Some people are giving Musk a pass for today’s layoffs because Twitter is unprofitable and needs to cut costs. But the real pressure for cost cutting and the layoffs is that Musk purchased Twitter via a leveraged buyout. He loaded the company with $10B of additional debt and now is facing annual $1B interest payments. The dramatic layoffs with no severance are thus the result of Musk’s decision to buy the company and the acquisition strategy of using a leveraged buyout.
Estimated to be 10% APY given where CCC Debt was in April. But the details are sketchy and I haven't been able to get a better estimate than that. I've heard rumors of 50% fixed + 50% adjustable, meaning some of that debt can be as high as 16% right now (today, CCC Debt is going for 16% APY).
So we're looking at $1.3 Billion to $2 Billion in interest payments alone (let alone principal) by my estimate. I've been curious if anyone out there has been able to get a better estimate on Twitter's LBO debt.
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In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate).
you can't cut deep enough to cover $1B in interest paymets, maybe now people will figure out that Musk is the wealthiest man in the world by taking tax dollars as subsidies for all his businesses.
Wonder if he's going to use money from his other companies for interest payments for twitter, and then claim tax deductions for those companies because these were interest payments.
FWIW I have no idea how finances work, just can imagine Elon getting into weird loopholes.
He can only do that if he owned Tesla and SpaceX outright. But, Tesla is a publicly-traded company with tens of thousands of shareholders that’ll sue him into oblivion if he tries that.
SpaceX is privately-held, but has raised billions of dollars from dozens of investors, so that won’t fly neither.
Going into a sector with lots of incentives is good business. It's not like he lobbied congress for those subsidies and they were tailored so that basically only he could qualify. Everyone had access to all of those subsidies, Musk was a nobody before Tesla and SpaceX.
Why didn't Ford and Boeing, companies with a much better footing than Musk, simply move into those sectors (EVs and re-usable rockets, respectively) and mop up all those subsidies for themselves?
The Roadster was released in 2008. Barely any money was spent on lobbying until after the Model S was already released (2012), the Powerwall announced (2015) and the Model X was released (2015). That's also post-IPO (2010).
Tesla was already a successful, innovative electric car company before it started lobbying like a regular car company.
All of the risk that paid off (what makes a businessman a good businessman) was done in the early days when he invested 6.5 million that he turned into billions.
He invested 6.5m of the 7.5m that was raised in funding. Without that investment, Tesla probably dies on the vine. He didn't "create" the Roadster but he did believe in the electric car and backed it up with a significant investment that allowed the people who were hired to create it to stay employed.
He deserves credit for believing in the David and turning it into Goliath (of EVs), even if government subsidies helped.
I support the government subsidizing clean energy, electric cars and cheaper access to space and I think it's hypocritical to turn around and shit on the companies that take advantage of those subsidies and do exactly the thing that they are meant to encourage.
Large established companies would be legally cautious on things like fake battery swap stations (couldn't operate with real road wear, just taken from the battery install tooling in the factiry) to claim hundreds of millions in subsidies, or using NASA money to buy junk bonds in another company he had interest in (SolarCity), then giving a presentation with faked shingles to bail out the company through a merger and prevent the bonds backed by NASA money from failing and the repercussions from that. Then use SpaceX to create Boring Company without giving them a stake while Musk got 90% (later reversed in a quiet settlement giving SpaceX around 6%).
You really shoehorned that one in there. An established company wouldn't have to do all that, they could have just made and electric car and/or re-usable rockets.
You need to do it in a way that does not make the remaining core hugely dysfunctional. And it would be miracle if Musk could.
And trolling does not help either. The sink thing was trolling and between that and layouts, the remaining people will be dysfunctional for quite a long time.
Just for some context, Twitter has around $4.5B in revenue per year. Clearly, you can't cut all spending. It looks like the "cost of revenue" is around half that ($2B) and you probably can't cut that. Do you cut sales and marketing? Well, then your revenue probably ends up declining. Do you cut R&D? Well, eventually others are going to eat your lunch. You have $1.6B in R&D costs and $1.2B in sales and marketing and $700M in admin costs (like Human Resources).
As you note, it's really hard to cut deep enough to cover $1B in interest payments without cutting stuff that ends up hurting your revenue. As Twitter cuts their R&D, they're leaving themselves open to missing out on the future. Should Twitter have continued to invest in Vine? Well, the benefit of hindsight says "yes" given TikTok's success. As much as everyone is making fun of Meta's metaverse plans, it's certainly possible it'll be important in the future. We really just don't know. I remember everyone saying the iPhone was a silly toy and people would want to keep their Blackberries and Windows Mobile devices with keyboards. We can literally see the future and say, "nah, that'll never happen."
If Musk cuts engineering too much, does the service just become mediocre?
As you say, it's hard to cut deep enough to come up with $1B.
