Image default
The Wall Street Journal

How Elon Musk’s Twitter Faces Mountain of Debt, Falling Income and Surging Prices


To make the deal work, Mr. Musk has been attempting so as to add subscription income and reassure advertisers in regards to the platform’s future. Twitter was shedding cash earlier than Mr. Musk purchased the corporate, and the deal added a debt burden that requires contemporary sources of money.

It’s powerful to find out the state of the corporate. Twitter now not has to file common monetary experiences to the Securities and Trade Fee, that are essential instruments for figuring out an organization’s monetary well being.

Analysts and lecturers have been capable of piece collectively an image of the corporate from info Mr. Musk has provided in addition to particulars of the deal and the corporate’s final regulatory filings. Chapter may very well be one outcome. Mr. Musk, the world’s richest particular person, might additionally increase new funds, or purchase again debt from lenders, giving Twitter a buffer to show round its enterprise. 

Here’s a have a look at their assessments of Twitter’s monetary state of affairs and prospects. 

Twitter Funds, Pre-Musk

Twitter is and was a preferred software for politicians, celebrities and journalists. However as a enterprise, it was stagnating. 

It hasn’t booked an annual revenue since 2019, and posted a loss in eight years of the previous decade. The corporate’s web loss narrowed in 2021, to $221.4 million from $1.14 billion the earlier yr.

Twitter has struggled to draw new customers and enhance income, which got here in at about $5.1 billion last year. In its final quarterly submitting as a public firm, for the interval ended June 30, income was $1.18 billion, down barely year-over-year. 

Almost 90% of its income final yr got here from promoting, and it historically has been the corporate’s important income. In 2021, Twitter took in $4.51 billion from advertisers, and $572 million from licensing information and different companies.

The corporate had greater than $2 billion in money and fewer than $600 million in web debt earlier than the takeover talks—little or no debt for a corporation within the S&P 500 index. However that money place was down 35% from a yr earlier as of June 30, filings present, and Mr. Musk paid for Twitter by taking up $13 billion in debt. He paid for the remaining in fairness, some contributed by a number of traders. 

Twitter had a market capitalization of $37.48 billion in March, the month earlier than Mr. Musk agreed to purchase it, S&P information confirmed. Social-media shares have slumped sharply since then. However now, in keeping with

Jeffrey Davies,

a former credit score analyst and founding father of information supplier Enersection LLC, “This factor’s in all probability not value greater than what the debt stack is, fairly frankly, until you place a number of choice worth simply on Elon.” Mr. Musk final month mentioned he and traders were overpaying for the company within the brief time period. 

Revenue Beneath Musk

Mr. Musk mentioned earlier this month that Twitter had suffered “a massive drop in income” and was shedding $4 million a day. It isn’t clear if that displays the broader downturn within the digital advert market or the pause in promoting by a number of firms since Mr. Musk purchased the enterprise. 

SHARE YOUR THOUGHTS

Will Twitter be capable to return to full-year profitability as a personal firm underneath Elon Musk? Be part of the dialog beneath.

Some firms, together with burrito chain

Chipotle Mexican Grill Inc.,

cereal maker

General Mills Inc.

and airline

United Airlines Holdings Inc.,

have paused their ad spending on Twitter over uncertainty round the place the corporate is headed. The departure of a number of high executives from its advert division have soured relationships, The Wall Road Journal has reported.

The exodus of advertisers poses a menace for a corporation so reliant on that income stream. “As a web-based advert firm, you’re flirting with catastrophe,” mentioned

Aswath Damodaran,

a finance professor at New York College’s Stern Faculty of Enterprise. 

Deal negotiations for long-term contracts that normally start on the finish of the yr haven’t taken place but or have been placed on maintain. These offers comprise more than 30% of Twitter’s U.S. advert income, The Wall Road Journal reported.

Income will possible stay underneath strain till advertisers absolutely grasp the brand new enterprise mannequin, doubtlessly main lots of them to return to the platform, mentioned

Brent Thill,

a senior analyst at Jefferies Group LLC, a financial-services agency. “These advertisers will come again in the event that they really feel that the customers are there and there’s a capability to monetize their commercial,” Mr. Thill mentioned. 

However that would take time. Mr. Thill mentioned it might take months for advertisers to get readability. “It’s an enigma,” he mentioned.  

Elon Musk has bought Twitter, ending a monthslong saga over whether or not or not he would undergo together with his provide to accumulate the social media platform. WSJ takes an inside have a look at the tweets, texts and filings to see precisely how the battle performed out. Illustration: Jordan Kranse

Market-research agency Insider Intelligence Inc. just lately lower its annual ad-revenue income outlook for Twitter by almost 40% by 2024. 

