Twitter is currently in a fix after Elon Musk bought the company for $44 billion. Banks and investors helping Musk in his ill-fated endeavor are incurring financial losses.
Quick Facts
- Twitter is in a debt of $13 billion, the amount Musk borrowed against the company to accommodate the buyout
- One of its biggest investors, Fidelity Investments has slashed its stake from $19.66 million last October to $8.63 million
- The debt will not be cleared until a new CEO is brought in and the revenue situation is resolved
- These loans will be marked down by 70% of their value, worse than the previously estimated markdown of 20%
With Morgan Stanley at the helm, a group of banks including Bank of America, Mitsubishi, Mizuho, BNP Paribas, and Societe Generale financed Musk’s $13 billion loan for the Twitter takeover. He invested more than $20 billion of his own money besides the $7.1 billion he leveraged from associates and around $4 billion from his existing stocks on Twitter.
However, Morgan Stanley has not attempted to syndicate the loan because of the lack of opportunities in the market. Interest on the loans will amount to up to $1.3 billion a year.
Musk reveals Twitter’s revenue situation
Elon Musk revealed the possibility of Twitter’s bankruptcy last month. He admitted that its revenue has significantly dropped when campaign groups questioned the platform’s content moderation standards and predicted that it could lose billions of dollars next year.
Musk attracted an ocean of criticism after he became the CEO of Twitter. is takeover was followed by massive layoffs, clashes against advertisers, and recurring changes in the platform’s policies.
The company earned its revenue primarily from advertisers – 90% of Twitter’s $5.1 billion turnover in 2022. Musk’s controversial decisions surrounding banned accounts and content moderation are further pushing advertisers away.
Moreover, a campaign group called the Center for Countering Digital Hate declared that the reinstatement of banned Twitter accounts would initiate the return of “super-spreaders of hate” and encouraged advertisers to avoid the site.
Half of Twitter’s top 100 advertisers – AT&T, Wells Fargo, General Motors, and Chipotle, to name a few – have withdrawn their money from the site, as reported by Media Matters for America.
Besides that, investors are not willing to buy Twitter’s 13$ billion debt due to the possibility of the company going bust. Musk needs more money to cover his service interest costs due to the debt in question.
In early December, Musk revealed he wanted to sell Twitter stakes at the same price implying that its value was intact. On December 18, 2022, he revealed that Twitter “has been in the fast lane to bankruptcy since May.”
Musk privatized Twitter by paying $54.20 a share for the site so he is not required to share his financial records with anyone but his banks. However, the company’s revenue over the next 12 months is estimated to be $1 billion, four times less than its revenue in 2021.
How can Twitter increase its revenue?
Twitter’s inevitable collapse prompted Elon Musk to introduce a paid subscription service, called Twitter Blue. It allowed users to buy a “verified” blue tick for $7.99 but when impostors surfaced online, the feature had to be relaunched.
There were fake accounts impersonating Nintendo, the pharmaceutical firm Eli Lilly, US Senator Ed Markey, and US politician Ted Cruz, among the most prominent ones. These problems hence slowed down Twitter Blue’s takeoff.
Twitter can otherwise attempt to pay the interest by reducing cash flow. The company was pace to set up a “negative cash flow situation of $3 billion per year” compelling Musk resorted to extreme measures to decrease spending.
Now, he is out of his depths and is considering alternative measures to fix the revenue situation. One advertiser suggested that the platform should display an ad if a user mentions a product in tweet replies.
