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
@TradingPlacesResearch honestly their growth, from what I can tell, was pretty good.
Parag was doing a good but boring job. They’d have been fine with some modest cuts.
Sure, adtech is broadly under pressure as always during a recession.
Yet another reason why this debt is probably terminal.
@coloradotravis Also, I didn't think debt payments would get to $1.5b a year until the Fed was done hiking.
He should buy the debt at $0.60 and pay himself.
I seriously think he bought it to guarantee his eternal right to shitpost in defiance of the SEC.
@woollylogic @gui_trader @TradingPlacesResearch Yep, they outplayed him and dunked on his ass.
The site will suffer, but it was strong work from the board.
@woollylogic @TradingPlacesResearch @coloradotravis
Call me naïve but I still have problems believing that 100s of billions of market value can be created by such bullshit. Now of course when you consider all the smart money that was invested in FTX, it makes you wonder...
@gui_trader @woollylogic @coloradotravis
It was a combination of his relentless lying about FSD (2019 Autonomy Day stands out), manipulating the price on Twitter like it was his only job in 2020-1, zero rates, and very high household savings during the pandemic.
“2/ Back Twitter (like a lot of digital companies) participates in an event called new fronts. At this event, they sell large chunks of ads for the following year. Typically, Twitter sells like ~600-900M in ads at new fronts. That's guaranteed revenue for following year.”
Travis
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