The acquisition has not yet been settled, and even if the acquisition is successful, Twitter will not bring business returns to Musk
Text | Gu Lingyu Li Biao
Edit | Liu Yiqin
On April 25, local time, the US social media platform Twitter announced that it had accepted Elon Musk's $44 billion privatization acquisition.
At present, the transaction has been unanimously approved by Twitter's board of directors, still awaiting shareholder and regulatory approval, and the entire transaction is expected to be completed within 2022.
It was one of the largest acquisitions in the history of the tech industry. After the transaction is completed, Twitter will be turned into a private holding company, and Musk will become the new owner of Twitter.
Twitter Chairman Bret Taylor said the deal would bring a substantial cash premium, and for Twitter's shareholders, "it's the best way forward." Musk said, "Freedom of speech is the cornerstone of the functioning of democracy, and Twitter is a digital city square that debates issues of vital importance to the future of humanity." ”
After Twitter announced his acceptance of the deal, Musk tweeted, "I hope that the harshest criticism of me can also stay on Twitter, because that's what free speech is about." To that end, he said he wanted to make Twitter's algorithm public and make the logic of content recommendation and moderation more transparent.
Privatization means that Musk is able to change Twitter as he thinks he wants, without being held accountable to the open market.
Since the beginning of last year until the eve of Musk's announcement of the acquisition of Twitter, Twitter's stock price has been slashed. However, driven by the news of the acquisition, Twitter shares continued to rise, rising as high as $52.290 and closing at $51.70, up 5.66%. That figure is already close to the $54.2 per share that Musk quoted. According to cryptocurrency media CoinDesk, Dogecoin has risen more than 20% in the past 24 hours because Musk has previously proposed to use Dogecoin for a subscription service that pays for Twitter.
As one of the world's most respected business leaders, Musk's "believers" expect that Twitter can expand Musk's influence from space and underground tunnels to social media that is closely linked to the public agenda, and even start a revolution about web 3.0.
What happens next when the world's richest man is about to take control of one of the world's most influential social media platforms?
Is it still possible to reverse?
From becoming a major shareholder of Twitter to reaching the acquisition deal, Musk only took three weeks, and usually this size of the acquisition takes 2-3 months.
However, this is not an easy task. In the ups and downs, the key to the success of Musk's acquisition is the use of leverage.
Beginning in March, Musk has increased his stake in Twitter and started using his Twitter account to talk about the company's operational flaws and ways of improving.
On April 4, Musk announced that it had acquired a 9.2% stake in Twitter for $2.89 billion, making it a majority shareholder. Affected by this news, Twitter's stock price rose by 27% in one day, setting a record single-day increase in the past four years, and Musk's own shares in Twitter also increased by nearly $800 million.
Ten days later, Musk offered to buy the remaining stake in the company at $54.20 per share, which was 38 percent higher than the price he paid when he initially invested. At this time, The Twitter board is still suspicious of Musk's motivations and sources of funding, because Musk has also proposed to take Tesla private, but eventually terminated because of insufficient funds.
On April 15, Twitter's board launched "Poison Pill Action," calling on shareholders to increase their investment in Twitter to reduce the impact of Musk's stake. If Musk wants to get more than 15 percent of the shares, he needs to negotiate with Twitter's board.
At one point, the plan was close to effective. However, a few days later, on April 21, the turning point took place. Musk announced more than $46.5 billion in acquisition financing, including $13 billion in bank loans and $12.5 billion in Tesla mortgages, the rest of the funding is not disclosed, and it is widely believed that Musk sold a portion of Tesla stock.
This is undoubtedly a bold move. Although Musk currently has a personal wealth of about $263 billion or so, these short-term loans are expensive, and if Twitter keeps delaying the transaction, Musk will pay a high price.
However, after raising funds, Twitter's board changed its attitude because "the board's fiduciary duty is to get the maximum value for shareholders." Acquisitions thus enter the fast lane.
Musk's speed raises suspicions that he is trying to evade regulation. An American lawyer told Caijing Eleven that the equity deal would not be completed until the shareholder change registration was completed. At present, before the dust settles on the transaction, the risk concern of the US legal community is that Musk did not submit the initial equity in time and announced his acquisition plan online in advance, which violated the disclosure rules. That is, shareholders can file a private lawsuit as long as it is proved that these violations have caused harm.
But that could only boost Musk's acquisition, with Bill Baer, a former U.S. antitrust official, said in an interview with the media that regulators may investigate the deal but are unlikely to sue to block it.
Unlike previous regulatory prosecutions for Facebook's acquisition of potential rivals Instagram and WhatsApp, this is not a deal that would trigger antitrust regulation because other companies under Musk's name are not in competition with Twitter.
On April 25, Musk tweeted that SEC officials were "shameless puppets."
Why Twitter
Musk, who has more than 80 million followers on Twitter, has made a variety of remarks on Twitter, including talking about his own company's business, his views on the COVID-19 pandemic and the future of humanity, and has also attracted SEC investigations for the huge impact his words have had on the stock market.
Still, Musk has always argued that the freedom to speak on Twitter is far from enough.
Earlier, Musk said in a letter to the chairman of Twitter's board of directors, "I believe (Twitter) has the potential to become a platform for global free speech, which is a top priority for a functioning democracy." However, "in its current form, the company will neither thrive nor serve this imperative." ”
So Musk wants to reform Twitter, and buying and going private is his first step.