There's little chance average salary even for engineers comes to 300k in cash. Even Senior Staff SWE is ~270k base per levels.fyi, and that's got to be a 1-3% position, and that's just engineering, which is probably not the majority of these layoffs.
You do need to take all the support costs for staff into account. Buildings, network capacity, hr staff, managers, software licenses, hardware, benefits, fica/etc. It's not unreasonable to assume 30% extra for every head than their salary.
Also most of those folks on levels also get compensated with stock or equity, so it's more than base. Going private means that goes away and their comp also gets slashed. Is he going to take it back public, what beyond base does twitter offer as comp.
Yeah as a reference - I do a lot of this type of planning for non-equity employees and our number is 37% right now (site costs + US payroll taxes & benefits + hardware + incidentals).
Yeah the org I work with has an interesting setup where the employees are employed by the parent organization and then we have dozens of projects as legal entities but no staff on their books. So to calibrate the passthrough cost that we charge those projects, we do a big analysis every quarter of all of our expenses for tax, 401k matching, 'staff development', non-capital hardware purchases, health/dental/vision, life insurance, etc. etc. So it's a pretty robust number. For highly paid employees over ~$200k, it's probably more like 34% since a bunch of that stuff doesn't scale with salary, but lower employees are closer to 40% so the blended rate covers a "typical" company.
Ah, fair, good point. 30% is what I've heard as well, but I did forget about that when commenting. I do still think that 300k is pretty generous even for engineers, which won't be the entirety of the cuts and so the average would be lower.
While you're right that it's unlikely, I think you're half right and half not.
Half right: Cash comp is unlikely to be that high, and that's the GP's point. They could only very optimistically cut payroll to cover $1-2 billion.
Half wrong: Cash comp isn't the whole story, you have to use total comp as equity the acquisition of Twitter also included employee equity plans, so as they vest the company will owe employees a cash value. I'm not sure if Twitter RSUs are dollar denominated (fixed cost, $X/quarter) or share denominated (e.g.: Y shares/quarter). The latter will be more costly because Musk paid a premium.
Half again as wrong: total comp is not the all-in cost of an FTE. Benefits and other associated costs, I don't know enough about payroll to even begin to estimate that.
There is no way the average salary of all the employees cut would be $300k. I'd be surprised if the average was higher than $100k.
At least one source I found says the average salary of Twitter employees is $97k. (US only total compensation is closer to $300k with an average of $270k. But a lot of that is probably stock options which now must be paid in cash).
So I would imagine the total savings are closer to $250m compared to when Twitter was public but maybe a lot more in savings vs what Twitter would have bled considering the stock options portion of the compensation would have had to have been cash.
Yeah, total comp is the number the business cares about in this situation. Salary is only a part of that.
> a lot of that is probably stock options which now must be paid in cash
I won't say that's not a big deal, but it's a one-time cost. Paying $500k today to save $300k / year is an excellent move for Twitter - assuming, of course, that Musk is correct in his estimation that the employees cut were not contributing to the company's revenue.
He doesn't want to sell all that stock, which would lose him control, and probably move the market around and be even more costly in terms of shares than what it looks like on paper.
He's not personally liable for the $13B. If (when?) Twitter implodes, he gets to walk away not owing a dime of that money--so why spend it if he doesn't have to?
Twitter borrowed $13 Billion, not Elon Musk. Technically, "X Holdings" took on the debt (a new company Elon started up), but "X Holdings" is effectively Twitter now.
> I can’t just buy a house with a mortgage and walk away.
If you create a business, lets say "Foobar Incorporated", and get the banks to recognize the debt as assigned to "Foobar Incorporated", you can walk away as "Foobar Incorporated" goes bankrupt.
Similarly, it is "X Holdings" who goes bankrupt in this arrangement, not Elon Musk.
You can, in most states a mortgage is a non-recourse loan, meaning that the bank cannot come after your other assets if you default.
He owns the company that has loans, but the company has the loans -- not him, he hasn't personally guaranteed them. Company folds, creditors have no recourse (generally).
Home mortgage (for first house) is only somewhat non recourse in 12 states, and even then, some of those do not let you just walk away (like Washington):
>It is difficult to classify states as strictly recourse or non-recourse. Almost all states allow deficiency judgments under certain conditions, for certain types of property or foreclosure proceedings. However, many states restrict not only the conditions under which deficiency judgments are allowed but the maximum recovery for the creditors.
>he hasn't personally guaranteed them.
Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.
1. In a lot of cases you can "just walk away". These are so-called "non-recourse loans". Some states (12) only permit non-recourse loans for residential real-estate.
2. If you own a company and the company goes bankrupt with bonds (loans) outstanding, the recourse is that the bondholders (lenders) get control of the company before the shareholders (you) get anything. (This is analogous to the mortgage situation above: the mortgage lender gets the house, become an REO [real-estate owned] on the bank balance sheet.)
