Very insightful and filled with true facts. One financial time bomb you didn't mention is the annual billion dollar debt payments Musk's acquisition saddled Twitter with. A billion is several times more than Twitter's best year of net revenue. The bankers who funded it did so in order to stay in Musk's bullying good graces when he was the richest man in the world. They have not been able to syndicate those loans and they present a balance sheet problem for them. They have to try to collect something--if the loans are totally non-performing I don't see how they can avoid declaring Twitter in default (because auditors have a much narrower view of what constitutes a good business decision than guys who aspire to accompany Elon on his private jet). Default has cascading consequences for a company that wants to operate in the real world with things like servers and electricity and payroll and such. Coupled with those other time bombs Elon will be walking away from a totally insolvent company by the end of the year in any case.
Excellent analysis, Dave. I woke up one day and realized that in bankruptcy, the debt holders will end up taking over Twitter for a price of $13 billion, which -- at least before Musk ruined everything -- would have been a fair price for the company. Made the lenders seem less insane.
I am watching two things with my product manager hat on. The roiling of crypto currency and the demise of Twitter. Both are just so much to watch and such sources of bad, unethical, and stupid behavior that it is just an amazing show.
I left Twitter (mostly: I keep one account that is connected to my Substack) when the game of suspending journalists over the @ElonJet kerfuffle, so posts like this and the many twitter observers articles are filling the need for that dopamine hit, and oh, what a show it is becoming.
Great stuff Dave!
(also: typo, it is 'fined' not 'find' in your section about fines)
Does the site turn off when bankruptcy happens? Does Elon get in legal trouble for burning an (admittedly unprofitable) company straight into the ground? Do the people who sold him a company knowing he almost surely was going to destroy it but get their own paydays get in trouble?
Sometimes companies can work it out to keep operating. That's what Chapter 11 Bankruptcy is about. But it has to be worked out with the creditors and it's a reorganization ordered by the court based on a plan filed by the company to satisfy a substantial part of the debt over time. That often involves liquidation of parts or all the company or revised ongoing commitments to creditors. The problem is Musk paid $44 bn for a company that was maybe worth $30 bn at peak, but now is worth -<peers into the pit and still can't see the bottom>. Musk brought in partners on the equity side and they all are going to take a bath as will the banks. I expect the husk of Twitter will be sold to someone for a few million like Tumblr was. Question is whether it will try to stay up with a user base, or just be a speculative brand held for future use.
Interesting. Yes I was in particular curious about how bankruptcy works.
The current status quo is bizarre. Twitter was never a Facebook but it still has massive influence. Every newscast I watch involves tweets and despite Elon's every attempt to scare everyone off it...the service endures. It's still hard for me to visualize it collapsing to the point that people get a 404 page but maybe my imagination isn't big enough.
Yeah. I've been around long enough to see several things collapse that had seemed more solid than Twitter and had been around much longer. Things go along forever and don't seem to decay, until they suddenly do and then they collapse in a short period of time. We REALLY don't know how things will work out. There are scenarios where Twitter continues for a long time in a recognizable form, but it's at least as likely that Musk just turns out the lights in a few months.
The brand is (still!) worth something, the code base maybe. That's about it. Whether someone who's capable of it thinks it's worth reviving is an open question. At Elon's level, "legal trouble" is more of a very fancy Dungeons and Dragons game than anything else, all it will cost him is money. Heads will roll, but not anyone important, or likely responsible.
I don't know that the code is worth all that much. A running system with people that know how to maintain and extend it is worth a fair amount, but I've worked on more than a few projects where I've often thought the best way we could cripple our competitors would be to hand them our entire code base and convince them that they should spend the enormous effort to try to learn it and learn to build and deploy it.
The contents of Twitter's databases, on the other hand, are probably pretty valuable to a number of players out there.
32.8 years in the software industry and a lot of mistakes have given me a kind of perspective. Twitter user loyalty has proven insanely resilient. and people talk about quitting Twitter as if they were quitting smoking or a bad relationship with a wealthy supermodel. That's a potentially very valuable brand, followed by a huge list of "ifs". And I've watched enough golden parachutes sail away to know the top guys never suffer consequences, barring the equivalent of the live boy or dead girl scenario.
After two decades where user numbers alone were enough to garner continued investment despite no defined revenue stream it’s amazing to watch Musk accidentally blowing the lid off the whole ponzi scheme.
