Musk and Twitter: What. Is. Happening?
Musk's commitment to being a free speech absolutist fell apart faster than a wet paper bag. Trying to make sense of the carnage that was Twitter's 2022.
As those of you who are Heretic Speculator loyalists may recall, I viewed the Elon Musk buyout of Twitter as a positive for Twitter’s user base when we learned about it. While I’ve been very clear about not trusting Musk this entire time, I was optimistic enough about Musk muscling change at Twitter (even if he didn’t own it entirely) because he is such a power user of the platform and figured to be one of the few people with the money, connections, and apparent motivation to make it better.
But I’d be lying if I didn’t say I’ve been very disappointed with many of Musk’s moves so far. I really mean it when I say I care about intellectual honesty and consistency - it doesn’t matter to me which jersey you wear. If it’s not okay to suspend ZeroHedge for posting about the Wuhan lab scientists, then it’s not okay to suspend jet trackers either. Having the right to do something as a private business doesn’t mean it’s good policy. Either be open for business, or don’t. If you want to play platform dictator, fine, but it won’t end well.
For someone who claims to be a ‘free speech absolutist,’ Musk flat out hasn’t lived up to that having already banned adversaries and accounts he doesn’t like. At one point he even tried to ban the very concept of sharing links to other platforms - something that would have theoretically given Musk policy justification to ban literally any user he wished at any time. And this is really just one aspect of the shortcomings so far. Musk seems to be running Twitter in a very reactionary way. An approach that has culminated in Musk literally asking the platform if he should step down as CEO earlier this week.
Here are the only three ways Musk’s actions make any sense from where I sit:
There is some master plan we aren’t privy to
He’s an erratic manic who is making it up as he goes along
Some weird hybrid of the two
I don’t think you can get to be the wealthiest person on the planet by accident. So I think #2 is a very low probability explanation. #3 does seem to make some sense but in that case, which parts of this fiasco are part of ‘a plan' and which are just Musk being over his skis? And if there is a legit plan, what is it? Spoiler: I don’t know. But let’s at least try to follow some monetary motivations…
The Art of the Deal
As part of Musk’s $44 billion deal to buy Twitter, he has had to sell quite a bit of his Tesla stock to raise the funds for the purchase. Notably, TSLA was on an absolute tear from mid-2019 when it traded at a split-adjusted $12.27 through 2021 when it topped out at $414 - a rare 34-bagger for what was an already very large company. Most of Musk’s wealth is still tied up in Tesla stock. It’s the reason why Musk went from a net worth of just $20 billion in 2019 to over $250 billion this year.
When your paper wealth reaches this point, none of this money is actually real. And it raises a serious problem for Musk; how do you lock some of this in without panicking your TSLA shareholders because you’re selling?
You need to sell the shares to finance another important purchase, of course! Let’s look at Musk’s Tesla sales so far this year:
According to financial research firm VerityData, Musk has sold 94,202,321 shares so far this year at an average price of $243.46 per share for pretax proceeds of approximately $22.93 billion.
Tesla stock is currently about $138 per share. At a $243.46 average share price, Musk has saved himself just about $10 billion in unrealized losses by selling his TSLA shares to buy Twitter. So he hasn’t quite accounted for all of the $44 billion Twitter purchase but Musk isn’t spending all of his own money either. $13 billion of the $44 billion is coming from financing - just $3 billion of which is secured. Then an additional $7.1 billion is actually coming from other investors. And Musk already owned over 73 million shares from his original equity position before the buyout offer; those shares account for $4 billion at a $54.20 deal price.
All told and assuming my math and understanding of the deal are correct, Musk needed to come up with another $20 billion or so before closing fees through liquidated Tesla equity to make the Twitter deal happen - which he has done. And he’s already offset half of that capital raise with savings from what would have been paper losses in his TSLA position had he held those shares instead. Interesting. I know what you might be thinking… but, Mike, Tesla stock doesn’t go down this bad if Musk isn’t selling, right? Eh, I’m not sure…
The entire market has been hit so badly this year that even the once bulletproof FAANG stocks have been taken to the woodshed in 2022. Amazon is down 49%, Netflix is down 50%, Meta is down 65% - like Tesla. Then look at the carnage elsewhere - the utter beatdowns in pot, crypto, and streaming names like Roku, Spotify, or Warner Bros Discover:
Many of which are actually down far worse than everyone’s favorite EV company. Point is, Tesla being down 65% isn’t at all unique. TSLA was behaving more like Amazon than Meta this year before the market became concerned with Musk’s actual management of Twitter. We’ll never know how much Tesla would be down without Elon’s attention shifting to Twitter this year, but I don’t think it would be all that different from where it is in reality to be totally honest.
So Was It Just a Creative Way To Sell Tesla?
The logical question at this point is why do this? Isn’t it easier to just sell TSLA and take the money if that’s really what you want to do? I would think so, but Elon Musk appears to be a bored billionaire who loves being in the spotlight. Given his affinity for something like Dogecoin, a cryptocurrency that was literally created as a joke about funny money, there seems to be some financial nihilism in Musk that may not be fully appreciated. This is a man who seemingly doesn’t care about regulators… like at all.
