Musk, give a sky-high gift

Jack Dorsey was extremely complimented with Elon Musk's unexpected acquisition of Twitter — a string of tweets praising Musk's acquisition. Since Twitter's board of directors accepted Tesla's $44 billion acquisition offer on April 25, Dorsey has issued a barrage of tweets praising Musk for transforming Twitter into a "good cause rather than a company" that "maximizes public trust and broad inclusion" and allows "the light of consciousness to illuminate more people."

Dorsey co-founded Twitter in 2006 and served as CEO until November 2021, and his comments are most telling, and he is deeply skeptical of Twitter's financial prospects. He called his own experience running the social media giant "my biggest regret" and expressed relief that Musk had "brought his ideas back from Wall Street," and Wall Street investors were quick to be concerned about Twitter's prospects. Perhaps most tellingly, he endorsed the current CEO, Parag Agrawal, for "lifting the company out of the impossible," though Dorsey did not specify what kind of mess he was talking about.

Twitter is a complete mess, which means Musk may have made Dorsey more than $300 million

Musk may see himself as the architect who was able to transform Twitter into a cathedral, giving the public the right to free speech in the cathedral. But as a business, Twitter is like a crumbling edifice with leaking pipes, faulty lines and possibly needing a complete rebuild to survive. Twitter's assets have doubled to $14 billion over the past four years, but it doesn't make more cash from its operations than it did before adding an additional $7 billion in capital.

Since 2018, its free cash has slipped from a positive $856 million deficit to a deficit of $379 million in 2021. Twitter's user base growth is slowing. From the beginning of 2019 to mid-2021, its "profitable active users" rose by an average of 10 million per three months. But in the 18 months to December 2021, that growth slowed by half. Meanwhile, costs for Twitter have skyrocketed. Twitter blamed the surge in costs on huge spending on the infrastructure and people needed to drive the next round of expansion.

Wall Street has no confidence in the coming of such a wave. From July 2021 to the news of Musk's bailout, Twitter's stock price fell by 50%. In the eyes of investors, Twitter's long-term performance in the history of big tech companies has been one of the worst. Since its listing in 2013, Twitter has provided shareholders with a cumulative return of negative 12.4 percent, compared to a total return of 206 percent on the S&P 500.

Despite poor operational data, Twitter's stock was still a typical example of an overpriced hot stock at the time of Musk's arrival. Given its negative earnings and cash flow, it's hard to justify Twitter's $32 billion market capitalization before Musk took office. In fact, David Treyner, CEO of investment research firm New Constructs, believes that based on fundamentals, Twitter shares are worth between $10 and $15 per share, less than a third of what Musk pays at best. Treyner told Fortune magazine: "Twitter is a glorified chat room, it hasn't grown yet. In order to get more profit, it needs to serve more ads, and a large number of ads seriously interfere with users, so users choose to leave. ”

Let's assume that without Musk, Twitter shares would have fallen to $15. In this case, the world's richest man gave Dorsey not $270 million, but $700 million more than Twitter's true value. Since Musk is turning Twitter into a privately held company, it's hard to say whether its value as a business will actually drop that low. But that's what Twitter's future holds.

While Dorsey was immersed in his good fortune, Musk's net worth was hit hard

Musk is likely to lose a lot of money on Twitter. He did not provide a blueprint for cutting costs, expanding its user base or otherwise improving the company's financial position. He could get bogged down by out-of-pocket financing Twitter's huge operating losses. But the biggest damage from his risky move to buy Twitter seems to be that the move will hit investor confidence.

Investors believe musk can achieve a near-miracle, which means that under Musk's leadership, Tesla has developed fast enough to prove that its valuation is far more than $1 trillion and will continue to grow on this basis. When Musk announced his stake in Twitter in early April, Tesla was trading at $1,080. By the close of trading on April 26, Tesla's trading price had fallen 19 percent to $876, wiping out $210 billion in market value.

Both Jack Dorsey and Elon Musk revel in Musk's high posture in the name of public service. The difference is that Musk's "act of justice" brought a huge sum of money to Dorsey, but at the same time, it jeopardized Musk's visionary business ventures and reduced the wealth they had, which was a miracle they created. (Fortune Chinese Network)

Translator: Zhonghuiyan - Wang Fang

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