> If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.
Well, not always. Banks can add clauses which make you responsible for any losses on the price of the house. In other words, when the price goes below the money owned then that can cause a margin call.
No, he doesn’t. Twitter is formally owned by X Holdings, an LLC Musk set up. In the eyes of the law, Elon Musk and X Holdings are two separate entities, where one can file for bankruptcy and the other may not.
He’ll be liable only if he personally guaranteed the loans, but the details say otherwise.
Yes, you literally can. It's sometimes called a "strategic default". More importantly, this was what people did during the subprime mortgage crisis of the mid aughts. In fact, the baller move was to stop making the payments, and then challenge every bank that tried to foreclose because none of them had all the proper paperwork to show they legally owned the debt.[1]
There were even pearl clutching op-eds[0] about how it was "immoral" to stop paying a loan on a property that wasn't worth the loan, even though that is is literally the legal and optimum move that companies do all the time.
The debt deal had at least 3 different tranches. I can't find details on how all the $13 Billion is structured (reminder: what I posted above is my best estimate. I'm hoping I was gonna get someone who knew these details better...)
I know that at least $3 Billion is fully unsecured (!!), no collateral involved at all. I forget what the other $10 Billion was like right now though. So its complicated.
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Elon Musk was responsible for the $33 Billion. $44 Billion buyout + some debt (I guess Twitter had $2 Billion preexisting debt?) == $46 Billion total buyout, structured as $13 Billion from Morgan Stanley + other banks, and $33 Billion from Elon Musk.
However Elon Musk raised "his end" of the $33 Billion is yet another mystery. He probably sold TSLA shares, or took a loan using TSLA stock as collateral. But this is independent of the $13 Billion I was talking about earlier.
His net worth is tied to Tesla, he would have to post his stock as collateral. If he fails to make good on the interest payments they can take it out of his equity. If tesla stocks drop dramatically, there could be a margin call that could put Twitter in a precarious situation.
Most of his assets aren't liquid. Most of his wealth comes from owning about 23.5% of Tesla or 265 Million shares[0]. At Tesla's current value of 641B, that puts his Tesla wealth at about 150B.
For this Twitter purchase, a lot of it was purchased using some Tesla stock as collateral, but he probably has a personal limit to how much stock he wants to leverage, and he continues to have a fiscal duty to Tesla investors to not over-collateralize his position on TSLA[1], so he probably tried to put as much of the company itself up as collateral for the loans he needed to take it private.
Note that Tesla's 10-Q [2] supports this theory: "If Elon Musk were forced to sell shares of our common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline."
Now this has happened before, particularly with Toys-R-Us when a private equity firm came in and did the same thing, using the business itself as collateral to get the loan that pays for all of the currently-public shares. This didn't particularly end well for the company[3].
1: if Tesla's stock price drops below the limit price the banks that have loaned to Musk have placed on their collateral, then the banks might not make back their loan amount+interest. There is a fiscal duty here because such an event with millions of TSLA entering the sell market, even over weeks, will tank the value of the stock
The adjustable debt rumors should also be viewed in the context of an economy where everyone believes the fed will likely keep raising rates repeatedly and often over the next year or so. Definitely a risky situation
Having been adjacent to the world of finance during the height of the Drexel/Milken/KKR leveraged-buyout craze of the 80s, I seem to remember that what ushered in the end of the excesses was a series of major failures where companies were taken private and saddled with huge debts, but attempts to sell off the parts and retain a profitable core that could then be taken public again or sold for a huge windfall began to fail.
This buyout may be headed in the same direction, and if it is, I conjecture it will have serious negative repercussions for Musk personally and his other companies. Everyone insists he's playing 5D chess with his moves, but a lot of his success depends upon the strength of his "reality distortion field."
In a very real way, he is successful because people think he's successful. A small failure here and a merger with another company there are merely blips. But a major failure that can be reasonably attributed to his "drinking his own kool-aid"[1] will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk.
What are the parts of Twitter that can be sold off, while retaining a profitable core? They've already shut down (Periscope, Vine) or sold off everything else apart from the core bird app
(I did not actually mean to suggest that Musk needed to follow the original LBO strategies, I was just saying that the end of the 80s LBO frenzy happened when those strategies begun to fail with massive LBOs. It's 35 years later. Musk will invent new strategies to win or fail.)
That’s one of the LBO playbooks, but it’s not the only method. In this case, Musk believes he can trim the fat and make Twitter profitable. But if advertisers flee and he thinks he can rely on verified payments alone, everyone on HN who signals interest for a social network they pay for will get to see how viable such a business model truly is.
> everyone on HN who signals interest for a social network they pay for will get to see how viable such a business model truly is.
Let me get ahead of you there. They would only pay for a quality product which Twitter is definitely not, as a ruiner of modern discourse. Of course there's also the catch that there are no quality products anymore. The whole world of products is devolving at almost the speed of Google Search. But definitely paying is the superior business model
I can't think of anything, but Twitter is responsible for a lot of major projects out there.
