In stock grants to the social media app’s shrunken staff, billionaire owner Elon Musk imputes a $20 bln valuation to Twitter, or less than half what he paid. Getting there involves financial jiu-jitsu, argues TheRealLSL:
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 toA cleaner line to the current valuation is through Twitter’s top line.
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.
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.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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