current bird app thoughts
For those of us who use Twitter, the future seems bleak. I’ve tried to communicate this sense of dread to others with a real lack of success. I’m frequently countered with some variation of: he owns the company, he can do whatever he wants. Well — duh! But Hostess owned Twinkees and people still threw a fit when they ‘discontinued’ them; potentially an apt comparison on multiple levels.
Here’s all you need to know — I love Twitter. It’s my favorite social media company by a mile and I can point to multiple ways in which my own personal understanding of the world has grown because of it. That’s what makes it so hard to see it embroiled in a very public fight with everyone and their brother having an almost totally unfounded view. So in this piece I’m going to outline a few theories of what I think is going on here long-term — if such an outcome even exists.
Theory #1: Twitter, a debtless LBO
For those who are unfamiliar with how Elon bought twitter, I’ll provide a quick overview. He engaged in what the finance industry calls a Leveraged Buyout (“LBO”). The theory of the LBO is that when you purchase a company with a split of debt and equity, you only spend your dollars on the equity portion, meaning you can make outsized returns on the sale; let’s use a house as a simple example. I’m planning to buy a house for $100, and I’m going to put $20 down like a good citizen. So my investment is $20, but I own the house with an $80 loan. Let’s say next year the house is suddenly worth $150 (man, I bought in Austin at the right time I guess). So when I sell the house I get $150 in cash and have to pay back my $80 loan. That’s a net return of $70 (150 - 80) off of my initial investment of $20. That is a return of 250%. Compare that to purchasing the house for $100 in cash (no debt) and selling it for $150, that’s “only” a return of 50%! This is the power of leverage. How does this apply to Twitter? Well, Elon purchased Twitter with a substantial amount of debt — and the banks who promised to lend him that money are having a very difficult time distributing that debt to willing investors. Because of this — the chatter around the Twitter debt indicates that it may be sold for a deep discount. There are some reports floating around that the debt on Twitter could sell for as a low sixty cents on the dollar, meaning I could lend twitter sixty cents and demand a dollar in return. This is insane. Why is this? Well mostly because people don’t have a ton of faith that Twitter will be able to survive as a company and they will not get their dollar back. What this allows Elon to do is swoop in and purchase the debt at sixty cents. On the surface this doesn’t make sense? Why would he go to the banks and ask for debt if he was at the end of this just going to buy it with cash? Well — because the banks are eating the forty cents they’re essentially giving those forty cents away to whoever lends the money…so Elon. He’s wealthy enough that he could buy all the debt at a deep discount and, to reference the house example, put $20 down in cash, ask the bank to give him $80 and then give the bank $60 to buy that $80 the banks promised to give him…sound crazy? Well…so is Elon. Sound illegal? Yeah — when you’re as rich as Elon is you start to stress test the limits of institutional finance.
To bring it home, Theory #1 is the idea that Elon is purposefully giving the appearance that Twitter might fail to scare away investors and get ‘free’ money from the financial institutions he has such disdain for. Checks out to me.
Theory #2: Tesla Manufacturing Negotiating Tool
This one is pretty well known. Hell, even President Biden commented on it. This theory is that Elon purchased Twitter in part due to the outsized influence the Chinese government has on Tesla’s (his primary source of income) manufacturing footprint and long-term production goals. As the owner of Twitter Elon could use it to subtly (or-not-so-subtly) promote pro-Chinese ideas or sew discord among Americans (which as we already know, Twitter is pretty good at). By flooding to zone with all these ridiculous claims and trimming down the staff he makes it easier to achieve the goals and hide their results in plain sight.
Theory #3: Insanity4Clicks
The ONE metric Elon keeps bringing up is that user growth is up since he took over. It’s the foundation for his claims that things are headed in the right direction and his decisions thus far are the right ones. But I think he’s intentionally being stupid on the website to drive people to talk about it — and it’s working! Since he took over I’ve received a lot of text linking me to tweets about Elon’s deeply scary and genuinely funny shenanigans:
So he clearly is driving some user interaction and I think it’s fair to say that’s translating into user growth. Good? Bad? Eh — just boring IMO. I go to HBO for scripted comedies, not Twitter.
Those are my main three theories on Twitter right now — but will the platform even survive?
As I’m writing this it’s Thursday, November 17th 2022. I severely doubt Elon purchased this company to watch it burn…but the reporting and staffing declines are not encouraging. I surely hope so.
Long live bird app.