Social media giant Twitter has accepted a $44 billion offer from Elon Musk to buy out the company and take it into private ownership. The world’s richest man has long been critical of Twitter for failing to “adhere to free speech principles”. This purchase is undoubtedly a move to rectify the culture of what he considers a digital soapbox. In April, Musk acquired a 9.2% stake and became Twitter’s largest shareholder. Barely a week later, Musk rejected an offer to join Twitter’s board and set his sights on a full takeover. He then made a hostile takeover bid for Twitter as the board had initially opposed his acquisition ambitions. Twitter even undertook a “poison pill” defence to prevent any shareholder from owning more than 15% of the company. Twitter felt Musk undervalued the company and was not clear on how he intended to fund the deal.
Musk entered negotiations and allayed these concerns. He will fund the deal through $21 billion of equity and a $12.5 billion loan secured against his Tesla stake. Finally, both sides agreed to a $54.20 per share price for the acquisition. This deal will give Musk the ability to restrict or liberalise elements of Twitter according to his desires. But why is Musk interested in Twitter and what are the challenges he will face? We explore why Elon Musk has sought to buy Twitter and what the long term implications may be.
What’s the benefit of buying Twitter?
The primary benefit of Musk’s Twitter acquisition is that it gives him control over one of the world’s most important social media platforms. Musk has described Twitter as a “online town square” and believes it forms a key part of Western democracy. Musk’s issue with Twitter is primarily centred around free speech. Musk was highly critical of Twitter’s decision to ban then-President Donald Trump after the Capitol Hill riots in 2021 and believed this impinged upon free speech. We explore whether this constituted an infringement of free speech in our previous article.
So what does Musk want to do? One of his first priorities is to reduce content moderation on the platform. He believes that the platform infringes on free speech and wants to loosen the reins. Interestingly, this could also see the return of Donald Trump to Twitter but Musk has not made an indication of whether this will occur. Musk has said he also wants to make Twitter’s algorithms open source so people can see exactly how the platform determines what content to show you. Musk has also set his sights on introducing user authentication to weed out spam bots.
The eccentric billionaire believes that changes under his ownership will “unlock” Twitter’s full potential. Musk is fashioning himself as a defender of democracy. He argues that the left-leaning views are given priority while right-leaning views are often silenced. He claims he wants to level the playing field and this purchase is the means to achieve this.
Musk has explicitly said he does not “care about the economics” of the Twitter deal and is not interested in making money out of it. This is clearly evidenced by the current state of Twitter. Contrary to popular opinion, Twitter is not even one of the top 10 most popular social media sites globally. As of January 2022, its monthly active user numbers stood at 436 million. By comparison, Facebook boasts 2.9 billion monthly active users, TikTok recently reached 1 billion, and even Snapchat surpassed 550 million. Twitter’s user numbers have been growing but only slightly. Between Q1 2020 and Q4 2021, daily active users grew by roughly 15%. On the other hand, TikTok’s user base soared by over 200% in the same period. The social media site also admitted that it had overstated its user numbers by almost 2 million for roughly three years. While Twitter is a formidable platform in terms of influence, its raw growth rate and therefore, monetisation potential appear modest compared to its competitors.
Financially, Twitter has rarely turned a profit and turned over just $5 billion in 2021. This is miniscule compared to market leader Meta for example, who turned over $115 billion last year. Twitter turned a profit of $513 million for 2021 but this is only its third profitable year since 2012.
Musk paid a 38% premium on the market value of Twitter. Although Twitter is a key player in global social media, Musk is not buying Twitter due to its growth potential or strong fundamentals. Rather, Musk’s sole ambition is to bring a cultural change to a platform which has a significant influence on public discourse.
Long Road Ahead
There are a plethora of challenges on the road ahead for Musk. The billionaire is hailing his purchase of Twitter as the return of free speech to the platform. He claims he wants to limit the scope of the platform’s moderators. Achieving and sustaining this however, will not be easy.
The EU has issued a gentle reminder that whatever changes Musk wishes to implement, they must comply with its new rules. The Digital Markets Act will obligate platforms to quickly and effectively take down illegal content or face hefty fines. This poses a direct problem for Musk’s plans. Some tweets may be legal in the US but illegal in the EU, for example certain hate speech. This requires increased moderation as potentially offending tweets must be reviewed and taken down, at least for EU users. Reducing moderation on the platform while regulators simultaneously introduce greater moderation requirements seems like a recipe for disaster.
Twitter is no stranger to regulatory action and the platform could get even more familiar under Musk. In the near future, a standoff between Musk and EU regulators over free speech is almost inevitable. How Musk plans to navigate this remains to be seen.
Musk may also face trouble from his other businesses. Investors in Tesla are concerned that Musk will have to sell more shares to pay for his Twitter purchase. He has already sold $4 billion in Tesla stock and secured a $12.5 billion loan against his Tesla holdings. Although Musk said he doesn’t plan to sell anymore Tesla shares, the stock value plunged over 12% in response to the news of the deal. Musk currently runs four huge companies, Tesla, SpaceX, Boring Company and Neuralink. Investors are concerned that Musk will not be able to give enough time to these businesses along with Twitter and all of these firms may suffer as a result.
Musk’s acquisition of Twitter is evidently focused on free speech. Despite its shaky financials and its modest user numbers compared to behemoths like Facebook and TikTok, Twitter remains unique. A large chunk of other social media platforms are focused on lifestyle and entertainment. Conversely, Twitter has become a megaphone for politicians and business leaders across the globe. During Donald Trump’s incumbency, he used Twitter as his primary platform to announce key policy changes. There is a strong argument to suggest that Twitter has become an important element of US, if not Western democracy. Musk’s acquisition of Twitter is not driven by a view to financial gain but rather a personal side-quest to, in his view, uphold free speech.
The biggest challenge facing Musk however, is the changing regulatory landscape. Regulators are pushing for more moderation and controls on social media platforms, not less. Musk’s Twitter may leave itself open to hefty fines and enforcement action. How well Musk will toe the line remains to be seen.
This entire saga however, demonstrates the true spending power of the world’s billionaires. The world’s richest man took issue with the conduct of an app and complained for months. When he’d had enough, he strove not for a change from within, but rather a wholesale change, under his full control. Hence, he rejected offers to join Twitter’s board and conjured up a credible $44 billion offer in a matter of weeks. He is now poised to reform Twitter and achieve exactly what he wanted. This simply goes to show; if you can’t beat them, buy them.