Bootstrap comes to mind - and while that's not something I foresee them "selling", a company large enough to produce a F/OSS project of that size and complexity surely has any number of large, mature products that they could sell or monetize.
Also, the key part of the LBO playbook isn't making quick cash from selling off assets - it's divesting the company of cost centers and investing heavily in profit centers. If you're able to sell the things that aren't making you money, all the better.
I don't think he ever drank his own Kool-aid. He wasn't planning on actually actually finalizing the purchase, it was most likely just done so he could dump some overvalued Tesla stock. He did try to back out after he made these trades after all. The only reason he finally accepted the deal was because he was forced to by the court.
It seems like he could have accomplished that without signing an agreement to purchase Twitter - especially one that waived due diligence.
1) Tweet things like "I should buy Twitter", "I'm working on moving money around, finding investors, and freeing up money I have tied up to buy Twitter", "Hate selling Tesla, but we need a free speech platform. People will be getting bargains on TSLA!"
2) Sell the Tesla stock he wanted to sell.
3) Make an insulting offer for TWTR at a low value with all sorts of contingencies.
He wasn't planning on finalizing the purchase? When you aren't planning on finalizing the purchase, you put in all sorts of contingencies. You don't waive everything.
I'd say he tried to back out after the market started turning. It became clear that a lot of ad-based platforms were going to be facing some hard times ahead and interest rates started climbing.
I mean, if he'd waited a few months to make his "I want to buy Twitter" play, he'd been able to have offered a ton less. I think Twitter's board of directors went from "we're going to fight Musk" to "Musk must buy us" because of how the market turned. Had Twitter's board "drunk the kool-aid" when they were fighting the buyout?
I think it's in part a case of bad timing. In April, people were paying $130 for GOOG. A month later it was only $113 and now it's $85. META was $210 in April and now it's $89 (their story does have some complications around metaverse stuff). In November 2021, people were paying $54 for TWTR. In January when Musk started buying shares, Twitter was in the $30s. Without Musk's stated buyout offer, Twitter shares probably would have sank like Google or Meta's. Musk probably realized that he wasn't getting Twitter for cheap offering $54.20/share (below their 52-week high), but actually way overpaying given market conditions that were rapidly declining.
Twitter's board of directors wanted to adopt a poison pill to prevent getting $54.20/share in a hostile takeover.
I think it's hard to argue "it was just a ruse to dump Tesla stock". You don't waive due diligence if it's a ruse. Twitter's board wouldn't have been so hostile to it if they thought it was a great price. It's more just that the market conditions shifted a lot over the Spring, Summer, and Fall this year. If Musk had waited 6 months to make the offer, he probably could have bought Twitter for $15-20B instead of $44B.
> In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate).
Leveraged buyouts tend to be a great way to turn a struggling company into a payout for the current ownership and a dead company in 5-10 years. Usually there's not such huge cost cutting in the days after closing though.
It doesn't usually happen that fast, but that's pretty normal too, isn't it? Typically the buyer cuts the quality of the business down to the bone and stops all investment in the future of the business and tries to extract as much profit as they can from the brand name recognition and existing infrastructure before the company goes bankrupt. Then they sell off the remaining assets for scrap. It's like a controlled demolition.
If Elon follows this model, all updates to the site will stop and the amount of advertising and other forms of money extraction from users will skyrocket, and then as the site bleeds out users he'll eventually sell the IP and any other assets before having the firm declare bankruptcy so that he doesn't have to pay back the loans.
I thought that required asserts that could be stripped. Does Twitter have any assets in that category? Compute doesn't retain value, user retention is fickle, and there exists open source clones of the service.
The user base/social graph of Twitter is a thing of value, but given the changes over the past week, it's also in a tenuous position. How many newsmakers want to be in a place that gives any airtime to a community without standards?
I am actually curious how Musk is going to pull this off. Twitter is actually in a way worse financial situation than it was two weeks ago due to the massive amount of debt incurred in the buyout process (and the associated payments). Layoffs are a must and cutting infrastructure costs is also crucial, however it's critical that twitter starts generating some serious revenue.
Some advertisers have paused buying, and the $8 blue check thing could help a little but there is major ground to make up and I don't know how it get's done in the short term. I'll be getting some popcorn, but I am rooting for Musk to figure this one out.
Twitter's revenue in 2021 was $5 billion [1], with a claimed 217 active user count. That's $25/user/year. $8/month -> $96/year, so each new subscriber is immediately worth about four subscribers under the old plan, plus that plan doesn't cancel all ads.