I've lost all faith that the legal process will ever resolve anything with this situation or the 'other' situation ("The Former Guy"). The law today has too many paths of appeal; too many ways out; has become too crooked (Hello Supreme Court!) that holding it up as the bogeyman that will right everything in the world is becoming just that - a bogeyman.
I'm 90% with you on this, but the ONE recent counterexample that comes to mind is Elon trying to get out of buying Twitter and then giving up after it became abundantly clear that the Delaware Chancery Court wasn't going to have any patience for his bullshit.
The difference there might be that was two very rich organizations fighting each other. Elon alone? I don’t know. He’s going to have to piss off a lot of other very rich people, which to be fair, he probably is and will.
I didn't mention the loans since I think of them as a separate category than these other two. The ~$1.2 billion/year in interest is a HUGE problem for the company, of course, but it's also a very visible problem for the company. These other two financial time bombs don't show up on the balance sheet as clear liabilities.
(I should've put in an extra paragraph to clarify that point though. Wrote this one a *little* too late at night, tbh.)
That makes sense. The indebtedness makes a context where those time bombs are really on a hair trigger and make the company less resilient than it might otherwise be. The increasing weakness of the company in all directions makes it far more vulnerable to these big shocks. Unlike Tesla, for instance, which still has its underlying manufacturing, technology and market share, so that even with stock price decline, etc. it could still weather some big shocks & stay in business.
It's enough money to cause the bankers trouble if they evaporate, but in bankruptcy they might. But Twitter is on the hook for the interest on that--about $1 billion a year and Twitter can't afford that.
Yeah, my timing prediction was clearly off. The mechanics might still be in play though -- the FTC and EU fines still seem like near-certainties, we just don't know (1) when they arrive, (2) how large, and (3) whether he reacts by pulling the plug.
I don't think you're wrong about the end game, though. It'll be a slow degradation of service (having sacked the knowledgeable staff) and a loss of traffic to Threads. At some point the loss of the network effect will make income drop off a cliff. At that point, he'll try and find a way to justify it somehow. As you rightly say, he doubles down continually, he's not one to admit failure.
People are still tweeting, both companies and influences and common people. Where are they going to go? No good competition right now... And Mastodon isn't it. This is an active ecosystem.
Musk cares more about the influence and power than the money. He's able to tell 100 million people to vote Republican. He's able to shift public option and spread propaganda. Only the world's richest person has the luxury of doing this, he's not going to let it go.
Also, Advertising is down across the entire industry, this will pick up in a year. Twitter Blue is increasing in subscribers but very slowly... 400k. Who knows if that will increase rapidly once the legacy blue is removed. I don't think it's likely though.
Imo, Twitter will lose money but Musk knows he's got something powerful that he's ok losing money on it (as he himself has said). Regulation (mainly from EU) might be the biggest issue but that's 50-50. Unless there's a good competitor and people leave (maybe if they remove legacy blue), this is Musk's Right-wing Twitter
It seems #ElonMusk has caused a massive collision between internet politics & political psychology. Thank you for answering one of the main questions I was wondering. How long will Twitter survive under Musk's destruction? The psychology and profile predicted it would blow up in his face, but didn't expect him blowing it from so many different vectors and at such an accelerated pace, thus confirming his perceived detachment from reality & worst human instincts. https://samray.substack.com/p/the-groo
The amazing thing is that this is a realistic story. If you would have made a movie scenario two years ago that describes what is happening now, hit would have been classified as a Tarantino-esque alternate reality like those in Inglorious Basterds and Once Upon a Time in Hollywood, without the believability.
Aside from the use of a derogatory word in the sentence "Elon’s management philosophy is a... mix of lying and cyberbullying employees.", I really think this is spot on.
Oh that's an interesting angle. I've mostly been thinking of those subsidies in terms of "this is why he fucked up this time. No government subsidies to scoop up the way he has with Tesla and SpaceX."
But you're right, there's a potential future where conservative politicians create some subsidies.
If my six-month guess is correct, then that would only be at the state level instead of national. But I also wonder how this figures into politicians villainizing the FTC in order to push them to go slow or go soft on Elon. We'll see...
Very insightful and filled with true facts. One financial time bomb you didn't mention is the annual billion dollar debt payments Musk's acquisition saddled Twitter with. A billion is several times more than Twitter's best year of net revenue. The bankers who funded it did so in order to stay in Musk's bullying good graces when he was the richest man in the world. They have not been able to syndicate those loans and they present a balance sheet problem for them. They have to try to collect something--if the loans are totally non-performing I don't see how they can avoid declaring Twitter in default (because auditors have a much narrower view of what constitutes a good business decision than guys who aspire to accompany Elon on his private jet). Default has cascading consequences for a company that wants to operate in the real world with things like servers and electricity and payroll and such. Coupled with those other time bombs Elon will be walking away from a totally insolvent company by the end of the year in any case.
