Musk genius or worst deal of the century? Twitter buying tips

$44 billion by a social network with serious problems to monetize and profit from its audience. And also, at a time when the industry is in decline in the stock market, what many consider to be a correction of past excesses is not justified by business numbers.

It doesn’t sound very good when you say it like that. It is more reminiscent of the last trades of previous bull markets. The bank, which entered the real estate sector in 2005-06, when it did not have a traditional business; or the anti-tech investor who couldn’t take the pressure any longer and started buying.com In 1998-99, when the limit appeared at infinity and beyond.

and yet elon musk and purchase excitement We all prefer to be cautious before making value judgments. No one dares to bet on an outcome. The doubts are huge, and the arguments for and against are countless. Of course, almost all those who believe that everything will be fine are doing more than just the appearance of numbers, rather than their confidence in the genius of the businessman. Because they go out, they don’t go out.

nets

– The smallest among the big. The numbers for Twitter (around 450 million users) are huge… unless you compare it to Facebook (2.9 billion), YouTube (2,500), Whatsapp (2,000), Instagram (1,500), or TikTok (1,000). In fact, it’s not even in the ranking of the ten most followed platforms or social networks in the world if we include the big ones in Asia (WeChat, Sina Weiboo…).

– The most relevant? It depends on what we mean by the term. What is certain is that it is one of the loudest. We can say that it is the most informative and the most viewed by journalists, sometimes distorting its importance, less in terms of traffic or users than those mentioned in the previous section.

It is also a fact that official announcements and announcements are often made on Twitter. The same goes for arguments, arguments, blunders, etc. also applies to For this reason, it was the Twitter account that was closed to Donald Trump and it was famous because through this channel, the former president of the USA expressed his opinion on almost everything and communicated with his millions of followers.

– Strong. Network effect. This feature, available in many businesses, allows you to have more users and also attracts customers who aren’t there yet.

This feature is key to the success of many social networks, but we can illustrate it with another classic example: credit cards. Obtaining a dominant position in this market is very complex. You need a huge user base: that is, many consumers have this card and many merchants accept it. It’s tough, but if you succeed, things get super simple: consumers don’t want another card (because they know the dominant one is accepted in all stores) and merchants are almost forced to buy it (because they don’t want it). , they risk losing many potential buyers). It is a virtuous cycle that gives you a semi-monopoly position: the stronger you are, the harder it is for potential competitors to match your position or for new competitors; At the same time, you attract more new users every day who know what you are. everywhereThis makes you even stronger.

Something similar happens in social networks. Facebook’s almost 3,000 million users aren’t there specifically because they like it. nor because they love Mark Zuckerberg. They are there because there are 2,999,999,999 other users like them. Even if a more attractive or better designed social network were to emerge now, this hurdle would be very difficult to break through.

Twitter has something similar in the news space. No politician, media organization, brand, celebrity, journalist… wants to disappear from the social network. Let’s remember what happened to Donald Trump when he tried to launch an alternative: utter failure.

For this reason, we have been hearing many celebrities, especially from the left, saying, “Well, if it continues like this, I’m leaving”. But almost none of them are truly gone.

44,000 million

– Weaknesses. Price paid. No one doubts that Twitter is a good idea. But there are hundreds of them, and most of them don’t give a penny. The key point here is whether the company deserves the 44,000 million that Musk paid. There is general agreement on this: No, unless it spins like a sock.

First of all, it is an exorbitant price considering its valuation. With an Enterprise Value to EBITDA ratio of over 66 (referring to results presented in June; we’re not giving PER as it’s currently at a loss), it seems clear that Musk overpaid to earn the little bluebird. Here, luck It reminds you that the company is currently losing about $3 million a day. And black numbers haven’t accompanied Twitter throughout history: it’s true that it had a net profit in 2018 and 2019 (over $1,000 million each year). However, it failed to consolidate this trend.

Noisy? Yes. normalized profit Once the business matures, is it one of those very common in the new economy? Moreover. But real profits, those that can be touched, that are returned to shareholders in the form of dividends or reinvested in the business… have very few of them. Net losses last fiscal year exceeded $221 million, and forecasts for this year are slightly better, but without dropping the red numbers.

