Elon Musk’s acquisition of Twitter for $44 billion last year made headlines, with many questioning the steep price tag. Recent developments have only deepened the concerns surrounding the social media platform’s valuation. Last week, Twitter revealed its new employee equity compensation plan, placing the company’s value at $19 billion, significantly lower than Musk’s own earlier suggestions. This downward trend in valuation, coupled with ongoing financial struggles, raises serious questions about the future of the company and its remaining employees.
A Troubling Downward Trend:
Musk’s admission earlier this year, that the company would be valued at $20 billion, ignited speculation and concerns. The latest valuation of $19 billion signifies a 56% decrease within a year, sending shockwaves throughout the industry. Furthermore, it highlights how Musk’s leadership has burned through the company’s business model, impacting not only its financial standing but also leaving banks involved in financing the deal grappling with significant losses.
Financial Challenges and Uncertainty:
Reports suggest that banks involved in the deal are anticipated to lose around $2 billion due to the adverse impact on their financial standings. Musk’s own acknowledgement of negative cash flow and a 50% decline in advertising revenue, coupled with heavy debt, further compound the company’s financial challenges. These difficulties cast doubt over Twitter’s ability to regain its footing and fulfill the promise of stock grants to its employees.
Underwater Stock Grants and Employee Retention:
The potential worthlessness of stock grants granted to employees has raised concerns about their motivation to remain with the company. If these grants hold no hope of being redeemed at a value remotely close to their initial worth, it may lead to an exodus of talent from Twitter. The risk of an uncertain future diminishes the allure of continued employment, creating a precarious situation for the remaining workforce.
External Perceptions and Marked Down Value:
Beyond the internal valuation, external evidence suggests that the industry views Twitter as worth considerably less. Financial firms, regretful of their decision to provide substantial loans to facilitate Musk’s takeover, have struggled to offload their loan portfolios, even after substantial discounts. Moreover, Fidelity, a key investor, has marked down the value of its Twitter holdings by a staggering 65%. Their diminishing confidence lends additional weight to concerns surrounding the company’s true value.
Elon Musk’s acquisition of Twitter for $44 billion initially raised eyebrows, and subsequent developments have only affirmed these doubts. The company’s declining valuation and ongoing financial struggles, coupled with challenges surrounding employee retention and external perceptions, paint a troubling picture. Twitter’s ability to regain stability and provide a viable path forward remains uncertain. As stakeholders and observers look to the future, the critical question arises: Can Twitter reclaim its former glory, or is it destined to be a cautionary tale of valuation gone awry?
Market Capital Research 