use them right.
But it's not fun to be in a cesspool, and it's not fun to have a knife in you, and having a knife in you while you're in a cesspool is just about the worst.
"If bad things happen to you, it's because you're bad person. Billionaires wouldn't visit their anger on good people"
They don't appear to be without severance[1].
>Today is your last working day at the company, however, you will remain employed by Twitter and will receive compensation and benefits through your separation date of February 2, 2023.
>Within a week, you will receive details of your severance offer, financial resources extending beyond your Non-Working Notice period.
[1] https://www.businessinsider.com/read-blunt-email-telling-twi...
I'd consider three months' pay borderline "generous". I see two weeks' as the baseline, and anything over six weeks as "good".
My understanding of the WARN Act is that it requires 60 days "notice". It sounds like Twitter is giving 90 days notice along 90 days of mandatory PTO, effective immediately.
Having been laid off relatively recently (~2 years ago) and actively involved in hiring today, I expect that's not going to be long enough to seamlessly move to a new position, but it should be enough time and money to cut things back and weather the transition without dipping into savings - assuming you have savings, of course.
How does that affect other employment? Does this mean you can't go get another job until Feb 2, otherwise you have to quit (and receive no more severance)?
And just to double check: if I was laid off "normally" tomorrow and got some severance package, that package still comes by way even if I got a new job on Monday? For this hypothetical let's place us in California.
You should tell your new employer what's going on - they'll almost certainly run a background check and see it. But absent some specific odd situation, they aren't going to care.
> if I was laid off "normally" tomorrow and got some severance package, that package still comes by way even if I got a new job on Monday?
Technically, this would be subject to whatever terms your former employer wrote into the severance terms. But again, absent a weird situation, they don't care, they're just trying to get rid of you.
Does anyone know if part of these agreements includes not seeking other employment (a typical clause these days)?
A more common clause in California employment contracts for salaried employees limits outside employment to work that does not interfere with one’s job responsibilities, based on the idea that as a salaried employee that job should be your primary job
You think that if he paid completely up front he wouldn't care about cutting costs? Why? The pressure would still be there -- it would just be in the form of pressure to recoup his investment
To the very rich, cash is terrible because of the tax obligations. That being said, the whole Musk Tax rigmarole [0] is funny to me for various reasons. Musk's stated reasoning here is not quite correct, and somewhat self serving; at the same time, I think many people would not be satisfied even if Musk was taxed at 100% of his net worth.
0. https://www.cnbc.com/2021/11/07/elon-musk-faces-a-15-billion...
If you buy with debt, you have to pay every month (or year, or whatever). So obviously you have to either have deep pockets to pay out of pocket, or generate more cash flow, and you have to do it NOW, because the debt must be serviced now.
If you buy with cash and/or equity, you take on an opportunity cost, but you can afford to make longer-term investments, and you can afford to take your time with cost-cutting or other measures.
The pressure to recoup your investment is certainly there, but the urgency to generate cash-flow in the short term is not.
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All that being said, if Musk doesn't think Twitter investing in initiatives that will take a while to pay off, but he does think it needs short-term moves like firing everyone in sight and putting Trump back on the platform and getting rid of pesky "activists" who think "freedom of speech" includes telling advertisers that they face boycotts...
Well then, debt is clearly the winning move.
I've heard this taking point elsewhere.
I wonder if he really believes that. I don't; in my experience, adverts have become far more obvious — and far more commonly self-advertisements, e.g. Duolingo advertising it's own paid features — over the course of this year. Feels like all businesses are pulling back on all their expenses, advertising included, at the same time, not mere activism.
In addition to having to pay the interests on the debt usually you also need to keep some financial metrics within some predefined thresholds - facing penalties in case of breach.
Musk is a walking contradiction of his yesterday’s self.
Elon has owned Twitter for less than a week. What are your thoughts around declaring his ownership a complete failure?
Why does Twitter owe money to the banks, that was used to actually buy Twitter?
Anyone here who can explain this to me?
I would love to know the magic behind this. The next thing I will do is going to the Porsche dealer, finance a car and happily watch the monthly rate beeing paid from the dealer's account.
Increases risk and exposure for the company, but not Musk personally.
They'll give the loan to a new company you create and that company will be responsible for paying it back.
A buyout is just an extension of that.
Form a company, get a big loan, buy a bunch of luxury cars ... profit??
After you buy it, you don't just get to use it the way you want to all the time.
If Elon follows this model, all updates to the site will stop and the amount of advertising and other forms of money extraction from users will skyrocket, and then as the site bleeds out users he'll eventually sell the IP and any other assets before having the firm declare bankruptcy so that he doesn't have to pay back the loans.
Is there anything like old twitter out there? Twitter with an open API during the Arab Spring was kind of an amazing time. I guess really it's all about TikTok at this point for that sort of thing.
Okay, fuck this.
Thanks.
A more accurate version might be "Musk's inability to get out of a bad decision to buy the company".
None of this surprises me. For all of Elon's recent bravado about "free speech", he is a capitalist first and foremost. When it became clear he couldn't get out of it, I predicted he'd just follow the private equity playbook: cut costs, fold or sell-off non-core assets, saddle the company with complicated debt and then sell it off while claiming victory.
He'll probably retain all the power with a Silicon Valley share structure.
None of this is surprising.
I hope we cam go back to a more sane financial/investing world.
As I make that napkin calculation I cannot imagine actually 20M people being active enough on Twitter to justify paying 100$ per year for it. Especially if the price won't be catered to regional purchasing power.
musk has access to debt and is experienced enough to know how to employ that access to limit his (and his investors') risk exposure. this is literally finance 101.
with that said, should financial systems be tilted this way to favor the wealthy and their capital? no, probably not. while musk is an outlier, in general there's a weak correlation between successes if you take out this skewed access to capital. instead of a few hundred billionaires, we could have hundreds of thousands more of entrepreneurs founding and leading useful companies.
But having said that, I think if anyone can turn this around financially it's Musk. Hell put everyone through hell though.
Barring an unexpected rally in credit markets this year, the group of lenders, led by Morgan Stanley, Bank of America and Barclays, have conceded they will be stuck holding the debt on their books for months or even longer and will probably end up incurring huge losses on the financing package. "