Yeah, this even does have a fixed date on it I would guess. Anyone has an idea when? A year from the deal?
Twitter makes quarterly debt payments. The first one was at the end of January, next will be end of April.
Ah, thanks for the info! If I remember correctly, it was a lot of money, right? Like $1bn per year? Sooner or later that'll break them, too.
Excellent analysis, Dave. I woke up one day and realized that in bankruptcy, the debt holders will end up taking over Twitter for a price of $13 billion, which -- at least before Musk ruined everything -- would have been a fair price for the company. Made the lenders seem less insane.
I've been off Twitter for 4 months now and the reflex to check in has finally dissipated. But this still makes me sad.
I am watching two things with my product manager hat on. The roiling of crypto currency and the demise of Twitter. Both are just so much to watch and such sources of bad, unethical, and stupid behavior that it is just an amazing show.
I left Twitter (mostly: I keep one account that is connected to my Substack) when the game of suspending journalists over the @ElonJet kerfuffle, so posts like this and the many twitter observers articles are filling the need for that dopamine hit, and oh, what a show it is becoming.
Great stuff Dave!
(also: typo, it is 'fined' not 'find' in your section about fines)
Good catch, thanks. (Wrote this one a liiiittle too late at night and skimped on the self-editing round.)
And yes, such amazing free entertainment!
Might be a dumb question but...then what?
Does the site turn off when bankruptcy happens? Does Elon get in legal trouble for burning an (admittedly unprofitable) company straight into the ground? Do the people who sold him a company knowing he almost surely was going to destroy it but get their own paydays get in trouble?
Sometimes companies can work it out to keep operating. That's what Chapter 11 Bankruptcy is about. But it has to be worked out with the creditors and it's a reorganization ordered by the court based on a plan filed by the company to satisfy a substantial part of the debt over time. That often involves liquidation of parts or all the company or revised ongoing commitments to creditors. The problem is Musk paid $44 bn for a company that was maybe worth $30 bn at peak, but now is worth -<peers into the pit and still can't see the bottom>. Musk brought in partners on the equity side and they all are going to take a bath as will the banks. I expect the husk of Twitter will be sold to someone for a few million like Tumblr was. Question is whether it will try to stay up with a user base, or just be a speculative brand held for future use.
Interesting. Yes I was in particular curious about how bankruptcy works.
The current status quo is bizarre. Twitter was never a Facebook but it still has massive influence. Every newscast I watch involves tweets and despite Elon's every attempt to scare everyone off it...the service endures. It's still hard for me to visualize it collapsing to the point that people get a 404 page but maybe my imagination isn't big enough.
Yeah. I've been around long enough to see several things collapse that had seemed more solid than Twitter and had been around much longer. Things go along forever and don't seem to decay, until they suddenly do and then they collapse in a short period of time. We REALLY don't know how things will work out. There are scenarios where Twitter continues for a long time in a recognizable form, but it's at least as likely that Musk just turns out the lights in a few months.
The brand is (still!) worth something, the code base maybe. That's about it. Whether someone who's capable of it thinks it's worth reviving is an open question. At Elon's level, "legal trouble" is more of a very fancy Dungeons and Dragons game than anything else, all it will cost him is money. Heads will roll, but not anyone important, or likely responsible.
I don't know that the code is worth all that much. A running system with people that know how to maintain and extend it is worth a fair amount, but I've worked on more than a few projects where I've often thought the best way we could cripple our competitors would be to hand them our entire code base and convince them that they should spend the enormous effort to try to learn it and learn to build and deploy it.
The contents of Twitter's databases, on the other hand, are probably pretty valuable to a number of players out there.
This seems like a good summation.
32.8 years in the software industry and a lot of mistakes have given me a kind of perspective. Twitter user loyalty has proven insanely resilient. and people talk about quitting Twitter as if they were quitting smoking or a bad relationship with a wealthy supermodel. That's a potentially very valuable brand, followed by a huge list of "ifs". And I've watched enough golden parachutes sail away to know the top guys never suffer consequences, barring the equivalent of the live boy or dead girl scenario.
After two decades where user numbers alone were enough to garner continued investment despite no defined revenue stream it’s amazing to watch Musk accidentally blowing the lid off the whole ponzi scheme.