If they can cut costs and give people reasons to subscribe, it might work, but if I were the investor being pitched I would certainly have very pointy questions about their conversion rate. Personally I'd amp it to a straight $9.99 and cut all the ads for a subscriber, and the primary focus of my engineering over the next year would be trying to figure out how to incentivize subscriptions, preferably with new useful things not locking away too many existing features behind walls.
Still, I'd love to see one of these social networks succeed on a model where their users pay them money, instead of their subscribers. The incentives are just too perverse when the money comes from ads.
> so each new subscriber is immediately worth about four subscribers under the old plan
To think about it another way: if 25% of active Twitter users subscribe to the plan at $8/mo, they'll double their revenue.
My gut says that that's way optimistic, and a more reasonable expectation is 5-10% conversion. Even if you assume 5% conversion, that's a 20% increase in revenue coupled with a ~50% reduction in labor costs.
> if 25% of active Twitter users subscribe to the plan at $8/mo, they'll double their revenue.
I doubt 25% of active users average > 1 tweet per month. Twitter follows power laws. My guestimate is on any given day, <10% author a tweet, <20% comment. The rest of the actives just read, like and retweet. The latter groups have little to benefit from subscribing
I agree, which is why I went on to say that I think 5% is a more realistic target.
I also wouldn't discount the idea that some people are going to subscribe for political reasons, at least initially. HN seems to fairly consistently label Musk lately as "right -wing", but in truth he's become more of an "anti-left-wing" figure. By extension, I think that means that ~50% of the country is going to have a positive impression of his control of Twitter.
I've been watching right wing social media (forums, not Gab/Truth/MeWe/etc.), and they're relishing in the layoffs. That effect won't last long, but it'll likely have a measurable impact on subscriptions and a corresponding long tail.
Do we know yet what will be included in the Twitter plan? All I've heard is that it includes "verification", but that in and of itself doesn't strike me as sufficient to drive adoption.
Did everyone forget how app.net [0] who's claim to fame was "paid twitter" flopped spectacularly while not even being done during a major recession?
Nobody is going to pay a monthly fee for a checkmark, I feel like I must be missing something because intelligent people are looking at this plan as if it's sensible while it sounds absolutely ludicrous to me.
I feel like a lot of repliers missed my middle paragraph? Or maybe don't know what I mean by "very pointy questions about their conversion rate"?
In the short and medium term there's no hope of covering their previous revenue with an $8/mo plan. Long term is murkier, because it includes questions about what other services they may provide for that.
Cutting expenses and growing revenues is at least moving those two things in the right direction but it remains to be seen whether they can bridge the gap. Were we having this discussion in 2018 I'd now say something about how the market seems to be willing to let those gaps go, but here in late 2022 heading into 2023 that's a much harder argument to make.
Then again, for the same reason, a case could be made that Twitter was in trouble regardless. Stock price was already on its way down. It is not clear that there is a solution, period. There is no guarantee that Twitter can exist, recognizable as what we currently think of as "Twitter", without investors willing to close their eyes and imagine what could be, rather than opening their eyes and seeing what is. There is no guarantee that social networks at scale can function on their real revenues, in an environment without effectively 0%-interest funny money. Especially if a recession also starts lowering the ad budgets of other companies. There are some significant diseconomies of scale as you try to scale up one centralized "community", and I remain not entirely convinced this is actually a viable market niche.
I know I'm a few days late, but, users that can pay $8/mo for twitter bring in more ad revenue per user than those that can't.
Average ad revenue on social networks for US people is about 10x the worldwide average.
This there are two confounding problems with paid Twitter:
1) If you let users that can afford the $8/mo pay to not see ads, you will lose more ad revenue than you gain in subscription fees.
2) The people that are bringing in less ad revenue than a subscription probably won't subscribe.
But they won't sell 450 M check marks. If we take that 100% down to 1% (4.5M), you're back down to $432 MM / year, which isn't enough to cover the interest payment.
Are there even 4.5M who want a check mark? The current estimate is 420,000.
That would be $40 MM / year. If you payed 10 people $200,000/year to support and develop features for the check mark, that would be $2 MM/year, and your profit would be down to $38 MM / year.
Let's say that you had one low wage screener for every 10,000 check marks (to make sure they have a good time and don't see too much spam) That would be 42 employees, add another 3 for management (but they get paid more). The screeners cost $20,000 each because they're offshore, so that's $840,000. Add another $200,000 for their management and that's another million a year down the drain.
The best plan I've seen is this proposal[1] by Saagar Enjeti, in which Twitter is repurposed as the worlds best customer service hotline. Charge people with large follower base for their followers on a scaled basis... with a large free tier to help out those just up and coming.
Get advertising completely out of the business model.
Good point. Also whenever Musk talks about making sacrifices to “make ends meet”, one should point out that Twitter was a perfectly profitable company with all those employees before the buyout.
I get it that this is about profit. But to be fair, you have to factor in the valuation of the company to see if something was gained or lost in all those years.
Did I say something stupid because of the downvotes?
