Elon Musk painted a dire picture of Twitter’s balance sheet in a recent chat, likening the platform’s finances to a plane that is about to crash.
Musk, who bought the social media company for $44 billion in October, told a Twitter Spaces group it was on a pace to lose $3 billion per year when he took over. That’s one reason, he said, that the workforce was pared down severely.
“This company is basically [like] you’re in a plane that is headed towards the ground at high speed with the engines on fire and the controls don’t work,” the Tesla and SpaceX founder said Wednesday.
Musk’s purchase was structured with the company assuming $12.5 billion of debt, which he noted is subject to rapidly rising interest rates. That means Twitter is saddled with about $1.5 billion in annual debt service, he said. With all of Twitter’s other expenses, the company was on target to spend as much as $6.5 billion while taking in less than half that, he said.
Key moment in this twitter space with @elonmusk – in this clip he explains the current financial situation at @twitter and the reason for his actions lately. pic.twitter.com/YyWZEy5VS7
— Alex (@TheSonOfWalkley) December 21, 2022
“That’s why I spent the last five weeks cutting costs like crazy,” said Musk, who has fired as much as half of the company’s 7,000 employees and even sold off furniture and equipment at the company’s San Francisco headquarters.
Musk has also begun charging users monthly for blue-check verification and made inroads with jittery advertisers, many of whom fled when the company received negative publicity amid the layoffs and disputed claims that he was not cracking down on hate speech. Although 72 of Twitter’s top 100 advertisers have reportedly paused ad campaigns, according to a review by digital marketing intelligence firm Pathmatics, Musk said the defections were driven by the need for assurance they were getting their money’s worth in a bad economic climate.
“Their requests are not fuzzy or irrational or anything,” Musk said of advertisers he has met with. “They’re like, quite reasonable. They’re like, ‘Just show us a [return on investment] that makes sense.’ And I’m like, ‘Yes, I agree.’ If I were in their position, I would also want an ROI that makes sense, especially when headed into difficult economic times.”
Musk recently announced plans to step down as Twitter CEO, in accordance with a poll he conducted that showed a majority of users wanted him to. He has not yet named a successor.
With some changes in place and more to come, Musk expressed optimism that he can stop the company from bleeding red ink in 2023.
“With the changes that we’re making here, on massively reducing the burn rate and building subscriber revenue, I now think that Twitter will in fact be okay next year,” Musk said. “I think we’ll be hopefully, sort of roughly cash-flow break even. That’s what I expect for next year.”
“This will be difficult, but I think that’s what will happen, roughly cash-flow break even as opposed to minus $3 billion-ish, with $1 billion of cash, which would be therefore dead,” he said.