The interest cost for the purchase alone will be 1,000 million per year. The specialized Anglo-Saxon press has eyebrows raised with skepticism rather than enthusiastic applause. here forbes accounts are not showing up: For 8 euros per month per verified account to represent a significant increase in revenue (for example, to pay the 1,000 million we mentioned), over 10 million users would have to pay them, while there are currently only 400,000. famous blue tick. It’s true that Musk is working in new ways prize (ad-free, to show priority to people…) but even this must be handled carefully: on the one hand, what you earn with the monthly fee you lose because it will become your main source of income (advertising). there are fewer users.

The challenge here is brutal: as with other social networks, its appeal is partly due to its free nature, and we always hoped that the number of users would more than make up for this feature (especially based on ads). Twitter is one of those that converts its power to the least income. With nuances though, because they’re posting an Ebitda (profit before tax, interest and depreciation) of over 1,100 million for this year.

– Aim. Being a “super app”. Western WeChat? Musk seems to have something like this in mind. It seems obvious that nothing was thought of on a small scale for this man. If I make cars, I want to be the first brand in the world. If I send humans into space, I’m talking about colonizing Mars. If I have a social network, I want its users live In: pay your bills, shop in stores, book theater tickets or send money to each other via the app. And with hundreds of businesses that want to enter the “ecosystem” with special mini-apps that integrate and allow their customers to find them there. Impossible? It is usual in China: here, Sino-British columnist spectator She explains that for her mother or aunts, not having WeChat is almost like not having a cell phone because they do everything with her services.

Emeritus Quintana from Spanish investors Musk’s longest-time follower told us a few days ago how the businessman’s plans came to fruition (1) He radically increased Twitter’s efficiency, cut costs (especially personnel) that didn’t contribute much to the company, and improved slow processes and little else. operational; and (2) increasing revenue by creating user loyalty with an environment that goes beyond knowledge: news is on the hook, but once it gets in, the tweeter finds itself in endless (and profitable for the company) possibilities.

– Risks. There are everthing here. Each can imagine a future where the bet goes wrong for a different reason. But perhaps the main ones are:

  • lose network effect. It’s complicated, but not impossible. If top users (those who threatened to leave Musk) really followed their threats, they’d be in trouble for a company that is now some sort of media outlet. The same will happen if Twitter is perceived as a kind of “right-wing social network”: despite the brutal left-wing ideological bias and the highly controversial censorship policies of existing platforms, Twitter has so far had no significant user exit. Why. The dream of Musk’s enemies is his bullshit and the recent attacks to turn against him, because he too will be attacked by the big media that are happy with the censorship we’ve seen so far. In that sense, we say it is less likely, if not impossible, to abandon this major media: We say it is unlikely because (1) they need Twitter to reach their audience, and (2) they have to. coordinated action. But be careful, it’s not easy… but they’re also looking forward to it. Since Musk’s move is not just business, it also threatens the position of truth-checkers that the media, universities and left-wing institutions have taken on in recent years. And all this, not to mention the possibility (much more real) that the progressive governments that currently dominate the scene in the US or Europe decide that it is the time and the perfect excuse to go a few steps further in their attempt to control the Social. The Bidens and Macrons in our lives wish they had a reason to control what we can and cannot say. Musk can be an ideal excuse to do what they always wanted.
  • tesla. Will the Twitter acquisition affect the business that made Musk famous? They don’t seem to have anything to do with it… but it’s not that clear. A car is partly a means of transportation, but also a status symbol and a personal expression. Along with our clothes, it is perhaps the consumer goods we express ourselves the most. Musk got rich by making the whole progressed The American drove a luxury Tesla because he convinced them that it would save the planet and drive the fastest car. Cool which they had never imagined. The second part of the equation (which could be Tesla’s tech and performance) hasn’t changed. However, the brand no longer means the same to many users as it did 10 years ago. Some will love him more now, but others are starting to hate anything that smells of Musk.

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