So is it possible that buying Twitter is nothing more than a creative way to get out of his Tesla position and lock in some profit? It doesn’t really make sense, in my view. But I do think we can at least wonder if having public cover for selling TSLA shares after they’ve made him rich beyond his wildest dreams might be a welcomed development for him. I think it’s a nice little bonus to a different decision entirely.
None of this really explains his erratic behavior since owning Twitter… unless he has actually wanted to destroy Twitter from the beginning. Plausible? Probably not. He has seemingly derived a great deal of enjoyment from using the platform and there doesn’t seem to be a real motive for its destruction since he now owns it. Still, this timeline of events is bonkers:
Musk becomes the wealthiest person on planet Earth (publicly available, at least) after Tesla stock rallies from $12 to $400 in roughly 2.5 years
Musk does a poll about Twitter censorship, in many ways to justify a decision he likely already made
Musk agrees to buy Twitter, sells $23 billion in Tesla stock to facilitate the deal
Musk promptly fires half of Twitter’s staff a week after walking in with a sink
Musk leaks very damning internal information to reporters about Twitter’s previous content moderation practices and ties to the federal government
Musk takes incredibly contradictory policy positions on user censorship, alienating previous supporters and many Twitter users
Musk again does a poll to justify a decision he’s already made, this time to step down as CEO of Twitter
Yeah. The Year of Musk has been something else.
It seems basically impossible to me at this point that Elon Musk bought Twitter because he cares about speech freedom. I also can’t really get there on the idea that the purchase is solely a creative way to sell Tesla stock. Buying to expose the previous leadership’s dirty laundry? There might be something to that but the question then becomes why? What does he have to gain from doing that if the net revenue effect is negative. I don’t care about advertisers leaving and I don’t think he does either. Musk seems to want to shift to a subscription service but why contradict himself so quickly on censorship if it means alienating would-be paying subscribers. Is it about being in the Apple store? Possibly but I actually think Apple is going to lose that grip over commerce and humanity.
Essentially, this was a lot of words to say “none of this adds up.” Which leads me to believe we don’t really know what this man is actually trying to do. But I definitely don’t think he’s trying to lose money. The value of the content on Twitter is actually immense. The question for Elon is how can Twitter the business extract that value. A monthly fee to pay for a blue check mark is dumb. But a monthly fee that enables more in-app utility could be very interesting for many users. It remains to be seen.
Decentralized Social Media?
One very visible result of the recent shenanigans has been a growing call for competing platforms. Jack Dorsey, Twitter’s founder and former CEO who privately warned Musk that Twitter can’t be saved, is pledging Bitcoin to the development of a new decentralized platform called Nostr. Chris Bouzy is raising funding for a project called Spoutible. Some of the more eLiTe newsfluencers are pumping something called post.news. Others seem to think the prohibitively difficult to use Mastodon is the answer…
No matter what happens with Twitter and Musk’s attempt to navigate to more of a subscription-based platform, the calls for a decentralized social media platform have definitely become more abundant in recent weeks. Daniel Kuhn penned a great opinion piece about all of this for CoinDesk and I really think the whole thing is worth a read. But here’s my favorite part:
Putting aside overzealous obituaries, the possible collapse of Twitter only helps reaffirm the belief that alternatives should exist. Social media, a relatively new phenomenon in the scheme of things, has been captured by mindvirus that monopolies are good – as explained by Peter Thiel in his influential “Zero to One” startup guide.
It’s true that network effects matter – having an overabundance of friends and foes on a website makes things fun. But the idea that software has to be captured by financial interests, that even publicly traded firms should be controlled by supermajority stockholders, is insane.
So what is the alternative if platforms like Twitter, Facebook, Instagram, and TikTok have become too big, too powerful, and too detrimental to our mental health?
Kuhn makes the case that Web3, a crypto-based phenomenon that aims to prioritize public blockchain-based ownership models, could theoretically address the centralized social platform problem. The sustainability of a centralized governance model is something that even short-time Twitter CEO Parag Agrawal seemingly understood in real time when Twitter banned Trump. Blockchain-based decentralized social alternatives are actually a concept that I explored in BlockChain Reaction back in August.
But there are legitimate questions about how that model works in reality. The first is public blockchains generally require fees to pay transactions. Even if those fees are small fractions of a penny, is the user ready to take on the storage expense of their network activity themselves through micropayments? Probably not yet. But what if Twitter or any other platform does ultimately become a gated platform? If the alternative to micro-paying our own way is a flat entry fee of $8 per month to be able to access something like Twitter and freely post content, then it becomes a simple math problem. Only time will tell.
But for the dopamine addicted social media user on Twitter, it looks like times are changing and probably fairly fast. Are we prepared for audience fragmentation? Because that’s essentially what is coming if the centralized, monopoly model breaks down. If you want my honest opinion, my return to Twitter has actually reaffirmed one thing that I knew before going back; Substack is a far better platform for people who actually want to think and debate rather than argue.