How much longer can Twitter last, really?
It’s already real bad over there. Elon Musk said yesterday that ad revenues have fallen 50%. The site is experiencing major outages almost once a week. During the most recent outage earlier this week, Elon was laser-focused on the important stuff: reply-guying Jordan Peterson. The Twitter Blue rollout has been such a disaster that he fired almost the entire team. The company isn’t paying rent on its office space. It recently tried to create a new income stream by selling office plants to employees.
But take a deeper look and the company is in even worse shape than it appears. Twitter has two financial time bombs waiting to go off. My hunch is that Elon will file for bankruptcy as soon as one of these time bombs self-detonates. I can’t say exactly when that will be.
I give it about six months.
The first financial time bomb is all the pending employment lawsuits.
Just today, Musk picked a fight with former (?) employee Haraldur Thorliefsson. Sixteen hours after bragging that he had fired Thorliefsson because of his disability (Thorliefsson has muscular dystrophy), Musk tweeted that he had jumped on a video call with him, “better to talk to people than communicate via tweet,” and issued a half-assed apology.
There has been occasional reporting over the past few months about Twitter cutting costs by denying former employees the severance pay they had been promised. These things tend to get worked out by lawyers, who reach settlement agreements that include non-disparagement clauses. So it’s difficult to get a clear view of how much money Twitter owes to how many former employees. But it’s a pretty safe bet that the company is going to eventually have to pay a whole lot of people a whole lot of money.
Keep in mind, on the day he acquired Twitter, Musk fired Parag Agarwal and the rest of the senior executive team “for cause.” (Why? ‘cause you made me buy this stupid company, that’s why!) That was an attempt to avoid paying them the tens of millions they were owed from the merger agreement.
Does anyone really think Agarwal isn’t eventually going to get paid nearly all of the ~$50 million he is owed? If the other employment lawsuits eventually reach trial, does anyone think a judge is going to let Twitter out of its contractual obligations just because Elon basically declares “lol jk jk”?
Lawyers are expensive, and even simple legal proceedings tend to drag on. The court system is slow and can be rendered much slower if you are a well-lawyered billionaire. But eventually, Musk is either going to reach non-public settlements for close to what he owes or he’s going to get smashed in the courtroom and have to pay full freight.
And look, I am not a lawyer. This is nowhere close to legal advice. But I’m pretty sure declare-bankruptcy-to-escape-paying-what-you-owe is one of those savvy business moves that are only available to soulless billionaire-types.
If the early reporting that Twitter was cutting costs by not paying out severance packages was true, then there are a whole lot of busy lawyers racking up billable hours right now. If Twitter hasn’t declared bankruptcy before the bulk of those lawsuits are decided, don’t be surprised if Elon declares bankruptcy just in time to dodge those judgements and screw over his former employees one final time.
…But it probably won’t come to that. Because the other time bomb is going to go off sooner.
Let’s talk about the fines.
Twitter operates under a consent decree with the FTC. Just last May, the company was fined $150 million for user privacy violations. That was back when Twitter had thousands of employees and was notoriously slow and careful in rolling out new features. Twitter is required under the consent decree to dutifully report any changes in how it “maintains and protects the security, privacy, confidentiality, or integrity of any nonpublic consumer information.”
(This is one of the many reasons why Elon-Twitter can’t afford to act like a startup, even if Elon would desperately like to reclaim that startup vibe from his youth. Startups don’t have major FTC reporting requirements. Huge companies with a checkered regulatory history do.)
Elon-Twitter has been flagrantly ignoring the FTC consent decree. The FTC has already opened an investigation. Current and former employees have talked openly about the regulatory exposure he has created. One of his former lawyers basically shouted warnings on the company Slack, encouraging people to seek whistleblower protection.
European regulators have also sent repeat warnings that, if the company is in violation of the Digital Services Act, it will face several hundred million dollars in fines. Europe has a stronger regulatory state than the U.S. They do not fuck around.
The fines are coming. They will not be small. Between US and EU violations, I’d guess Twitter’s tab will be in the low single-digit billions. Might be more, might be less.
Regulatory investigations take time, but not as much time as the US legal system. And, again, these are broad-daylight violations. Twitter basically doesn’t have a Trust and Safety team anymore. Twitter’s compliance team is at least as decimated as all its other teams. The company has fired everyone who isn’t sufficiently obsequious to Elon. Elon’s management philosophy is a chaotic mix of lying and cyberbullying employees. That’s not going to earn him much goodwill from regulators.
My hunch is that the fines will be the final straw. When the fines come, Elon is going to seize on them as a reputational life raft.
He’ll declare bankruptcy and blame the regulators. “I was THIS CLOSE to turning around this important, innovative company that is a threat to the mainstream media and all those crooked politicians,” he’ll say. “But then the liberal bureaucrats stepped in and fined the company out of existence! There’s nothing I can do about it. Twitter is dead now. It all would’ve worked out if not for that meddling government.”
That narrative will, objectively, be bullshit. But his VC buddies and the MAGA/Tesla fanboys and the intellectual dark web podcasters will lap it up. It will be a face-saving story with all the right villains. Elon Musk, certified business genius, didn’t burn Twitter to the ground. He almost saved Twitter, until he was foiled by the machinations of the professional managerial class.
That’s how I expect Twitter will end. The finances are bad, the product is breaking down, the userbase is decaying. That downward slide will continue at a slow, steady pace. But what will finally break it is one of these financial time bombs self-detonating. It will probably be the regulatory fines, and that will have the knock-on effect of offering him a face-saving story to tell his friends and obsessive fans.
The company will go bankrupt with a bang, not a whimper.
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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.