If a company chooses to reinvest the profit into the company, and therefore increases the valuation, it can be a gain, right? In that case no profit is made.
If you have $1 loss and gain $3 valuation, that's a gain of $2, right?
True, but when the corporate entity makes revenue, you basically decide to either keep it as a profit, or reinvest into the company itself. You would assume that reinvesting means the company is growing and so is worth more.
I get it that shares changing hands doesn't really change anything.
I think that is a faulty assumption, and maybe that is what you got some down votes.
A loss doesn't always mean reinvestment. Reinvestment doesn't always translate to growth. Growth doesn't always Translate to profitability or market value.
It is staggeringly common that businesses fail despite investment and despite growth. Sometimes the product is bad or simply has limited scalability.
Valuations can change rapidly based on expectations of future profit and market conditions. This is especially true in Tech and new companies where valuation is based on future potential and not current profitability.
The general idea is that even if you do a lot of reinvesting and grow your market cap significantly, that market cap can evaporate if it seems unlikely that a company will actually turn into the cash machine people hoped that it would.
Last full year (2021) was profitable if you ignore a massive one time shareholder litigation settlement payment. Usually one ignores these one time hits to evaluate the normal ongoing operation of the company.
I would argue that settlement payments are an indicator of poor management, and unless something happens like a buyout then you can assume poor management will continue and there will continue to be risks of things like settlements.
Agreed. And his response to Stephen King about “we gotta pay the bills somehow” is best read as “I gotta pay off this moronic purchase I made”. It’s really bothersome that people like Musk and Trump are able to so consistently and effectively over market their successes while turning around their complete failures to be successes in the mind’s eye of their followers.
Musk is a walking contradiction of his yesterday’s self.
This "great man" fallacy is EXACTLY what lead to the problems of the 1930s. I see a need for regulation. We are allowing young, impressionable men to fall down an illiberal pipeline and it needs to stop.
This is whataboutism. Identifying what I would regulate is not necessary to fix this problem, much like answering who would provide for a positive right is not necessary in the wealthiest society in all of history. I'll leave it to the scientists and experts. We'll figure it out.
Why is it bothersome? I appreciate what Musk is doing with electric car tech and space x. Twitter management became fabulously wealthy from this deal. They certainly don't give a s*.
>Today is your last working day at the company, however, you will remain employed by Twitter and will receive compensation and benefits through your separation date of February 2, 2023.
>Within a week, you will receive details of your severance offer, financial resources extending beyond your Non-Working Notice period.
That’s not a typical clause and specifically illegal in California.
A more common clause in California employment contracts for salaried employees limits outside employment to work that does not interfere with one’s job responsibilities, based on the idea that as a salaried employee that job should be your primary job
Thanks for posting this - I was curious about the severance package.
I'd consider three months' pay borderline "generous". I see two weeks' as the baseline, and anything over six weeks as "good".
My understanding of the WARN Act is that it requires 60 days "notice". It sounds like Twitter is giving 90 days notice along 90 days of mandatory PTO, effective immediately.
Having been laid off relatively recently (~2 years ago) and actively involved in hiring today, I expect that's not going to be long enough to seamlessly move to a new position, but it should be enough time and money to cut things back and weather the transition without dipping into savings - assuming you have savings, of course.
So is this basically "you aren't technically fired. But do not show up and do not work."
How does that affect other employment? Does this mean you can't go get another job until Feb 2, otherwise you have to quit (and receive no more severance)?
And just to double check: if I was laid off "normally" tomorrow and got some severance package, that package still comes by way even if I got a new job on Monday? For this hypothetical let's place us in California.
You should tell your new employer what's going on - they'll almost certainly run a background check and see it. But absent some specific odd situation, they aren't going to care.
> if I was laid off "normally" tomorrow and got some severance package, that package still comes by way even if I got a new job on Monday?
Technically, this would be subject to whatever terms your former employer wrote into the severance terms. But again, absent a weird situation, they don't care, they're just trying to get rid of you.
USA is a freedom country so you can do whatever you want. Loads of people have two and three jobs. Each employer has no right to know about the others (modulo valid competition concerns that are addressed via employment contracts).
Oh interesting. So an employer cannot blanket state "you must not work for another company while you work full-time here" even if you're NOT a "contractor"?
They can, but only if you have an actual contract to that effect.
It's possible that if you're in an at-will employment state they could fire you for cause and claim that working for another company violates something, but I think that would be legally a bit dicey.
> But the real pressure for cost cutting and the layoffs is that Musk purchased Twitter via a leveraged buyout
You think that if he paid completely up front he wouldn't care about cutting costs? Why? The pressure would still be there -- it would just be in the form of pressure to recoup his investment
What does a lender do when you can't pay a mortgage? They come and repossess your house. That is the situation he is in now. He realized that at the last minute when he tried to bail but gosh darn those pesky laws and contracts:)
I can't speak for why someone else thinks this, and I certainly cannot read his mind, so this is just a general comment about buying something with cash or equity versus debt.