I've lost all faith that the legal process will ever resolve anything with this situation or the 'other' situation ("The Former Guy"). The law today has too many paths of appeal; too many ways out; has become too crooked (Hello Supreme Court!) that holding it up as the bogeyman that will right everything in the world is becoming just that - a bogeyman.
I'm 90% with you on this, but the ONE recent counterexample that comes to mind is Elon trying to get out of buying Twitter and then giving up after it became abundantly clear that the Delaware Chancery Court wasn't going to have any patience for his bullshit.
The difference there might be that was two very rich organizations fighting each other. Elon alone? I don’t know. He’s going to have to piss off a lot of other very rich people, which to be fair, he probably is and will.
What about the loans to purchase twitter? Like 10-12billion?
I didn't mention the loans since I think of them as a separate category than these other two. The ~$1.2 billion/year in interest is a HUGE problem for the company, of course, but it's also a very visible problem for the company. These other two financial time bombs don't show up on the balance sheet as clear liabilities.
(I should've put in an extra paragraph to clarify that point though. Wrote this one a *little* too late at night, tbh.)
That makes sense. The indebtedness makes a context where those time bombs are really on a hair trigger and make the company less resilient than it might otherwise be. The increasing weakness of the company in all directions makes it far more vulnerable to these big shocks. Unlike Tesla, for instance, which still has its underlying manufacturing, technology and market share, so that even with stock price decline, etc. it could still weather some big shocks & stay in business.
It's enough money to cause the bankers trouble if they evaporate, but in bankruptcy they might. But Twitter is on the hook for the interest on that--about $1 billion a year and Twitter can't afford that.
Great read but 7 months in, he's still there. He does have deep pockets, mind.
Yeah, my timing prediction was clearly off. The mechanics might still be in play though -- the FTC and EU fines still seem like near-certainties, we just don't know (1) when they arrive, (2) how large, and (3) whether he reacts by pulling the plug.
I don't think you're wrong about the end game, though. It'll be a slow degradation of service (having sacked the knowledgeable staff) and a loss of traffic to Threads. At some point the loss of the network effect will make income drop off a cliff. At that point, he'll try and find a way to justify it somehow. As you rightly say, he doubles down continually, he's not one to admit failure.
Good points but misses a few key marks.
Isn't the bankruptcy point irrelevant?
People are still tweeting, both companies and influences and common people. Where are they going to go? No good competition right now... And Mastodon isn't it. This is an active ecosystem.
Musk cares more about the influence and power than the money. He's able to tell 100 million people to vote Republican. He's able to shift public option and spread propaganda. Only the world's richest person has the luxury of doing this, he's not going to let it go.
Also, Advertising is down across the entire industry, this will pick up in a year. Twitter Blue is increasing in subscribers but very slowly... 400k. Who knows if that will increase rapidly once the legacy blue is removed. I don't think it's likely though.
Imo, Twitter will lose money but Musk knows he's got something powerful that he's ok losing money on it (as he himself has said). Regulation (mainly from EU) might be the biggest issue but that's 50-50. Unless there's a good competitor and people leave (maybe if they remove legacy blue), this is Musk's Right-wing Twitter
It seems #ElonMusk has caused a massive collision between internet politics & political psychology. Thank you for answering one of the main questions I was wondering. How long will Twitter survive under Musk's destruction? The psychology and profile predicted it would blow up in his face, but didn't expect him blowing it from so many different vectors and at such an accelerated pace, thus confirming his perceived detachment from reality & worst human instincts. https://samray.substack.com/p/the-groo
The amazing thing is that this is a realistic story. If you would have made a movie scenario two years ago that describes what is happening now, hit would have been classified as a Tarantino-esque alternate reality like those in Inglorious Basterds and Once Upon a Time in Hollywood, without the believability.
Aside from the use of a derogatory word in the sentence "Elon’s management philosophy is a... mix of lying and cyberbullying employees.", I really think this is spot on.
Thanks, hadn't thought about that. I've updated the post with a synonym that works equally well.
Oh that's an interesting angle. I've mostly been thinking of those subsidies in terms of "this is why he fucked up this time. No government subsidies to scoop up the way he has with Tesla and SpaceX."
But you're right, there's a potential future where conservative politicians create some subsidies.
If my six-month guess is correct, then that would only be at the state level instead of national. But I also wonder how this figures into politicians villainizing the FTC in order to push them to go slow or go soft on Elon. We'll see...