Let’s look at what sort of company Elon bought and see if what we’ve been told about Twitter matches reality. To do that, we’re going to review the basic financials in Twitter’s last 10k, published February 2022.
Let’s start with their balance sheet:
I highlighted one line - cash and cash equivalents (we will see this again in the Statement of Cash Flows) - to show that Twitter wasn’t “running out of cash”. It had $2 billion, up from $1.8 billion the year before.
Also, note they weren’t close to being insolvent, not with $14B in assets and $6.7B in liabilities.
Looking at this from an M&A standpoint, for a $46 billion deal, there’s neither a lot of cash to raid (for pay down of debt) nor are there a lot of plant/equipment one can sell off. One of the classic moves, of course, is to buy a company and then sell divisions to pay down the debt - but Twitter doesn’t really even have that, do they?
LOL, I wonder what poor bastard is calling those doubtful accounts (line 5).
OK, I have three charts for the Consolidated Statements of Operations. The first is summary dollar figures:
This second breaks down the revenue category:
The third is the second chart as a percentage of total revenue:
Let’s look at revenues first:
89% of revenue, $4.5 billion, is advertising. This is the revenue base which builds that balance sheet above. To Elon’s point, there is no material revenue from users.
So… let’s say we want 10% of our revenue to come from our users. That’s $500m. At $8/month, that’s 5,200,000 people needed to subscribe to Twitter Blue, so for every $100m of growth you will need slightly more than 1 million new users. (Of course, this service will have a cost element of its own, the structure of which I have no idea because it’s new and not disclosed here.)
Do note that Twitter paid out a one-time $785m litigation settlement, which itself is the difference between a $221m loss and a $544m profit for FY2021.
Also, in 2020, there is a $1 billion charge for the provision of income taxes. That one time charge… like the 2021 settlement… was the difference between an operations loss and break-even. In 2019 (top chart of these three), Twitter benefited from a $1 billion income tax provision, which was paid the next, so it looks as if they just deferred a tax payment for one year.
Lastly, let’s look at the expense categories R&D and SG&A because much of that is the payroll which Elon has slashed.
So R&D is $1.25 billion, S is $1.2b, and G&A is $600m.
Assume, what… 60% is payroll?
$3.05B * 60% = $1.8 billion in pre-Elon payroll ($240k per employee assuming 7,500 employees).
With but 1,000 employees remaining, looks like Elon may have saved $1.4 billion in payroll… but payroll isn’t merely an expense. He also lost his sales team(s).
Lastly is the Statement of Cash Flows:
The first highlighted line shows that, once everything is accounted for, Twitter is cash positive from operations. The bottom line shows that once investments and financing activities are accounted for, Twitter’s cash position has increased by $200 million a year for the past 2 years.
So… in conclusion, Twitter is an average company. Not very profitable, not burdened with losses or debt, it could have kept chugging along with no need of a savior. In some ways, it reminds me of 1975-era AMC (American Motors Corporation) - the smallest of an near-monopolistic market, they survived by offering products (the Rambler, the Jeep) which filled niches ignored by the larger companies (GM, Ford, Chrysler).
It surely wasn’t worth $54 a share - the Statement of Equity (below) has a book value of $9.125 - and I don’t think this company is positioned as to lose 80% of its workforce and still keep operating under the same financial structure. I mean, the balance sheet now has an additional $13 billion of debt added on to it! There goes the shareholder’s equity, once a positive $7 billion now a negative $6 billion!