Mr. Musk desires the corporate to lean extra on subscriptions and rely much less on digital promoting. He mentioned final Tuesday that the corporate’s upgraded subscription service, costing $7.99 a month, would launch Nov. 29. 

A walkway at Twitter headquarters in San Francisco. The corporate has aggressively lower workers to scale back bills.



Photograph:

George nikitin/Shutterstock

Lowering Prices

The corporate has moved rapidly to slash prices, together with reducing its workers by half. Salaries and different compensation make up a big chunk of total bills. The corporate had 7,500 full-time staff on the finish of 2021, up from 5,500 a yr earlier, filings present.

The layoffs of roughly 3,700 folks might save the corporate roughly $860 million a yr, if the staff which might be leaving made a median of about $233,000 yearly—the corporate’s most just lately disclosed median pay determine. The estimated financial savings would characterize about 15% of Twitter’s $5.57 billion in prices and bills final yr. Its prices and bills climbed 51% from the earlier yr, as hiring drove up its payroll.

Extra staff left the company final week, rejecting Mr. Musk’s demand that they decide to working “lengthy hours at excessive depth” to remain.

Debt Mountain 

Earlier than Mr. Musk’s acquisition, web debt totaled $596.5 million as of June 30, in keeping with S&P World Market Intelligence, a knowledge supplier. That compares with a unfavourable steadiness of $2.18 billion the prior-year interval, indicating a money surplus.

Twitter paid $23.3 million in curiosity expense within the quarter ended June 30, in keeping with a submitting. 

Now, the corporate will have to pay at the least $9 billion in curiosity to banks and hedge funds over the following seven to eight years, when the $13 billion in debt matures, in keeping with a evaluation of Twitter’s loans by Mr. Davies, the previous credit score analyst.

The curiosity funds are substantial for a corporation that reported $6.3 billion in complete working money movement over the previous eight years, he mentioned. 

What’s extra, the corporate’s debt stack now consists of floating-rate debt, that means that curiosity prices are set to rise because the Federal Reserve continues to extend rates of interest. Twitter’s debt was solely fastened fee earlier than the deal. 

Twitter’s credit score scores, which had been beneath funding grade earlier than the transaction with Mr. Musk, have deteriorated additional.

Moody’s

Buyers Service on Oct. 31 downgraded Twitter’s ranking to B1 from Ba2, a two-notch drop, and S&P World Rankings on Nov. 1 downgraded it to B- from BB+, a five-notch drop. 

If Twitter recordsdata for chapter, Elon Musk’s $27 billion funding would possible be worn out.



Photograph:

Susan Walsh/Related Press

Monetary Prospects 

Twitter’s monetary challenges might outcome within the firm submitting for chapter, elevating fairness or shopping for again some debt from its lenders, analysts and lecturers mentioned. 

If Twitter recordsdata for chapter, as Mr. Musk warned was potential in an all-hands assembly earlier this month, his $27 billion funding would possible be worn out as a result of fairness holders are the last to be paid when a company restructures.

Shopping for again debt from lenders at a steep low cost would assist the corporate scale back its debt load and curiosity prices in addition to its valuation, which might be helpful in the long term, Mr. Davies mentioned. 

“I don’t suppose they will concern any extra debt,” Mr. Davies mentioned. “It’s a very, actually powerful construction.” 

The corporate might additionally change among the debt with fairness, each from Mr. Musk and from outdoors traders, mentioned

David Kass,

a finance professor on the College of Maryland’s

Robert H. Smith

Faculty of Enterprise. For that, Mr. Musk would wish to steer potential traders that he has a viable long-term marketing strategy, he mentioned. Changing debt might allow the corporate to generate money. Mr. Musk has mentioned a few of his newest

Tesla Inc.

inventory sale, yielding nearly $4 billion in money, was due to Twitter. 

If profitable, the corporate might generate optimistic free money movement in two or three years, which it might use to pay down the residual debt and finally go public once more, Mr. Kass mentioned. “The prospect of an eventual IPO inside three to 5 years could be a really enticing enticement for giant funds,” he mentioned. 

—Theo Francis and Jennifer Williams-Alvarez contributed to this text.

Write to Mark Maurer at mark.maurer@wsj.com

Copyright ©2022 Dow Jones & Firm, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Related posts

Fiona Strikes Away From Canada, Leaves Hundreds With out Energy

admin

‘Deepfakes’ of Celebrities Have Begun Showing in Adverts, With or With out Their Permission

admin

Xi Jinping’s Ideological Ambition Darkens China’s Financial Prospects

admin