Cary Cooper, a business professor at Manchester Business School, was quoted as saying that such a scramble for social media is not common when considering acquiring a large business, but it is also not common for Musk himself. "He's not a traditional businessman, he's a very creative and innovative person, he's a unique person who does things in a way that ordinary businessmen don't do. He wouldn't play the ordinary game that an entrepreneur would play. ”
Recently, Musk talked about the acquisition in a TED talk in Canada, saying that it is not to make money, but to create a public and inclusive platform, and he also elaborated on plans to build Twitter's algorithm into an open source model, including allowing users to view the code and show how certain tweets appear on their timelines.
Predictably, the companies Musk built have become platforms for him to promote and practice what he cares about, and now Twitter may be the next such platform.
How business-worthy Twitter is
Twitter is not a company with high commercial value.
In 2006, Twitter was incubated from the blogging company Odeo. After a series of iconic events such as the highlight of the music festival, the explosion of early users, and the return of the founder after the exit, the company has never lacked attention and discussion.
Both competitors and capital markets attach great importance to Twitter. "Deciphering Instagram" (by Sarah. Fryer) book mentions that Facebook has twice tried unsuccessfully to acquire Twitter, and chose to acquire Instagram to compete with it.
In stark contrast to the high expectations of the outside world, Twitter's struggles with commercialization. Incubation Twitter, which documents the company's early entrepreneurial experience (by Nick S. Thompson). According to The Book, one of the big problems plaguing Twitter is "getting this high-growth company to learn to make money." Several changes in the company's early CEOs and internal disputes have also been related to this.
Until Twitter went public in 2013, the problem persisted. Its prospectus discloses that twitter had revenue of $317 million and a net loss of $79.4 million in 2012, based on its 230 million monthly active users. Revenue for the first half of 2013 was $254 million and a net loss of $69.25 million. In terms of annual revenue compared to the market capitalization of the IPO, Twitter is about 1/77. Facebook was 1/28 of the previous year's listing, and Snapchat, another social media platform that went public in 2017, was 1/81.
From last year's data, Facebook's full-year revenue in 2021 reached $117.9 billion, with Twitter accounting for less than one-twentieth of it, at $5.08 billion, and a net loss of $221 million. Among the top ten worst-performing technology stocks in the S&P 500 in 2021, Twitter made the list, and the stock price fell 18% for the year. At the same time, the company's CEO Jack Dorsey also announced his resignation at the end of the year.
The expectation that business value is hard to reach is a common recognition of Twitter. Barron's cover story noted "when will Twitter be worthy of its name," and former CEO Jack Dorsey commented that "twitter has not achieved advertising revenue growth commensurate with user growth." ”
By the end of 2021, Twitter said it had 217 million monthly active users, up 13% year-on-year. By the end of 2023, Twitter expects monthly active users to exceed 315 million. With Twitter's continued active performance in a series of hot topics such as the US election, the new crown epidemic, and cryptocurrencies, the capital market generally believes that the value of Twitter is based on high attention.
Based on Wall Street's usual price-to-sales ratio (total market capitalization divided by revenue from its main business) to calculate internet company valuations, Twitter's valuation is 6.5 times its expected revenue, lower than the social media industry average of 8.5 times.
Judging from the financial performance of the listing so far, Twitter has never been able to fully realize the commercial value of the social giants. Twitter's profitability and prospects in the existing model may not be a piece of cake for Musk.
What happens after that
After the acquisition was officially announced, Tweet co-founder Biz Stone posted a picture feed with the caption "Start, Now."
The picture on the left shows the Twitter founder team, from left to right: Evan Williams, Jack Dorsey, and Biz Stone
For the next plan, Musk mentioned in the acquisition press release, "I want to make Twitter better than ever by enhancing the new features of the product, increasing trust by algorithmic open source, reducing emails, and authenticating everyone." He did not mention the substantial adjustment of the commercialization path and profitable business.
For these visions, a number of mainstream media have posted that Musk's acquisition of Twitter may have a huge impact on the global political discourse environment. However, this impact cannot be judged to be positive or negative at present.
In 2013, Amazon founder Bezos acquired the traditional media outlet The Washington Post. Judging from the changes after the acquisition, in addition to following up with other newspapers to adopt a paid model, Bezos has not directly reformed the actual operation and business model of The Washington Post.
The acquisition brought Bezos an evaluation of "trying to expand political influence" and "swaying public opinion". Former U.S. President Donald Trump has repeatedly accused Bezos of the Washington Post, questioning the independence of the media and criticizing the manipulation of reports by Internet companies.
However, from a business perspective, Twitter, which is not profitable on its own, may generate revenue for Musk's huge business landscape.
In addition to Tesla, the world's largest electric car maker, and Rocket Company SpaceX, Musk's current businesses include solar energy company SolarCity, brain-computer interface company Neuralink, underground tunnel company The Boring Company, and the nonprofit OpenAI. These businesses revolve around the commercialization of cutting-edge technologies and are closely related to Musk's repeatedly emphasized vision of a clean energy world.
The way information is distributed has changed, if the current world we live in is likened to a network that is closely connected to each other, Musk is trying to expand his influence by occupying key nodes in it, through personal IP shaping and topic creation. Whether it's its commitment to autonomous driving or repeatable rockets, the commercialization of these technologies is far from enough to rely on the power of a few people, and popularization must be based on industry consensus.
From this perspective, the acquisition of Twitter is not one of the puzzles, but it can glue these puzzles more tightly and create indirect revenue.
The British "Guardian" commented that "whether it is buying the Washington Post, or acquiring Twitter, or owning Fox News, it is just that the rich want to increase their personal influence and expand their voice", and the acquisition of Twitter is "equivalent to buying one of the world's largest megaphones" for Musk.
According to the relevant documents of the acquisition, the main body of the company implementing the acquisition is X Holdings, which has just been registered and may become the parent company of Tesla, SpaceX, Twitter, Neuralink and The Boring Company in the future.
The author is a journalist and intern for Caijing