This is great work… now what does it look like if insiders received $54.20 per share on a company that was failing and knew it was failing? What would it look like if Tesla’s primary investor was over leveraged and had $6B invested in a company that was about to go belly up before Tesla’s CEO bought it?
These are great questions, though I don't think I could qualify twitter as "failing" - perhaps at most underperforming expectations and potential. But if they sold for more than its worth, good for them, so long as they did not misrepresent facts.
The second point, assuming a solarcity reference, is still befuddling to me. Coming from some background in corporate M&A, I don't understand how it was allowed to happen given the conflicts, and further how it was upheld recently in courts.
"Apple, Twitter's top advertiser ... On Saturday, Apple ads started reappearing on feeds, a clear sign the world's most valuable company restated its advertising program"
and
"... reporter Zoe Schiff said Amazon plans to resume advertising on Twitter at $100 million per annum, pending security tweaks to the company's ads platform."
Yup, I saw those reports as well after publishing, and am not surprised frankly. Assuming the ads were being placed at Twitter on a economic basis (i.e. advertisers spent money because they were seeing good clickthrough not because they 'supported twitter' on principal), then a ad-boycott always seemed unlikely to continue for long.
Diversifying from Tesla was probably the right move. But had he played this better he could have gotten Twitter for much less. He let his ego get the best of him.
True, he did try to lower his price (unsuccessfully). The crazy thing is how fast it came together. Under a month between announcing his common ownership and a signed purchase agreement.
Thank you for another great article. Your work has become my favorite part about Friday mornings.
I appreciate your careful and candid analysis. If it were a poker game, I would say you’ve calculated the pot odds perfectly post-flop and now we’re all excited to see the river.
But I would also add that Elon is a creative force (Or at least an accomplished director of the creative forces of others, probably both) and has a Steve Jobs-esque ability to create value out of thin air.
Examples abound. In the case of twitter he has mentioned the inevitable inclusion of his x.com app, which he describes as potentially the most valuable financial institution on the planet. Certainly, a banker would assign a value of precisely $0 to this statement. But the artist/engineer of such an app might just view the twitter community as the perfect captive audience to unleash it upon and see obvious value where most see nothing.
Ad revenue is one thing. Transaction revenue from each user is orders of magnitude greater.
It seems Elon has the ability to bring a ‘Wild Joker’ to the table, confounding the standard calculus, and disrupting the status quo. I look forward to seeing how it all pans out!
Here, I will agree that regardless of your opinion of the guy and how he handlings all of his business dealings, there is no doubt that his companies have been "revoluationary" in some respect. Tesla - whatever you think about as a stock - proved the EV model at scale and forced legacy brands to compete. SpaceX is as far as I'm aware the only people ever to land a rocket. OF course there are incredible engineers at this company to make these things happen, but there are engineers at all companies after all.
That doesn't guarantee any future success and I think more and more healthy skepticism is being applied to Musk as an individual, but if you are being fair you must acknowledge these accomplishments.
I'm glad to hear that you enjoy reading the column!
Elon's ability to create a cult-like following around him has indeed been remarkable over the past few years, no doubt. But to what extent has this been driven by monetary conditions and abundant liquidity, which allowed him to pay his talented engineers with expensive equity that is likely to lose value? Would a talented engineer still be willing to adopt an "a-la-China, 996 working program" if Elon is not able to offer the same promise of future returns? Will he still be able to attract the best talents out there, or will those talents be absorbed by other tech giants or simply start their own app that might compete with whatever Elon comes up with, during the next easing cycle (1/2/3 years from now?)?
It is fascinating to read analyses and opinions around the matter and try to slowly answer questions like the above, simply because the range of potential outcomes is so large and changes happen so fast.
Journaling ones thoughts around this matter is a very healthy exercise. Due to the nature of Elon as a persona and the love/hate sentiment that he can create in a lot of people, this ought to be a good exercise for someone that is willing to uncover hidden biases.
Yes, there is always so much more than just the financial variables, like what you describe around his persona. In last week's post I mention how its been interesting to see however his public image has changed just over the past couple of years, which has to some extent mirrored Tesla's stock price - not sure which one leads or whether they reinforce each other.
And he is definitely at the front of the list of ZIRP beneficiaries, as was anyone with large public market wealth gains over the past decade.
"Directionally, this is good (for cash flow)." - Likely good for the business as well. I'd say there are plenty of companies that should be "Musked" (or "Ichaned" from when he fired a whole SG&A building).
As for the business, Social media as a service doesn't sound too bad. I would love seeing a company, besides AMZN, dedicated to the consumer.
Thank you! I think even Jack Dorsey acknowledged they had over hired. It will be interesting how a different monetization and business strategy for Twitter works out.
Operationally and realistically, much of the "perceived value" is just that: perceived. The agitation happening and making advertisers leave - and much exaggeration on the front of "leaving twitter for good" - is an ideologically driven, non-fact-based movement.
