27 April 2022

Twitter could turn into a very expensive hobby for Elon Musk

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Elon Musk will, probably, in a few months’ time own Twitter. The deal might have been agreed between Musk and the social network’s board, but there are still numerous hoops through which both will have to jump before ownership transfers – but assuming it does, the world’s richest man just bought himself a $44bn new toy.

Twitter’s board had quite the change of heart in recent weeks. At first, they tried to welcome their new shareholder onto the board – which would have prevented him increasing his stake above 15%. 

Then, Musk decided not to join the board, which Twitter’s CEO said was ‘for the best’. The board then introduced a ‘poison pill’ to make a hostile takeover bid by Musk more difficult and then…signed up with him. That’s a lot of different stances for one small group to take in just a few weeks.

After that rollercoaster, Musk has landed himself with a relatively modest social network of around 300 million users (and 200 or so million daily users) – versus Facebook, Instagram and WhatsApp each with more than a billion, and behind even TikTok and Snapchat.

But as toys go, it’s still a hugely expensive one – $44bn is no small sum, even for the richest man in the world. Musk has taken on various forms of debt to fund this acquisition. 

One form – which tends to come as a surprise to those outside the corporate world – is that Musk can have Twitter take on more debt, so that he can buy Twitter, which seems bizarre at first but which is sort-of-but-not-really like taking out a loan secured on your new vehicle when buying a car.

That will cost Twitter something upwards of $1bn a year in debt servicing cost, which would eat up pretty much the entirety of the profit it currently makes. This is quite tricky for Musk, given that several of the ideas he has publicly floated for Twitter would likely lead to it making less, rather than more revenue.

Musk (boosted by Twitter co-founder Jack Dorsey) has suggested he might remove ads from Twitter – currently overwhelmingly its main revenue source – and said he isn’t all that interested in its profitability.

On top of that, Twitter staff with vested stock options will get a big payday when Musk’s sale goes through, and at least some of those will leave – not least because they have a famously difficult new owner, with quite different politics to at least some of them. Replacing those staff could be costly, given they’ll be working for a privately owned tech company with no plans to IPO – meaning their compensation could need to be in costly salaries, rather than stock options. That’s more profit gone.

Musk is also taking on just under $13bn in new personal debt to help finance the acquisition – which will cost him another $1bn a year personally. That suggests he’ll be paying that much a year, indefinitely, for the privilege of owning the company, with little prospect of taking much profit from it. It’s an interesting way to spend tens of billions.

Owning Twitter may also not prove nearly enough to realise Musk’s dreams of creating a free speech utopia in his image. The internet is now heavily regulated in both democracies and autocracies around the world, with differing levels of protections and sanctions for hate speech, Holocaust denial, or just posting the wrong political messages.

Musk has proven willing time and again to cross swords with US regulators, generally receiving fines that, for the world’s richest man, represent the lightest of slaps on the wrist. That won’t prove the case across the world – if Musk’s Twitter provoked, say, China enough, their retaliation would not stop with Twitter. Tesla could expect to feel Beijing’s ire too (a point raised entirely innocently by Jeff Bezos on Tuesday).

Similarly, European fines or regulations could quickly amount to more than Twitter as a corporate entity could pay, leaving Musk to decide whether to spend yet more on his new acquisition, or sink it. 

Running a social network in 2022 is an endless mountain of legal compliance – on hate speech, defamation, privacy, copyright, child abuse, data protection and more. Being an activist owner of one is to take on all of those boring issues, while paying handsomely for the privilege.

The world’s most expensive yachts cost around $600-700 million to buy, and a few tens of millions a year to run. Musk might find Twitter is a much, much more expensive hobby.

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James Ball is Global Editor at the Bureau for Investigative Journalism.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.