The social network hasn’t made any money for two years. It is neither the most popular nor the most profitable social network. But Elon Musk made it personal. He will buy Twitter at all costs… Since he received the agreement from Twitter’s board of directors, the billionaire has been touring banks and investors to finance his $44 billion takeover bid. On Thursday, May 5, he claimed to have secured 7.4 billion dollars from several of them, including Larry Ellison, the founder of Oracle, or the Saudi businessman, Al Walid Ben Talal.
Even for the richest man in the world, finding funds has not been easy. According to the document sent Thursday to the SEC, the policeman of the American stock market, Elon Musk should commit up to 21 billion of his personal fortune. In order to complete this sum, twelve banks, including BNP Paribas and Société Générale, agreed to grant him two separate loans for a total of 25.5 billion dollars. The contractor therefore has, to date, more than 46 billion dollars to finalize the takeover of Twitter.
One of his loans must still be granted to him by Morgan Stanley, the architect of this operation, on the condition of selling part of his shares in Tesla. By appealing to private investors, Elon Musk therefore succeeded in lowering the amount of this loan and reducing the risk of this operation for his personal fortune. A victory all the more important that this loan will weigh directly on the future of Twitter. It is the company, in fact, that will be asked to repay this loan of 6.5 billion dollars.
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The profitability challenge
For a company that hasn’t made a profit recently, the pill might be hard to swallow. The billionaire’s takeover offer comes at a sensitive time for the group’s 7,000 employees, based in 35 offices around the world. It must be said that Twitter has been going through a period of transition since the departure of its founder, Jack Dorsey, last November. His successor, Parag Agrawal, assured that he would remain in post until the end of the deal, which could take between four and six months, according to the New York Times.
But in what state will Elon Musk find the company? Twitter still hasn’t found the formula to become profitable. Despite its 229 million subscribers, the publication of its results on Thursday, April 28, once again confirmed this. The platform is gaining users all over the world – 80% of its new subscribers are outside the United States – but it still fails to monetize them effectively.
Since its creation, Twitter has only had two years of profitability, in 2018 and 2019. Despite an estimated turnover of more than 5 billion dollars, the company has still not returned to equilibrium. Last year, it posted an operating loss of $221 million. Expenses partly related to litigation, opposing it to one of its former shareholders in the United States.
The Twitter model struggles to diversify its sources of income. Currently, 92% of its revenue comes from advertising. In the last quarter, it brought him nearly $ 1.1 billion, an increase of 23% compared to the same period in 2021. A stable trajectory, supported by the constant growth of its number of subscribers.
« In five years, Twitter has managed to double its turnover, develops Nicolas Rieul, president of the Internet Advertising Bureau (IAB). The platform has managed to stand out from Facebook with advertisers. » But for Ned Segal, Twitter’s chief financial officer, the platform could still significantly increase its revenues to reach the 7.5 billion mark next year.
Reassure advertisers
This beautiful business plan is upset by the arrival of Elon Musk. The billionaire claims to have no « economic interest » in this operation. « It’s not for the money » that he pledged to buy Twitter, he insisted during a TED conference, organized on April 14 in Vancouver, Canada. « I just have a strong intuition that having a platform that is public and open to as many people as possible is extremely important for the future of civilization. »
What awaits the social network is not yet clear. The entrepreneur expressed only a few vague ideas on how he intended to improve the interface, such as introducing a button to edit his tweets, or lowering the price of the paid offer Twitter Blue to attract more subscribers. However, for the moment, Elon Musk has also not discussed his strategy for the group with the board of directors.
Let’s make Twitter fun!
— Elon Musk (@elonmusk) April 28, 2022
The billionaire certainly wants to free speech on Twitter, but he is not a philanthropist and will not accept that the platform loses money indefinitely. “These statements do nothing to reassure advertisers, notes Thomas Jamet, director of the marketing and media agency, Mediabrands, a subsidiary of IPG. Twitter cannot afford to remain a Wild West where violent content and fake news proliferates.
A contradiction that Elon Musk will have to settle, if he wishes to straighten the margins. But other challenges await him on the advertising front. « The Twitter management remains underdeveloped compared to its potential audience, continues Thomas Jamet. In creative terms, the content of the advertisements is still a little dry there compared to Snapchat or other media that have invested in video » .
The sale of the mobile advertising application, MoPub, owned until January by Twitter, for 1.05 billion dollars, to AppLovin should allow it to make new investments. “Now that the sale of MoPub is finalized, we will focus our efforts on improving advertising on our platform,” promised Bruce Falck, its director of monetization.
Scattered Objectives
Technological innovation remains one of Twitter’s weak points. In recent years, the platform has abandoned many projects in the process of experimentation. This was the case with ephemeral video content modeled on Instagram’s « stories », with Fleet, deactivated in July 2021. The lack of innovation had been one of the arguments used by the activist fund Elliott last year. , to precisely push the visionary Jack Dorsey towards the exit.
For his part, Elon Musk spoke of making the source code of the application public and of encrypting private messages, on the model of Signal messaging. He also wants to lead the hunt for fake accounts that swarm on the platform and spread disinformation under anonymous profiles. Bold commitments, but little revenue generators…
To move forward together, Elon Musk and the board of directors of Twitter therefore have every interest in talking to and understanding each other. A compensation clause provides, in fact, the payment of 1 billion dollars by the first to leave the negotiating table. What to put
Read alsoHere’s why Musk should keep some form of censorship on Twitter
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