Elon Musk Shows Soft Spot, Gives Out Stock Options At Potentially Bargain Basement Price

In an uncharacteristic act of kindness towards employees at Twitter, Elon Musk gave a number of employees stock options at an equity value of $20 billion, implying that the company as a whole has an enterprise value, including debt, of $33 billion.

It could be considered a bargain price considering this is a company that Elon Musk bought less than six months ago for $46.5 billion. At the time, investment banks and analysts valued the deal at 15-17x cash flow, and management was projecting that EBITDA would rise from $1.6 billion in 2022 to $5.4 billion in 2027, while revenue was forecasted to more than double from $5.9 billion in 2022 to $12.9 billion in 2027.

Oh, how the times have changed in such a short period of time. With Musk letting go more than three-quarters of the staff and advertisers bailing in droves, Musk now projects that Twitter will generate only $3 billion in revenue this year and no profit or cash flow. Thus, the valuation is 11x this year’s revenue while its closest rivals (Snap, Pinterest and Meta Platforms) are trading at 4.5x estimated revenue (according to Kovfin data).

The path forward for this company will be extremely difficult. When Musk was in the process of buying the company a couple of other potential buyers emerged (Thoma Bravo LP and Apollo Global) and kicked the tires, however, they never put forth a competitive bid, implying that the price was too high.

Since then, the economics have deteriorated so badly that there’s unlikely to be potential buyers at the discounted price of $33 billion that Musk has put on it. With the huge staff reductions, there have been fears of massive outages on the platform, and indeed some have occurred (although they have not been for a long period of time—yet).

The New York Times reported last month in February, Twitter experienced at least four widespread outages (versus nine in the whole year of 2022) according to data from NetBlocks, a firm that tracks Internet outages.

There have also been a number of bugs which have prevented some users from being able to post tweets. In a recent round of layoffs, Musk let go dozens of engineers responsible for keeping the site online, and the current staff roster is less than 2,000 versus 7,500 when Musk bought the company.

In addition, Twitter faces an investigation from the Federal Trade Commission, or FTC, over whether or not it has enough people to sufficiently safeguard data and their consumer privacy practices. They are seeking Elon Musk’s testimony about these matters.

There is currently no head of global infrastructure after Elon Musk fired Nelson Abraham last year. He was replaced temporarily by Tesla Engineer Sheen Austin, who resigned at the beginning of this year.

Going forward, it will be difficult for Musk to regain the trust of employees, investors and Twitter users and it would not be surprising if more privacy and data integrity investigations were initiated by regulators abroad.