It almost sounds like a joke, or a very clever bit in a comedy show. But now that Elon Musk has completed his bid to buy Twitter — and Twitter has responded in kind by suing Musk to force him to buy the company — we find ourselves in the realm of the absurd.
Reading the Twitter complaint, they basically said “Musk is unpredictable, unreliable, ill-equipped as a leader and tried to buy the company as a stunt – now he has to buy us!”
It’s definitely weird — which, to be fair, is true of pretty much everything to do with Elon Musk. But right now, Twitter is in a difficult, perhaps untenable, position. Twitter’s leadership is also clearly exasperated by the whole mess, saying in its complaint that “Musk apparently believes that he … is free to change his mind, disrupt the company, disrupt its operations, destroy shareholder value and leave”.
Here’s the situation: Twitter’s value as a company has been massively reduced; its capacity to raise capital is severely impaired; and thanks to problems that have long preceded Musk, his prospects for growth are dimming. Put more bluntly, regardless of what ultimately happens to Musk, the company is in serious trouble — and both it and Musk are to blame.
Twitter’s problems are not only long-standing, but also multiple. The first and most obvious is that the company has not been able to meet the challenges unique to its platform.
Twitter pales in comparison to other social platforms because its function is different. Twitter exists explicitly as an information network—as the place you go to find out what’s going on and, to a lesser extent, talk about it.
This means that, unlike other networks where you simply search for your friends, Twitter is much more of a blank slate. A poor sign-in experience, coupled with the fact that Twitter has its own mysterious, often dark cultures—filled with jokes and jargon—can make for an overwhelming experience.
Yes, user growth has picked up recently — up 12 million in the first quarter of this year to 229 million — but that was likely a setback caused by the media frenzy generated by Musk’s offering. Consider that TikTok, which has been around a decade younger than Twitter, has more than a billion users. In its 16 years, Twitter hasn’t shown any real momentum toward user growth.
What’s worse is that those relatively low user numbers are poorly monetized. Twitter made just over half a billion dollars in net income last quarter — and that figure was boosted enormously by a sale of an ad network and an income tax gain. It has lost money in 7 of the last 9 years it has been public. For reference, Facebook (or rather its parent company Meta) made a net profit of $7.5 billion in the first quarter of 2022.
Only such numbers are cause for concern. But it also means Twitter doesn’t have the kind of cash flow it might need to invest in big new features or user acquisition. The problem is that its stock has fallen 50 percent from about $70 (U.S.) in 2021 to just over $35 this week. It’s also part of the reason Musk backed out of the deal: the $44 billion valuation he proposed has sunk; Twitter’s market cap now stands at $28 billion. A declining valuation and murky growth prospects don’t exactly make Twitter an attractive acquisition target.
However, any company can still overcome financial difficulties if it attracts and retains talent. But a report from the New York Times details how employees have lost faith in the company, in part because some were shocked by the prospect of being owned by Musk and the eagerness with which Twitter’s board accepted the offer.
It’s not just the employees. Advertisers and investors have been scared off by the lack of security around the company. While it has yet to be proven, Musk’s complaints about inauthentic accounts or “bots” likely made things worse.
Put plainly: Twitter is limping ahead of Musk’s offer, and Musk may have irreversibly damaged the company.
As I wrote last week, Twitter has a surprisingly tremendous influence. It’s relatively small, but because it’s used by politicians, celebrities, journalists, writers, artists and more, it has a surprisingly large impact on what we’re talking about.
Perhaps this is what Twitter’s leadership never fully understood: that it was never going to be the next TikTok or Instagram, but instead was a platform for news junkies, opinionated people, and those who like to engage in cultural ebb and flow. discourse.
But it also suggests that when something has social value, perhaps leaving it to the whims of the market is less than ideal. Even worse, however, is allowing a reckless billionaire to treat a publicly traded company like it’s a game. No one is a winner in this situation, but whoever is at fault, both Twitter and its users clearly stand to lose.
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