Elon goes on a spaces last night to chat with an intern who is leaving the company (yes really) and says a lot of things, including:
- company was previously tracking to spend 5b
- now has 1.5b in debt servicing
- on track to take in 3b revenues
- negative cash flow of ‘about 3b’
- 1b cash in the bank
Yet he fails to mention that before the acquisition Twitter was in a fairly steady state (cashflows).
1/5
Before the acquisition, we see a picture of a growth tech company at scale, growing decently well, and which (like most growth tech) would have had to do some austerity measures and layoffs into this recession (probably 15-20%).
But it was in a fine spot, spending roughly what it made while also growing, and with decent cash reserves and lots of optionality.
2/5
And now it’s very much not.
Revenues are tanking to an absurd degree if he’s to be believed — in the 6 weeks he’s been there, he’s cut 40% off their revenue while levering up the company.
This is not recoverable, and in his desperation he has cut much too deep (~75% of staff by his account) — he can’t yet have the domain knowledge to do a modest RIF, let alone this.
Even that cost cutting is probably itself catastrophic because now other problems get harder, but let’s price it.
3/5
He cut about 6k people. Blended act headcount in tech is something like 200k, so that’s about 1.2b of cost cutting — let’s round that up to 1.5b because maybe twitter staff are more expensive on balance.
So uh… all he’s done here is fire a bunch of people to the tune of the debt servicing burden, lol. And remember — he has also yanked revenues, so this is not a steady state cash flow problem anymore.
4/5
And this is why you don’t LBO growth tech — it’s a laughably terrible idea.
There are no assets to sell off, and growth companies can’t safely carry more than about (0.6 * ARR) in debt.
Before, it was a growth business with plenty of levers.
Now it’s an albatross.
Anyone with even rudimentary experience in software and basic FP&A skills would know this well in advance of the deal.
Musk is just straight up bad at this, on the merits.
5/5
Travis
dse