Can Elon Musk Make Money from Twitter (TWR)?
Strangely, Elon Musk is trying to buy his favorite social media play toy Twitter (TWR). Musk bought a 9.2% stake in Twitter (NYSE: TWTR), The Washington Post reports.
Hence, Musk is now the biggest owner of Twitter stock, The Washington Post estimates. Musk now owns more TWTR shares than founder Jack Dorsey, who owns 2.25% of the social media cesspool. Consequently, Musk has joined Twitter’s board of directors and is pitching upgrades to the social media app, The New York Times reports.
Musk is seeking a controlling interest in Twitter, Dan Ives speculates. Ives thinks Musk believes buying Twitter will be cheaper and easier than building his social media platform, The Post reports. Ives is Managing Director of Wedbush Securities. Musk is an enormous Twitter fan. The Washington Post estimates the Tesla founder has tweeted over 17,300 times.
Musk has a history of creating lucrative companies such as Tesla Motors (TSLA). For example, Tesla reported quarterly revenues of $17.719 billion, a quarterly gross profit of $4.847 billion, and a quarterly operating income of $2.613 billion on 31 December 2021. Therefore, many investors will wonder if Musk can make money on Twitter?
Is Twitter Making Money?
Twitter (TWTR) makes some money. For example, Twitter reported a quarterly gross profit of $1.052 billion on 31 December 2021.
In contrast, Twitter reported a quarterly operating income of $167.38 million on 31 December 2021. Yet Twitter has reported some big losses recently. For example, Twitter reported a quarterly operating loss of -$742.55 million on 30 September 2021.
Moreover, Twitter makes less money. For instance, Twitter’s quarterly operating income fell from $251.92 million on 31 December 2020. Conversely, the quarterly gross profit rose from $856 million on 31 December 2020.
Yet, Twitter is growing. For instance, Twitter’s revenues grew by 21.57% in the quarter ending on 31 December 2021, Stockrow estimates. Incredibly, Twitter’s revenues grew by 74.12% in the quarter ending on 30 June 2021.
Thus, Twitter is capable of astronomical growth, which is what could have attracted Musk’s attention.
Twitter Burns Cash
I consider Twitter a lousy company because it is burning cash. For instance, Twitter reported a quarterly operating cash flow of -$281.91 million and a quarterly ending cash flow -$1.286 billion on 31 December 2021.
Hence, Twitter (TWTR) gobbles cash rather than generates it. That it is the opposite of a value investment.
For instance, Twitter finished 2021 with less cash and more debt. Twitter had $6.402 billion in cash and short-term investments on 31 December 2021. The cash and short-term investments shrank from $7.475 billion on 31 December 2020. Twitter’s total debt grew from $4.485 billion on 31 December 2020 to $5.546 billion on 31 December 2021.
Yet Twitter gained a little value in 2021. Twitter’s total assets grew from $13.379 billion on 31 December 2020 to $14.860 billion on 31 December 2021. Hence, Twitter’s growth does not produce cash or value. Consequently, I think Twitter is not a value investment.
What is Musk buying at Twitter (TWTR)?
So what will Elon Musk get if he buys Twitter (TWTR)? First Elon will own the world’s 15th largest social media platform.
However, Twitter Inc. (NYSE: TWTR) is a minor player in global social media. Statista estimates Twitter had 436 million users worldwide in January 2022. In contrast, the largest social media platform Facebook (FB) had 2.91 billion users in January 2022.
I think the location of Twitter’s users attracts Musk. Statista estimates Twitter had 76.9 million users in the United States in January 2022. Twitter has a massive footprint and an enormous footprint in the United States.
Meanwhile, Musk bases his operations in the United States. Tesla’s headquarters are in Austin, Texas, for example. Tesla’s main factory is in Freemont, California. The Gigafactory is in Storey County, Nevada, and the new Tesla Gigafactory is in Austin, Texas.
Plus, SpaceX’s headquarters is in Hawthorne, California. SpaceX’s other operations are at Cape Canaveral, Florida, and in Boca Chica, Texas. Notably, SpaceX is trying to get the US Army Corps of Engineers to approve expansion of its Starbase testing facility in Texas’s Rio Grande Valley, The Verge reports.
Musk wants Twitter for Political Influence
I think Musk wants Twitter (TWTR) to gain political influence. Musk’s business is vulnerable to American politics.
For example SpaceX won a $2.9 billion contract to build NASA’s next moon lander in 2021. Similarly, just two military contracts awarded to SpaceX are worth $159.7 million, Business Insider reports.
SpaceX needs government contracts to finance Musk’s StarLink satellite internet scheme and his Mars colonization efforts. Additionally, SpaceX cannot operate without government support.
Similarly, tax credits drive the sells of Tesla’s electric vehicles. However, Tesla vehicles will not qualify for a $7,500 federal tax credit in 2022, Edmonds.com reports.
If Musk wants Congress to restore the tax credit and keep the contracts coming, he needs political influence. One way to get political influence is to control media politicians, use such as Twitter.
Notably, Twitter is American politicians’ favorite social media. Some observers think former President Donald J. Trump (R-Florida) used Twitter to reach the White House. Understandably, Trump is still angry at Twitter’s decision to deplatform him.
Hence, Musk could buy Twitter for the same reason, Jeff Bezos bought The Washington Post to get political influence by owning a popular media outlet. Musk wants the ability to influence 76.9 million American Twitter users. Those users include former President Trump and many influential politicians.
Musk’s interest in Twitter raises serious ethical and political questions. Do we want a man who makes billions from government contracts to own a popular social media platform?
Is Twitter Worth $46.23 a share?
I think political influence is the only reason Musk is interested in an overpriced stock.
I think Mr. Market overpriced Twitter (TWTR) at $46.23 a share on 8 April 2021. I see nothing in Twitter’s financial data to justify that number. Indeed, the only reason Mr. Market is paying $46.23 for Twitter is Musk’s interest in the stock.
To explain, the public first learned of Musk’s Twitter stake from a 4 April 2022 regulatory filing. Mr. Market paid $38.69 for Twitter on 1 April 2022. Hence, Twitter’s share price grew by over $10 because of Musk’s purchases.
Twitter’s share price was falling before they made Musk’s purchases public. Mr. Market paid $64.24 for Twitter on 5 April 2021. It only grew because of Musk’s interest.
I consider Twitter a terrible stock despite Musk’s interest. Twitter makes little money and burns cash despite its growth. I advise smart investors to avoid Twitter because I cannot see how it will make money. I predict Twitter’s social media platform will collapse because of competition from TikTok.
Smart investors need to stay away from Twitter no matter what Musk does. The world’s richest man can afford to buy a cash-burning social media platform to gain a little political influence. Ordinary investors cannot. I advise Musk and everybody else to stay far away from Twitter (TWTR) stock.