If you buy with debt, you have to pay every month (or year, or whatever). So obviously you have to either have deep pockets to pay out of pocket, or generate more cash flow, and you have to do it NOW, because the debt must be serviced now.
If you buy with cash and/or equity, you take on an opportunity cost, but you can afford to make longer-term investments, and you can afford to take your time with cost-cutting or other measures.
The pressure to recoup your investment is certainly there, but the urgency to generate cash-flow in the short term is not.
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All that being said, if Musk doesn't think Twitter investing in initiatives that will take a while to pay off, but he does think it needs short-term moves like firing everyone in sight and putting Trump back on the platform and getting rid of pesky "activists" who think "freedom of speech" includes telling advertisers that they face boycotts...
> The pressure to recoup your investment is certainly there, but the urgency to generate cash-flow in the short term is not.
In addition to having to pay the interests on the debt usually you also need to keep some financial metrics within some predefined thresholds - facing penalties in case of breach.
> getting rid of pesky "activists" who think "freedom of speech" includes telling advertisers that they face boycotts...
I've heard this taking point elsewhere.
I wonder if he really believes that. I don't; in my experience, adverts have become far more obvious — and far more commonly self-advertisements, e.g. Duolingo advertising it's own paid features — over the course of this year. Feels like all businesses are pulling back on all their expenses, advertising included, at the same time, not mere activism.
The part that Musk personally paid isn't "cash", it's cash and loans against his Tesla shares.
To the very rich, cash is terrible because of the tax obligations. That being said, the whole Musk Tax rigmarole [0] is funny to me for various reasons. Musk's stated reasoning here is not quite correct, and somewhat self serving; at the same time, I think many people would not be satisfied even if Musk was taxed at 100% of his net worth.
Is an interest payment on a load only reflecting the risk of it and nothing else? What's the balance between the risk and other factors? What do rates usually look like on loans used for this purpose?
What is risky about the situation at hand from the lender's perspective? What is the scenario in which the lender isn't made whole?
Seems like a big win for the general public: a company responsible for a toxic cesspool goes under while one of the most obnoxious billionaires gets their ego checked.
Sucks for the employees that are collateral damage though.
This is such a great way to look at this. I'm sad that the employees will lose their jobs but the fact that so much money is being invested in this and going to Mars but we can't stop kids from being killed during school, feed kids lunch if they are starving, or make any real impact on climate change should awaken us to the fact that we've been increasingly played since the 60's.
The employees are not innocent. If you do such a bad job that you attract the ire of a huge portion of users and a billionaire willing risk it big to buy out the company to correct the ship then maybe it is time for some self reflection.
The people responsible for company direction decisions like that are the ones who will be profiting most from this, though. They're the C-Suites who were likely to have the most stock, have severance packages (which they'll certainly sue for and get).
Heck, even cesspools are great if you use them right.
But it's not fun to be in a cesspool, and it's not fun to have a knife in you, and having a knife in you while you're in a cesspool is just about the worst.
I'll just remind everyone that Twitter's management team sued Elon to make this happen. They had full knowledge of the details of the offer and its financing.
Of course they didn't have a choice. It was the board, not management, and they had a fiduciary obligation to sue. They'd have been sued had they not, and they morally have an obligation to represent shareholders so they'd be awful people if they didn't.
Nobody suggested they did. They have an obligation to act in shareholder's best interest. In this case, they'd have a very difficult time explaining that not suing would be in shareholder's best interest.
Well yeah, he offered to buy Twitter at above stock price, then the stock prices crashed a whole bunch and that’s even before last week when Meta, Snapchat, Amazon got destroyed.
They sold Twitter at the perfect overvalued moment, for more than it was overvalued at. They’d be idiots not to do their best to close the deal.
It’s like if you sell a house last year at sky high prices, you shake on it with someone offering you a million more than the house is worth and the house is leveled by Godzilla in the meantime.
> They sold Twitter at the perfect overvalued moment.
I agree.
Yet, if the argument in these comments is that Elon Musk is the Bad Guy(tm) because he overpaid for Twitter just as the Federal Reserve decided to start cranking up rates and as the world descends into recession, that argument ignores the elephant in the room.
Looks like Twitter will get sold off at a huge loss in a couple years.
Is there anything like old twitter out there? Twitter with an open API during the Arab Spring was kind of an amazing time. I guess really it's all about TikTok at this point for that sort of thing.
Not that they can't become an option, but they fail my sniff test: zero of my non-technical friends in a group chat have ever heard of either of those.
Unfortunately, in an ecosystem dominated by absolutely massive monopoly players, that's just going to be the case for nearly everything.
What's the alternative to Facebook? ....uhhhh, I dunno, is MySpace still around?
