Elon Musk has offered to buy Twitter for $43 billion. Musk, the world’s richest man, says he wants to turn Twitter into a private company because he “believes[s] freedom of expression is a social imperative for a functioning democracy”.
Should you take it seriously? Yes and no.
The short version of the Yes case is that Musk, who is currently worth an estimated $273 billion thanks to the soaring value of Tesla, his publicly traded electric car company, has the resources to buy Twitter.
And Twitter, unlike other public tech companies like Facebook and Google, doesn’t have a financial structure that gives its founders and managerial control of the company without owning a majority of its shares. So in theory, if enough investors who own Twitter stock are willing to accept Musk’s offer, he will own the company.
And the short version of the case It’s not that just because Elon Musk says something doesn’t mean it is, even when he’s talking about his own money. Musk is, to say the least, maddeningly inconsistent. In 2018, for example, he announced, the Twitter – that he wanted to turn Tesla into a private company and that he had “secured financing”. Which turned out not to be true.
More recently, Musk has: Acquired a 9 percent stake in Twitter; he agreed to join the company’s board; decided not to join the board; tweeted erratic proposals to “improve” the company, such as turning part of its headquarters into a homeless shelter. He told investors this morning, in a Securities and Exchange Commission filing: “After the last few days of thinking about this, I have decided that I want to acquire the company and take it private.”
Who knows what he will think in several days?
Even shorter: Musk offered $54.20 a share for Twitter, which was trading at $45 a share Thursday morning before his offer went public. But Twitter was trading at more than $70 a share a year ago. Investors may simply decide that Musk’s offer isn’t good enough, and nothing else happens.
So there is no way of knowing what is really going to happen in the near future. Musk says his offer is unique: a “best and final” offer. “I’m not playing the back and forth game,” he wrote this morning. But then again, it’s Elon Musk. Therefore, it is not advisable to take him at his word, even if those are words that he writes in a securities presentation.
But here’s the other thing: Even though he’s Elon Musk, he may have a point. Twitter may be better off as a private company.
That’s not because of Musk’s claim that Twitter should be “the platform for free speech around the world” and that “free speech is a social imperative for a functioning democracy.” My colleague Whizy Kim has already explained why you should be careful when the richest man in the world claims to be a champion of free speech.
But Musk isn’t the first person to argue that Twitter shouldn’t be a public company. Twitter investors have essentially been arguing for years with their lack of enthusiasm. And I’ve heard of Twitter executives who have toyed with the idea of finding a private owner for the company in the past.
That’s because it’s not It’s a far fetched point to argue that Twitter has enormous power as a messaging platform (see, for example, Donald Trump), but limited prospects as a business. Simply put, Twitter has the same free, advertiser-supported business model as Google and Facebook. But it has much, much less reach than those companies, so advertisers won’t give it as much support.
That’s why Google generated $257 billion last year, and Facebook $117 billion, and Twitter $5 billion. And that’s why Google is worth $1.7 trillion, Facebook is worth $583 billion, and why Twitter is worth $36 billion.
One argument in response to that disparity is that Twitter shouldn’t be a free ad-supported business, that it should be something people pay to use. But it’s easy to imagine that if Twitter cost money to use, most Twitter users would decide they’d rather spend their money on just about anything else. Which would mean that the remaining paying users would be talking to an even smaller audience, negating the appeal that Twitter had for them in the first place.
But Twitter is not the world the worst deal. It’s just not great. Last year, he more or less turned that $5 billion in revenue into about $273 million in profit, a 5 percent margin.
That’s more profitable than, say, your average grocery store. But nothing like what public investors expect from a world-shaking, super-powerful Silicon Valley tech platform. But a private owner who doesn’t care about turning Twitter into a profit center might be totally happy with that.
Whether Twitter’s employees, and in particular its in-demand engineers, would be happy at a company that doesn’t offer the prospect of getting rich off stock options and grants would be another question. We will have many more in the coming days.
But yes: sometimes billionaires buy things because they want to make money on them, and sometimes billionaires buy yachts, which won’t make them any money. And if you’re the richest man in the world, Twitter can be your $43 billion yacht.