Elon Musk Optimistic Twitter Will Be Cash-Flow Break-Even Next Year
Twitter CEO Elon Musk expects the social media platform to be “cash-flow break-even” next year as the company’s cost-cutting and new revenue-generating measures averted a $3 billion shortfall.
During a Twitter Spaces discussion on Dec. 21, Musk revealed that the business was headed toward a “negative cash-flow situation of $3 billion a year” when he became the owner. This explains why he has been “cutting costs like crazy.”
“That’s the reason for my actions,” he said during the chat, noting that he’s not “naturally capricious.”
“We have an emergency fire drill on our hands. This company is like, basically, you’re in a plane that is headed toward the ground at high speed with the engines on fire and the controls don’t work.”
In October, the Tesla Motors CEO slashed about two-thirds of the social media outlet’s workforce, totaling about 7,500 employees. He also ended many corporate perks, including free lunches, home internet, day care, wellness programs, and training and development.
Musk has also introduced various measures with the chief objective of bolstering revenues. The most notable change was Twitter Blue, a subscription service that charged users $8 per month for verification, which offers longer video uploads, an edit button, and priority ranking.
As a result of these efforts, Musk is optimistic about 2023.
“With the changes that we’re making here on massively reducing the burn rate and building subscriber revenue, I now think that Twitter will, in fact, be OK next year,” Musk said. “I think we will be roughly cash-flow break-even. That’s what I expect for next year.”
According to Twitter’s last public annual report (pdf), the company’s total costs were about $5.6 billion in 2021. Musk projected that it was poised to spend another $5 billion next year, in addition to debt payments, which would raise total expenses to $6.5 billion.
In response to MIT research scientist and popular podcaster Lex Fridman, Musk revealed that Twitter “has been in the fast lane to bankruptcy since May.”
Is Elon Musk Raising Funds?
Since a photo of Musk, Jared Kushner, and Mansoor bin Ebrahim Al-Mahmoud, CEO of the $50 billion Qatar Investment Authority fund, was shared online, there has been growing speculation that he might have met with investors from Qatar or Saudi Arabia.
The Qatari sovereign wealth fund invested approximately $375 million in Musk’s purchase of Twitter.
“The second point about the photo? It proves Musk was geographically in the vicinity of Saudi Arabia—home to Twitter’s biggest investors. Did he drop in, and did they—along with millions of people who use Twitter every day—pose some serious questions about his leadership during the past couple of months?” BBC technology editor Zoe Kleinman asked.
Other reports surfaced earlier this week that Musk’s family office approached investors to raise new funds amid enormous debt interest payments.
Jared Birchall, managing director of Musk’s family office and a former Morgan Stanley banker, engaged with Twitter shareholders on Dec. 15, announcing “a follow-on equity offering for common shares at the original price and terms.” The offer was new shares worth $54.20, the same price that Musk paid to shareholders to make the company private.
“Over recent weeks we’ve received numerous inbound requests to invest in Twitter,” Birchall wrote in a note, which was first seen by Semafor. “Accordingly, we are pleased to announce a follow-on equity offering for common shares at the original price and terms, targeting a year-end close.”
The note stated that the company had planned to finish the latest fundraising initiative by the end of the year.
Ross Gerber, a prominent Tesla Motors investor and the CEO of Gerber Kawasaki Wealth and Investment Management, acknowledged that he’s considering the proposal, but wants a clear plan.
Gerber has been vocal about wanting Musk to refocus his attention on Tesla, going as far as running for the board of directors (BOD).
“I think it is in the best interest for Tesla shareholders for Elon to be back at Tesla working full time,” he wrote in a tweet. “I hope that he finds a ceo for Twitter in Q1 and he makes the transition out of being Twitter CEO. If elected to the BOD I will work to create a clear timeline.”
Musk posted a Dec. 18 poll asking the Twitterverse if he should step down as head of Twitter, saying, “I will abide by the results of this poll.”
With more than 17.5 million votes, 57.5 percent voted “Yes,” and 42.5 percent voted “No.”
“I will resign as CEO as soon as I find someone foolish enough to take the job! After that, I will just run the software and servers teams,” he wrote in a tweet two days later.
“As the saying goes, be careful what you wish, as you might get it. No one wants the job who can actually keep Twitter alive. There is no successor.”
Dan Ives, a tech analyst at Wedbush Securities, wrote in a tweet that the poll would be a “big moment for this Twitter situation.”
“While clearly unconventional, the Musk CEO poll is a sign that the noise is growing louder and louder given the spider web of Twitter and Tesla weakness,” Ives said.
Despite some of the sour commentary as of late, investment firm Aliya expects to make up to five times its money on Twitter. The Miami-based company had invested $360 million in Musk’s Twitter takeover and now anticipates that he’ll take advantage of the roughly 229 million daily active users.
“We believe Twitter will produce a return of 4–5 times in just a few years, with comparably limited downside risk,” Aliya CEO Ross Kestin said in a statement.
Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of “The War on Cash.”
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