However, since twitter has nothing else but its user base, this will be an interesting one, indeed. If users bleed, advertisers bleed out, nevermind the biased agitation on either side.
The slashing of headcount is an Excel-based exercise indeed and numbers don't cover operational quality of axed personnel. That is the most critical point - besides hardware/real OPEX, there is a soft factor attached to headcount numbers. Axe just the wrong person(s) and down the drain we go.
I agree, I don't expect an actual exodus - the networks effects are strong, and there is really no alternative that functions in the same way.
And yes operational risk is huge, and it seem the way he went about it was almost designed to be ham-handed. But I do think there was probably a need for reductions regardless - you see it across the board in the tech industry these year.
The tech axing going on is due to monetary and inflationary induced contraction, mainly. Margins are contracting - inflationary tendency outpaced the possibility to pass on cost increase to consumers fully and refinancing will be adding to this, depending on debt maturities across facilities.
My bet: We'll see a lot more of this in 2023.
The impending recession might be the literal third nail in the coffin for most - when consumer discretionary spending hits even tech bottom lines.
My 2 cents, now only worth 1.75 cents roughly thanks to inflation as I wrote this.
Great analysis Bear, thank you for this. An owned and controlled advertising/messaging platform with a user base of relevant consumers at any size (and especially that of Twitter) is potentially a very valuable tool for a diversified entrepreneur. Hard to quantify the scale of the impact on the upside but certainly net benefit for the owner across their various existing, or imaginable future products.
Exactly - I elaborated on this point a bit more in the prior week's post. How much has Twitter enhanced the value of Musk's other holdings? Arguably much more than the total buyout price of Twitter itself.
Late comment here, but this was a really great post and I wouldn’t mind seeing more financials-focused deep dives like this in between the more macro-focused ones. Something like digging into the recent Thoma Bravo and/or Vista take-privates could be interesting (despite the market declines, many of them still seem expensive to me).
Thanks for the deeper dive, Bear. Much respect for holding your word too!
Absolutely - I need the feedback to keep me honest!
This is great work… now what does it look like if insiders received $54.20 per share on a company that was failing and knew it was failing? What would it look like if Tesla’s primary investor was over leveraged and had $6B invested in a company that was about to go belly up before Tesla’s CEO bought it?
These are great questions, though I don't think I could qualify twitter as "failing" - perhaps at most underperforming expectations and potential. But if they sold for more than its worth, good for them, so long as they did not misrepresent facts.
The second point, assuming a solarcity reference, is still befuddling to me. Coming from some background in corporate M&A, I don't understand how it was allowed to happen given the conflicts, and further how it was upheld recently in courts.
One report of an advertisers returning ... Monday Dec 5th. One of the biggest problems you identified is being addressed.
https://www.zerohedge.com/technology/musk-tells-90000-listeners-twitter-space-apple-ads-full-resumed-after-spat
"Apple, Twitter's top advertiser ... On Saturday, Apple ads started reappearing on feeds, a clear sign the world's most valuable company restated its advertising program"
and
"... reporter Zoe Schiff said Amazon plans to resume advertising on Twitter at $100 million per annum, pending security tweaks to the company's ads platform."
Yup, I saw those reports as well after publishing, and am not surprised frankly. Assuming the ads were being placed at Twitter on a economic basis (i.e. advertisers spent money because they were seeing good clickthrough not because they 'supported twitter' on principal), then a ad-boycott always seemed unlikely to continue for long.
Whatever the outcome, it will be a fun one to watch - indeed!
Awesome work Big Bear!
Thanks Darin!
Diversifying from Tesla was probably the right move. But had he played this better he could have gotten Twitter for much less. He let his ego get the best of him.
True, he did try to lower his price (unsuccessfully). The crazy thing is how fast it came together. Under a month between announcing his common ownership and a signed purchase agreement.
Thanks for the report.
You’re welcome. Thanks for reading!
Your best article so far. It`s amazing how you are able to juggle different perspectives at the same time. Charlie Munger would be proud. :)
It sounds like a healthy habit! Thanks for reading!
Thank you for another great article. Your work has become my favorite part about Friday mornings.
I appreciate your careful and candid analysis. If it were a poker game, I would say you’ve calculated the pot odds perfectly post-flop and now we’re all excited to see the river.
But I would also add that Elon is a creative force (Or at least an accomplished director of the creative forces of others, probably both) and has a Steve Jobs-esque ability to create value out of thin air.
Examples abound. In the case of twitter he has mentioned the inevitable inclusion of his x.com app, which he describes as potentially the most valuable financial institution on the planet. Certainly, a banker would assign a value of precisely $0 to this statement. But the artist/engineer of such an app might just view the twitter community as the perfect captive audience to unleash it upon and see obvious value where most see nothing.
