Being one of the richest people in the world doesn’t mean you can go to the bank and take 44,000 million dollars to buy a social network. The acquisition of Twitter by Elon Musk is a clear example of this. The billionaire had to sell part of his stake in Tesla, resort to investment funds and request several bank loans to finance the operation.
In an ideal scenario, the company should generate enough revenue to continue growing and pay off the debt. The truth is that the reality of Twitter, according to the Financial Times newspaper, is very different. Musk’s controversial management has scared off major advertisers on the social network, putting his plans to make it profitable in jeopardy.
Elon Musk’s Twitter Faces Huge Debt
The final details of the financing agreement are unknown, but people related to the purchase of Twitter assure that the deadline to make the first payment of a loan of 13,000 million dollars. Specifically, we are talking about 1,500 million dollars a year in interest that the company must transfer to a group of banks led by Morgan Stanley.
However, the company’s balance sheets show not very encouraging data. According to Zoë Schiffer of Platformer, daily advertising revenue, compared to last year, is down 40%. But the problems do not end there. According to The Information, more than 500 of Twitter’s top advertisers have stopped spending money on ads on the social network.
This whole situation can be better understood if we take into account that much of Twitter’s revenue comes from advertising. This is a very important pillar for the financial health of the company, which has seen brands such as Volkswagen, United Airlines, Eli Lilly, Pfizer y Mondelezthey have distanced themselves alleging, among other things, the uncertain direction that they have taken with the landing of Musk.
An important point in this whole matter is that the debt is linked to Twitter at a corporate level, so failure to comply with its obligations would directly impact the company with a wide range of consequences. One of them, to enter the club of NCAA companies (No Coupon At All) that have not even made the first payment of their debt interest.
In the worst case scenario, Twitter could file for Chapter 11 of the United States Bankruptcy Law, that is, declare bankruptcy. Consequently, a long and tedious restructuring process would begin. However, if the outlook doesn’t change immediately, Musk could still dip into his personal wealth by selling Tesla stock.
For now, the businessman has been quick to cut costs by limiting the amount of money invested in Twitter’s cloud infrastructure, laying off a large number of staff, eliminating free food and even buying fewer supplies for the bathrooms. In addition, he has tried to renegotiate most of the office rental contracts and even cancel some of them.
Images: Akshar Dave | Kevin Krejci (Fl.
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