Though he’s owned Twitter for a little over two weeks, Elon Musk is already warning that the social media site has a “dire” economic picture and may not survive the economic downturn that is threatening to leave the company bankrupt, CNBC reports.
In an email Musk sent to the employees he hasn’t already fired, he writes:
Frankly, the economic picture ahead is dire especially for a company like ours that is so dependent on advertising in a challenging economic climate. Moreover, 70% of our advertising is brand, rather than specific performance, which makes us doubly vulnerable!
The introduction leads to a mention of pushing subscriptions as a way to save the site from collapse, though it remains to be seen if enough Twitter users would be willing to pay a monthly fee to have a “verified” account.
That is why the priority over the past ten days has been to develop and launch Twitter Blue Verified subscriptions (huge props to the team!).
Without significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn. We need roughly half of our revenue to be subscription.
Just how serious is the financial picture at Twitter, which Musk paid $44 billion to acquire? The New York Times has reported on the deal, which was done with heavy financial leverage and a massive debt load.
To finance his Twitter deal, he loaded the company with $13 billion in debt, putting it on the hook to pay more than $1 billion annually in interest alone.
But last year Twitter had less than $1 billion in cash flow, partly because of a one-time charge, meaning it generated less money than what it now owes its lenders annually. The company was also unprofitable for eight of the last 10 years. So, to make ends meet, Mr. Musk must boost Twitter’s revenue or cut costs — or do both.
Musk is also losing a fortune on his other business, Tesla Motors, CNN reports, noting that shares of the company have taken a major hit since Musk announced he was cutting the price of his cars in China.
Tesla has cut starting prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market.
The price cuts, posted in listings on the electric vehicle giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for Tesla’s insurance last month.
Shares of Tesla (TSLA) fell nearly 4% in US premarket trading on the report about lower prices for its cars in China. Shares are down 40% so far this year through Friday’s close.
Sounds like Elon Musk is about as good of a “businessman” as failed, one-term former president Donald Trump.