Elon Goes Shopping
Last week I wrote an essay on how social media has potentially desensitized us, particularly to specific events like the war in Ukraine. I specifically referred to Elon Musk's use of Twitter and his challenge to Vladimir Putin as an example of that desensitization. At the end of the essay, I reiterated how I hoped to see less of that type of behavior on social media and more people coming together to solve problems facing our world today. At the time, I didn't think Elon would become a theme in my writing, but here we are.
That newsletter and essay went out last Sunday morning. Sunday night, I went to bed feeling pretty good about myself. I had just sent out my second newsletter with an essay that I felt was pretty solid, in which I criticized how the richest man in the world behaved on social media, specifically on Twitter.
Seven hours later, I awoke to discover that Elon had purchased over 9% of Twitter and had become the largest shareholder.
Elon Musk - 1 chasing answers - 0
Now, I know Elon's purchase of those Twitter shares took place well before my essay went out or was even written. And considering there were thirteen people who received that email, and only 70% of them opened it (I know who you are, other 30%), I feel pretty confident saying he never saw it. But on Monday morning, when I saw the news, it still felt a bit like he had just kicked me in the balls.
Why would Elon want to buy such a large stake in Twitter?
Some have wondered if his purchase of such a large share is his attempt to ensure he doesn't get banned from the platform. Elon has been known to push the boundaries of what is acceptable on Twitter and what is legal within SEC regulations. On more than one occasion, he has taken to Twitter to discuss his company's performance, which is illegal by any measure of SEC standards.
He even took to Twitter the day his purchase was announced to poll his followers to see if they desired an edit button, something that could definitely have benefited Elon himself on multiple occasions in the past. Like the time he insulted the British cave diver who helped rescue the Thai soccer team that became trapped by rising floodwaters. Or when he proposed taking Tesla private at $420 a share, which blatantly violated SEC regulations.
On multiple occasions, he has questioned the company's stance on free speech, going as far as saying he has intentions of starting his own social media platform. He has also claimed that social media platforms should be more decentralized and that users should have more control over the algorithms that dictate what appears in their feeds. This view aligns with that of Jack Dorsey, Twitter's founder, and Parag Agrawal, Twitter's new CEO.
For the reasons above, it is easy to see why this could be a power play to force Twitter into allowing Elon to do what Elon wants to do. Twitter is most likely the greatest marketing source Elon, and his companies have. Should he be restricted or even banned from the platform, it could prove detrimental to him financially.
Of course, there's also the chance that he sees Twitter itself as a great business opportunity. The company has long underperformed other stocks in its industry and the market as a whole. This has been a criticism of Twitter management for years.
The stock went public on November 7, 2013, at $26. On the Friday before Elon's announcement, it closed at $39.31. That's good for a 51% gain. But over that same period, Facebook is up 378%, and the S&P 500 is up 144%. So, you could have done almost three times as well just investing in an index fund that tracks the S&P as you would investing in Twitter. Not great for a tech company that runs one of the largest platforms in the world. Elon's purchase immediately impacted the stock price as it shot up over 20% as soon as the announcement was made. It finished the trading day up over 27%, the stock's largest one-day gain since the IPO.
The stock price hasn't been the only issue for Twitter. For a company that is so ingrained in our culture, Twitter has done an excruciatingly horrible job at monetizing its user base. In 2021 Twitter managed to lose $411 million. Meanwhile, Facebook recorded $47 billion of pretax income.
Not only have they been unable to monetize their user base successfully, but they have also been unable to grow their users at the rate other social media companies have. At the end of 2021, Twitter had 217 million daily active users. For comparison, Facebook had 1.93 billion, and Snapchat, which got started several years after Twitter, had 319 million.
Innovation has been another issue for Twitter. Other than a couple of failed attempts at video sharing services Vine and Periscope, there haven't been many attempts at real innovation from the company. And both of those attempts failed miserably. Despite that fact, TikTok has created a booming business in video sharing. So, clearly, there was a demand that Twitter failed to capture. A failure to execute in that manner will not be acceptable to Elon.
All of these problems have been discussed before by numerous tech analysts on Wall Street, as has the disconnect between the value of the platform to its users and the value of the company itself. The people who use Twitter and use it well derive a ton of value from Twitter. But somehow, the company hasn't found a way to derive value for its shareholders.
This could all be about to change. No one but Elon knows for sure what his intentions are, but one thing is for sure; he no doubt has intentions. My guess is it's somewhere between forcing Twitter to allow what he wants to benefit him and his other businesses and helping bring more value to an under-utilized platform that has left money on the table. Elon is a wildly successful business person who will make the most of his purchase. Either way, it's a win for Elon. Whether or not it's a long-term win for those of us who use Twitter or own Twitter stock remains to be seen.