Musk’s Twitter Should Bite the Bullet on Equity Raising

Elon Musk’s tweet early Saturday morning that Twitter is “still cash flow negative”—as in spending more than it is taking in—was, by Musk standards, a bit of a yawn. We’ve heard so much about Twitter’s precarious financial position over the past few months—as Musk acknowledged in the tweet, it’s due to both a roughly 50% drop in ad revenue and a “heavy debt load”—that his comment barely constituted news. But if you think about it, it is remarkable that after shrinking Twitter’s workforce by 80% and stiffing landlords, other vendors and even laid-off staff, the company is still not profitable. 

But that’s what happens when you borrow $13 billion with floating interest rates, and those rates are skyrocketing at the same time that your revenue is nose-diving. The annual interest costs on the debt he took on to buy the company are likely now around $1.4 billion currently, given that it was taken out at margins of as much as 10 percentage points above benchmark interest rates like this one. On top of that, even a quarter of Twitter’s pre-Musk operating expenses amounts to about $1.2 billion. On the revenue side of the ledger, if advertising is running at half of Twitter’s 2021 number, it’s around $2.25 billion. You can see the problem. And given the launch of Meta Platforms’ Threads, which is almost certainly drawing some usage away from Twitter, things could even get worse. It’s little wonder that at least some of Musk’s backers in the Twitter buyout are writing down their stakes significantly—including Ark’s Cathie Wood, as The Wall Street Journal reported today.