Elon Musk has offered to buy Twitter for $43 billion. Musk, the world’s richest person, says he wants to turn Twitter into a privately owned company because he “believe[s] free speech is a societal imperative for a functioning democracy.”
Should you take him 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 held electric car company — has the resources to buy Twitter.
Twitter, unlike other public tech companies like Facebook and Google, doesn’t have a financial structure that gives its founders and management control of the company without owning a majority of its shares. So in theory, if enough investors who own Twitter shares want to accept Musk’s bid, he’ll own the company.
The short version of the “no” case is that just because Elon Musk says something doesn’t mean it’s so — even when he’s talking about his own money. Musk is, at a minimum, maddeningly inconsistent. In 2018, for instance, he announced — on Twitter — that he wanted to turn Tesla into a private company and that he had “funding secured.” Which turned out not to be true.
More recently, Musk has: acquired a 9 percent stake in Twitter; agreed to join the company’s board; decided not to join the board; tweeted out erratic proposals to “improve” the company, like turning part of its headquarters into a homeless shelter. He told investors in a Securities and Exchange Commission filing: “After the past several days of thinking this over, I have decided I want to acquire the company and take it private.”
Who knows what he’ll think several days from now?
Even shorter: Musk has offered $54.20 per share for Twitter, which was trading for $45 per share Thursday morning before his offer became public. But Twitter was trading for more than $70 per share a year ago. Investors may simply decide that Musk’s offer isn’t good enough, and nothing else happens.
So there’s no way of telling what’s really going to happen in the near future. Musk says his offer is a one-time-only thing — a “best and final” offer. “I am not playing the back-and-forth game,” he wrote this morning. But, again, he’s Elon Musk. So taking him at his word, even if those are words he writes in a securities filing, isn’t advisable.
Twitter, for what it’s worth, does have to take Musk at least semi-seriously. The company put out a release this morning saying that they saw his offer and will consider it. It’s also likely that they knew this was coming: Twitter CEO Parag Agrawal warned that “there will be distractions ahead” on Monday when he announced that Musk wasn’t taking a board seat, after all. Today’s news seems like a meaningful distraction!
Elon has decided not to join our board. I sent a brief note to the company, sharing with you all here. pic.twitter.com/lfrXACavvk— Parag Agrawal (@paraga) April 11, 2022
It also wouldn’t be a shock if someone else made a bid for Twitter now that Musk has put it into play. Then again, most of the big tech companies that could afford Twitter and would be semi-logical acquirers for it would trigger real antitrust scrutiny if they tried to buy it. And a billionaire buying Twitter and doing whatever he wants with it would be just fine, legally speaking. If the board and investors sign off on Musk, there wouldn’t be an obvious way for regulators to prevent it.
Update: If you were in the “it’s possible Musk hasn’t really thought this through at all” camp, you may be right. In an interview today, Musk suggested that, just like his take-Tesla-private non-bid, he may not have the financing secured for this one, either. That’s not totally surprising: As the Wall Street Journal noted, almost all of Musk’s wealth is tied up in Tesla shares and his ownership of SpaceX, and trying to unlock tens of billions of dollars from those assets would be difficult. Meanwhile, Twitter’s board is reportedly considering using a so-called “poison pill” that would make it more difficult for Musk to amass more Twitter shares.
“I’m not sure that I will actually be able to acquire it…I could technically afford it. But this is not a sort of way to make money… I don’t care about the economics at all.” - Elon Musk talking about his Twitter bid at TED right now— Kurt Wagner (@KurtWagner8) April 14, 2022
But here’s the other thing: Even though he’s Elon Musk, he may have a point. Twitter may well be better off as a private company.
That’s not because of Musk’s assertion that Twitter should be the “platform for free speech around the globe.” My colleague Whizy Kim has already explained why you should be wary when the world’s richest person claims to be a free speech advocate.
But Musk isn’t the first person to make the argument that Twitter shouldn’t be a public company. Twitter investors have essentially been making that argument for years with their lack of enthusiasm. And I’ve heard of Twitter execs who have toyed in the past with the idea of finding a private owner for the company.
That’s because it’s not a wild point to argue that Twitter has enormous power as a messaging platform (see, for instance, Donald Trump) but limited prospects as a business. In a nutshell, Twitter has the same business model — free and supported by advertisers — as Google and Facebook. But it has much, much less reach than those companies, so advertisers aren’t going to give it as much support.
That’s why Google brought in $257 billion last year, and Facebook brought in $117 billion —and Twitter did $5 billion. And it’s why Google is worth $1.7 trillion, Facebook $583 billion, and Twitter $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 that people pay to use. But it’s easy to imagine that if Twitter cost money to use, most of Twitter’s users would decide that they’d rather spend their money on just about anything else. Which would mean the remaining, paying users would be talking to an even smaller audience — which would defeat the appeal that Twitter had for them in the first place.
But Twitter isn’t the world’s worst business. It’s just not a great one. Last year, it 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 super-powerful, world-shaking Silicon Valley tech platform. But a private owner who isn’t consumed with turning Twitter into a profit center might be totally happy with that.
Whether Twitter employees — and in particular, its in-demand engineers — would be happy at a company that doesn’t offer the prospect of getting rich from stock options and grants would be another question. We will have plenty more in the coming days.
But, yeah: Sometimes billionaires buy things because they want to make money from them, and sometimes billionaires buy yachts, which won’t make them any money. And if you’re the world’s richest person, Twitter can be your $43 billion yacht.
Update, 2:15 pm ET, April 14, 2022: This story has been updated with the response from Twitter and the reporting from WSJ around whether Musk can afford Twitter’s price.