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Twitter: Has Elon gone too far this time?


Owning your own social media channel is a must for egotistic billionaires these days. Donald has Truth Social and Elon has agreed a deal with Twitter. I’m certain I would not have wanted to be one of the investors behind Truth Social, but if I was investing in Elon’s new project, I might also have concerns, explains Bill Mew.

28th Apr 2022
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Imagine we are fund managers and have just agreed to back the acquisition of Twitter. We aren’t necessarily investing in Twitter. Many canny investors, including Salesforce’s Marc Benioff, have considered an acquisition, only to walk away. And this time round there were no competing bids, leaving the Twitter board with little option but to reach terms with Musk. We would be investing in Elon – the brilliant entrepreneur.

Resource utilisation

As our main asset, we would want to ensure that Elon’s skills were applied where they would gain the greatest return. To date, Elon has excelled at complex engineering challenges – from electric cars and spaceships to solar cells, batteries and even boring machines, Elon’s engineering brilliance is beyond question.

Unfortunately, Twitter is not an engineering challenge. It is all about understanding people. On one side you have millions of users, all vocal, but frequently calling for mutually opposing actions and holding viewpoints that are almost never aligned. And on the other hand, you have a far smaller but more powerful group of regulators and politicians, many of which are out to prove a point.

Among the users, posts on Twitter’s own platform show that Elon has many fans, but almost as many detractors. Meanwhile, on the regulatory front, Elon’s recent run-ins with the SEC demonstrate very little aptitude for effective lobbying or adept political manoeuvring, let alone any willingness to charm people he may loathe, but definitely needs to keep on the right side of all the same.

This is a very different business from the ones he has run before and it may well not play to his strengths at all.

Competitive advantage

Twitter has established itself as the unrivalled town square tool for online social discourse but has nevertheless struggled to turn anything like the profit generated by its rivals. It is facing increasing calls for moderation which would drive up its costs, and yet Elon has so far been unable to explain quite how he would transform the platform.

He has said the acquisition is about free speech and not profit, but free speech does not pay the bills and actually comes at some cost. Twitter risks incurring regulatory fines if he rebuffs their demands for moderation too much. He can let a few banned individuals rejoin, but notably, the former President has said that he would not do so. Investors in Truth Social would shower him with lawsuits if he posted on Twitter rather than his own platform.

Free speech won’t necessarily increase the user base either. Most users appreciate a sensible level of moderation. 4Chan went down the unmoderated free speech route only to find it needed to draw the line at particularly abhorrent content. 8Chan then took things even further, accepting even more abhorrent content, only to find there was no real appetite for it (before promptly imploding).


Almost all obvious tactics to drive up Twitter’s profitability have already either been considered and abandoned or trialled in some way - from advertising to subscriptions. It is far from clear what else can be tried, but we wait with interest to see what unfolds.

Margin call

Twitter’s profitability absolutely has to improve. Elon may be the richest man in the world, but he doesn’t have anything like enough cash to do the deal. He had to find other investors and has also had to raise loans against his Tesla stock. Given the level of inflation, these loans could well incur interest of as much as 10% and investors will be expecting a tidy above-inflation return as well. Making this kind of return on an investment of over $40bn will be a herculean task.

If, as fund managers, we were among his investors then we’d want to see some brilliant ideas and some promising returns fairly soon. Given that Netflix lost two-thirds of its market cap recently, any perceived stumble by Twitter might insight panic. This would not impact Twitter shares but might leave Elon’s investment in Tesla exposed. Many would already argue that Tesla shares are already overvalued. Any sign of cold feet by investors in Twitter might then force Elon to sell some of his Tesla holdings - which could spark panic. 

If there is a perception that Elon’s Twitter venture is anything other than a shining success (a big call) then nobody is going to want to be the last to sell their Tesla stock. Even the hint of trouble could trigger a sell that may well then trigger a margin call by Elon’s lenders, which would make him a forced seller and thus accelerate any downward spiral.

This is not the first time Elon has taken a risk, but Tesla shareholders need to understand that this deal puts them at risk as well. If Elon’s brilliance shines through yet again then this will reinforce confidence in Tesla, but if not it may prove a Tweet too far.


Replies (4)

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By Hugo Fair
28th Apr 2022 13:29

How is the Musk strategy (use other people's money to invest in acquisitions) that different to others?

Even those with an equivalent (if less fabulously wealthy) charismatic leader - where the leader IS the brand (Branson for instance) - the history is awash with dilutions/cross-investments/etc that ensure the 'leader' obtains substantial returns in times of growth, whilst being teflon-coated whenever a downturn is encountered.

The skill for fund managers is to follow the "do as I do not as I say" mantra of their chosen 'leaders'.

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By Hometing
28th Apr 2022 15:28

"You can't tax billionaires because that's not how money works, they can only convert their wealth to cash when they need $43B to buy a social media outlet"

Saw this today and opinions and intricacies aside, I thought this was amusing.

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By Open all hours
28th Apr 2022 20:14

No man who the SEC requires to have a Twitter sitter should be allowed to own the platform.

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By creamdelacream
30th Apr 2022 10:21

Musk has said he doesn't care about the economics, he's doing it for social good and I for one fully support this move. It's Twitter's blatant bias that is abhorrent. This is happening whether the author likes it or not and its the small portion of our society (the social justice warriors) that can take the credit here.

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