Ad revenue is one thing. Transaction revenue from each user is orders of magnitude greater.
It seems Elon has the ability to bring a ‘Wild Joker’ to the table, confounding the standard calculus, and disrupting the status quo. I look forward to seeing how it all pans out!
Here, I will agree that regardless of your opinion of the guy and how he handlings all of his business dealings, there is no doubt that his companies have been "revoluationary" in some respect. Tesla - whatever you think about as a stock - proved the EV model at scale and forced legacy brands to compete. SpaceX is as far as I'm aware the only people ever to land a rocket. OF course there are incredible engineers at this company to make these things happen, but there are engineers at all companies after all.
That doesn't guarantee any future success and I think more and more healthy skepticism is being applied to Musk as an individual, but if you are being fair you must acknowledge these accomplishments.
I'm glad to hear that you enjoy reading the column!
Elon's ability to create a cult-like following around him has indeed been remarkable over the past few years, no doubt. But to what extent has this been driven by monetary conditions and abundant liquidity, which allowed him to pay his talented engineers with expensive equity that is likely to lose value? Would a talented engineer still be willing to adopt an "a-la-China, 996 working program" if Elon is not able to offer the same promise of future returns? Will he still be able to attract the best talents out there, or will those talents be absorbed by other tech giants or simply start their own app that might compete with whatever Elon comes up with, during the next easing cycle (1/2/3 years from now?)?
It is fascinating to read analyses and opinions around the matter and try to slowly answer questions like the above, simply because the range of potential outcomes is so large and changes happen so fast.
Journaling ones thoughts around this matter is a very healthy exercise. Due to the nature of Elon as a persona and the love/hate sentiment that he can create in a lot of people, this ought to be a good exercise for someone that is willing to uncover hidden biases.
Yes, there is always so much more than just the financial variables, like what you describe around his persona. In last week's post I mention how its been interesting to see however his public image has changed just over the past couple of years, which has to some extent mirrored Tesla's stock price - not sure which one leads or whether they reinforce each other.
And he is definitely at the front of the list of ZIRP beneficiaries, as was anyone with large public market wealth gains over the past decade.
Love your micro-analysis!
"Directionally, this is good (for cash flow)." - Likely good for the business as well. I'd say there are plenty of companies that should be "Musked" (or "Ichaned" from when he fired a whole SG&A building).
As for the business, Social media as a service doesn't sound too bad. I would love seeing a company, besides AMZN, dedicated to the consumer.
All the best!
Thank you! I think even Jack Dorsey acknowledged they had over hired. It will be interesting how a different monetization and business strategy for Twitter works out.
Thanks again for reading.
Operationally and realistically, much of the "perceived value" is just that: perceived. The agitation happening and making advertisers leave - and much exaggeration on the front of "leaving twitter for good" - is an ideologically driven, non-fact-based movement.
However, since twitter has nothing else but its user base, this will be an interesting one, indeed. If users bleed, advertisers bleed out, nevermind the biased agitation on either side.
The slashing of headcount is an Excel-based exercise indeed and numbers don't cover operational quality of axed personnel. That is the most critical point - besides hardware/real OPEX, there is a soft factor attached to headcount numbers. Axe just the wrong person(s) and down the drain we go.
I agree, I don't expect an actual exodus - the networks effects are strong, and there is really no alternative that functions in the same way.
And yes operational risk is huge, and it seem the way he went about it was almost designed to be ham-handed. But I do think there was probably a need for reductions regardless - you see it across the board in the tech industry these year.
The tech axing going on is due to monetary and inflationary induced contraction, mainly. Margins are contracting - inflationary tendency outpaced the possibility to pass on cost increase to consumers fully and refinancing will be adding to this, depending on debt maturities across facilities.
My bet: We'll see a lot more of this in 2023.
The impending recession might be the literal third nail in the coffin for most - when consumer discretionary spending hits even tech bottom lines.
My 2 cents, now only worth 1.75 cents roughly thanks to inflation as I wrote this.
Agreed, after all the Fed is actively determined to slow the labor market - I think eventually they will succeed.
Great analysis Bear, thank you for this. An owned and controlled advertising/messaging platform with a user base of relevant consumers at any size (and especially that of Twitter) is potentially a very valuable tool for a diversified entrepreneur. Hard to quantify the scale of the impact on the upside but certainly net benefit for the owner across their various existing, or imaginable future products.
Exactly - I elaborated on this point a bit more in the prior week's post. How much has Twitter enhanced the value of Musk's other holdings? Arguably much more than the total buyout price of Twitter itself.
Late comment here, but this was a really great post and I wouldn’t mind seeing more financials-focused deep dives like this in between the more macro-focused ones. Something like digging into the recent Thoma Bravo and/or Vista take-privates could be interesting (despite the market declines, many of them still seem expensive to me).
Thanks! Definitely want to keep mixing these analyses in!