Musk’s Twitter markdown falls short of the mark

Tesla CEO Musk departs the company’s local office in Washington
Tesla CEO Elon Musk and his security detail depart the company’s local office in Washington, U.S. January 27, 2023.

NEW YORK, March 27 (Reuters Breakingviews) - Elon Musk is being characteristically optimistic. The billionaire owner of Twitter has offered stock grants to the social media app’s shrunken staff at a valuation of about $20 billion, less than half the price he paid in October. In fact, based on Twitter’s operating performance, the effects of leverage and public market comparisons, the equity is probably worthless.

It's possible to arrive at Musk’s number with some financial jiu-jitsu. It requires starting with the idea that the $44 billion he shelled out was fair, even though public-market investors put its equity value at $26 billion just weeks prior to his offer. In addition, it suggests a valuation uplift on par with Meta Platforms (META.O), the owner of peers Facebook and Instagram, which has improved its earnings largely thanks to cost cutting. The $534 billion company fetches a multiple of EBITDA nearly a third higher than it did last March.

Assume that Twitter, which also has slashed expenses, deserves a similar boost, and then knock 40% off that figure, the amount its adjusted earnings fell in December. Net out $13 billion of debt, as of January, and equity holders are left with just over $20 billion, or about the figure reported over the weekend by The Information.

The methodology is problematic, however. First, Twitter wasn’t generating consistent earnings before Musk bought it, and so it’s hard to believe it’s doing so now. If anything, things are probably worse with advertisers fleeing after Musk implemented a pay-to-play mechanism that led to bogus scammers impersonating companies.

A cleaner line to the current valuation is through Twitter’s top line. Its full financial statements are private, but assuming Twitter’s revenue keeps falling at the same rate, it would be around $3 billion by the end of this year. Both Meta and Snap (SNAP.N) fetch about 4 times expected sales. On that multiple, the Twitter enterprise would be worth about $12 billion. Back out the debt and the equity is less than zero, assuming their cash position hasn’t meaningfully changed.

The valuation discrepancy is problematic for employees, who will want reasonably priced options that offer a realistic chance at some upside. Meanwhile, banks are sitting on the debt, which is partly gumming up the market for new lending. Musk may cling to his rosy outlook, but other stakeholders could force him to face reality.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


Elon Musk has awarded stock grants to Twitter employees at a valuation of about $20 billion, according to a March 25 report by technology industry publication The Information, citing unnamed sources.

Twitter reported a 40% decline in year-over-year revenue and adjusted earnings in December, according to an article published on March 3 by the Wall Street Journal, also citing unnamed sources.

Editing by Jeffrey Goldfarb and Sharon Lam

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