Elon Musk, currently the richest guy in the world, has decided he wants to buy Twitter. He has made an unsolicited offer to buy the company that would value the San Francisco-based social media company at over $43 billion. It is not clear whether he will be successful, but one thing is clear — in less than a month, he has turned Twitter into an eventual stock market piñata. In other words, Twitter is now in “play.”
If not Musk, then someone from the private equity industry or one of the big technology companies — most likely Microsoft, given their cozy relationship with the U.S. government — will try and buy a company that, at best, has been a chronic underperformer. The company will be subject to many upheavals in the months to come. And the only real question we should be asking is: Does Twitter have the right captain to navigate the company through the stormy seas. Is the CEO Parag Agarwal, who replaced Jack Dorsey, up to snuff?
Agarwal spent many years at the research divisions of Microsoft & Yahoo, including a stint at AT&T Labs, before joining Twitter in 2011 as a software engineer. He rose to the rank of the chief technology officer before he was named Dorsey’s replacement in November of 2021. Sure, Agarwal was at the company for a decade. So I will give him full points for understanding the company’s product and underlying technology. But is he the right leader? Is he the person with the right skills to fight and represent divergent interests in the Twitter shareholder group?
The 37-year-old is woefully out of place as a guy leading a company trying to fight for its independence and remain a functioning entity. Musk has given many reasons why he wants to buy the company. (Axios’s Dan Primack has a smart take on why Elon hasn’t quite thought it through.)However, he doesn’t mention that Twitter is a poorly run, underperforming company.
And if you view it from that lens, the $54.20 share offer is good. It suggests that 6X revenue multiple and 28x EBITDA on 2023 estimates. In rejecting this offer, Twitter’s management and board believe that it can grow its user base and build new revenue avenues. I have my doubts.
The company has shown negligible growth — it added a mere 6 million monetizable daily active Twitter users during the fourth quarter of 2021 to bring the total to 217 million. Somehow the company forecasts that it will magically reach 315 million monetizable daily actives and hit revenues of $7.5 billion in 2023. It seems to be a herculean task — unless something changes drastically.
Of the total 217 million, a mere 38 million of Twitter’s mDAUs are in the U.S. — a figure that has been essentially flat for over a year. For the year, Twitter had revenues of $5.08 billion and lost $221 million.
As a comparison, Snap had 319 million daily active users, up by 13 million during the comparable timeframe. Snap has 97 million daily active users in the U.S. In 2021, Snap added 39 million new users, and Snap brought in $4.1 billion, and lost $488 million in 2021. Twitter has over 7,500 employees, while Snap has over 5,500 employees.
As far as I can see, Twitter hasn’t been able to grow its mDAU in the U.S. for over a year should be a red flag. After all, the U.S. accounts for more than half of Twitter’s revenues. It should be of major concern not just to the shareholders but also to the board of directors. To boost revenues, the company will increase advertisements in the Twitter feed. There is a high risk of deprecation of Twitter experience as the company stuffs more ads to grow its revenues to what seems to be a hard-to-attain goal of $7.5 billion by the end of 2023. Unlike others, I am less than optimistic about their ability to create sustainable revenues from subscription services.
You can’t have too much confidence in this board of directors. They have presided over a meandering company, which has become bloated and has struggled to find growth. They appointed a CEO with little experience in reviving growth, belt-tightening, or simply giving the troops a big kick up the rear-end.
And on top of that, the company, at least in the near term, needs to be contend with someone like Musk, who will toy with the management in weeks and months to come. The recent volley of words with Elon, Agarwal has been easily outplayed.
Agarwal has been part of the underperforming Twitter’s establishment for a decade, and I am yet to hear any fresh ideas from him or the company. Tech media has lapped up a flurry of minor product tweaks and sees them as a season of change. I have read many articles about the Twitter CEO discussing censorship and freedom of speech. I was hoping that equal if not more energy was going to be spent both by the executives and the media on the business of Twitter’s business. It is, after all a publicly-traded company.
In comparison to Twitter, Mark Zuckerberg is betting billions of dollars on the future of his company on something called “metaverse.” I don’t know whether he is successful or not, I don’t know, but I know what Meta doesn’t want to be: Yahoo. And neither should Twitter. Musk is right in pointing out the cultural and social significance of Twitter in our connected society. The mismatch between their importance and their execution shouldn’t be why Twitter should find itself on the road to Yahoo.
Yahoo’s shining star eventually dimmed because of a weak board of directors, ill-timed decisions, and many inopportune management appointments. That board bumbled around in the daYahoo’soo’s board flubbed the $41 billion offer from Microsoft, a valuation the company failed to achieve since. I am merely pointing out a moment in Silicon Valley history.
Axios’ Dan Primack writing today in his newsletter said it best:
Musk’s potential stewardship of Twitter feels akin to the mission of many pro sports team owners. He doesn’t want it to tank, but he’s not in it for the financial performance. The game itself is paramount. Maybe he can pull a few likeminded billionaire pals into that fold, but institutional investors will pass.
If the board of directors at Twitter is serious about finding a way forward as a standalone company — one that isn’t being jerked around by a billionaire or Wall Street hucksters who call themselves activist managers. In making a bid for Twitter, Musk has given Twitter a chance to shake off its stupor, tighten the belt, and run leaner, faster, and further. And that starts with new leadership — right at the top.
April 15, 2022. San Francisco