What's the alternative to Instagram? ....maybe TikTok? but that's just for videos
What's the alternative to TikTok? ....YouTube, I guess?
And round and round it goes.
Yes; most people will only have heard of the big behemoth players in the social media field. Triply so for non-technical people.
What that means is we who are technical need to start exploring alternatives and spreading the word about them. Not that we just need to shrug and accept that we will be playing in monopolists' sandboxes for the rest of our lives.
Nope. I thought, let me try out Mastodon. I pull it up and try to create an account. The "official" instance isn't taking any new accounts. What? Okay, now what? Oh, I have to find an instance that is. Let me see. Good grief, look at that list. Okay, pick one at random. Nope not taking new accounts. Again. Again. Okay, found one. But they don't federate. Looks up federate. Wait, so it doesn't talk to the official instance.
Wow. The greatest LBO player of all time Carl Icahn said he would have done the Twitter Acquisition but did not want to have to compete with Musk, who was the obvious best man for the job.
Tell us about your corporate acquisition experience and how you bring better insight into this process than Elon. What is your perspective on how Elon did this poorly to the extent that you would declare him an idiot?
The question still stands on what your advice to Elon would be to do it better. I assume you have some if you have an opinion on why he wasn't making moves you'd describe as smart.
Literally doing nothing would be smarter than the moves he's doing now. He's hemorraging devs, violating employment law and watching the stock price of his other stuff tank. And that's just things that I can 100% confirm as true. If we get into the rumor mill of him banning people and such. Sigh.
A more accurate version might be "Musk's inability to get out of a bad decision to buy the company".
None of this surprises me. For all of Elon's recent bravado about "free speech", he is a capitalist first and foremost. When it became clear he couldn't get out of it, I predicted he'd just follow the private equity playbook: cut costs, fold or sell-off non-core assets, saddle the company with complicated debt and then sell it off while claiming victory.
He'll probably retain all the power with a Silicon Valley share structure.
It is mind blowing how such unprofitable companies got away for so many years.
VC and startup incubators nowadays only want to hear about profitability, but they have poured $$$$ into unprofitable businesses for the last decade ad so. And created billionaires out of thing air.
I hope we cam go back to a more sane financial/investing world.
Why does Twitter owe money to the banks, that was used to actually buy Twitter?
Anyone here who can explain this to me?
I would love to know the magic behind this. The next thing I will do is going to the Porsche dealer, finance a car and happily watch the monthly rate beeing paid from the dealer's account.
one simplified way to visualize this: create a corporate entity with the debt raised from investors (typically investment banks)--this entity will have a bunch of cash, the debt it owes for that cash, and no assets--and have that entity buy the target company. the cash gets sent to the old equity owners to relinquish their claim on the target company but the debt (and assets) stays with the merged company.
You can, you can go to a bank and ask for a loan for an ice cream truck to start a business. It will help a lot if you already have money and just want to finance it.
They'll give the loan to a new company you create and that company will be responsible for paying it back.
of course it was a leveraged buyout. no single person has $44 billion burning a hole in their pocket, especially not musk, who has most of his net worth tied up in the equity of his various ventures. and that equity is too valuable to trade for a mediocre company like twitter, so it must have been debt, and you don't raise that much debt from the local credit union.
musk has access to debt and is experienced enough to know how to employ that access to limit his (and his investors') risk exposure. this is literally finance 101.
with that said, should financial systems be tilted this way to favor the wealthy and their capital? no, probably not. while musk is an outlier, in general there's a weak correlation between successes if you take out this skewed access to capital. instead of a few hundred billionaires, we could have hundreds of thousands more of entrepreneurs founding and leading useful companies.
https://www.ft.com/content/d1879d0c-c52e-4f48-82f0-09458add4... (or https://archive.ph/phHTi)
"
Banks that lent $12.7bn to Elon Musk for his $44bn Twitter takeover are preparing to hold the debt until early next year as they wait for the billionaire to unveil a clearer business plan they can market to investors, according to three people with knowledge of the plans.
Barring an unexpected rally in credit markets this year, the group of lenders, led by Morgan Stanley, Bank of America and Barclays, have conceded they will be stuck holding the debt on their books for months or even longer and will probably end up incurring huge losses on the financing package.
"
What's a scenario in which Musk will at least recoup his acquisition cost? Even if 10% of Twitter users (and that's a lot) will get on the 8$ plan, revenue is only roughly (100*20M?) 2B$ per year.
As I make that napkin calculation I cannot imagine actually 20M people being active enough on Twitter to justify paying 100$ per year for it. Especially if the price won't be catered to regional purchasing power.
As someone relatively new to finance, I have a newbie question - how do you know these details? I assume the leveraged buyout made some noise (how else did Musk get the funding?). Is this public information in some SEC filing somewhere or is this an inside scope/from some journalistic investigation?
