Blain’s Morning Porridge – Nov 22nd: Twitter – A Chaotic Mess, but Maybe That Was Musk’s Plan All Along?
“Don’t look there.. look here..”
This morning: “Twitter looks to be the most chaotic acquisition of all time, but underneath the madness there may be considerable guile, logic and a long term plan. Experience teaches not to underestimate Musk, but trust him considerably less far than he could be thrown! It might just be brilliant.”
Unfortunately I have very limited internet connectivity at present – so this morning’s comment will be bitty. My broadband speed is carrier-pigeon. The UK’s digital infrastructure resilience to autumnal storms, rain and wind is apparently limited. Virgin Media say they are trying to fix it – but they don’t answer any phones, and are now declining to recognise our passwords, meaning we can’t get any answers out of them. Working from home is fine – until it isn’t. Speaking with Virgin this morning made me want to kill something.
Relax. Calm. Calm
Congratulations to Wales last night – a deserved 1-All Victory Against the Americans last night – 3 million Welsh holding 330 ‘Mericans to a draw. (Ahem…) 11 vs 11 on the pitch though. To be fair, I’m more a follower of the Oval Ball, but Hen Wlad fy Nhadau (pronounced Hen Lad van Hedi – don’t ask) sounds great in any venue
Meanwhile, back in the real world… Twitter? WTF?
Like everyone else I’ve been scratching my head trying to understand what Elon Musk is trying to do at Twitter. It all makes for great reading, but just seems extraordinary, random and utterly chaotic. He even said he’d do “lots of dumb things in coming months.”
What’s his real game plan? Disruption for the sake of disruption? Destroy it to rebuild it? Booking a slot in the Guinness Book of Records for turning $44 bln into zero in record time? The pleasure of messing with Donald Trump’s head by inviting him to re-join in the knowledge he can’t because of his own pathetic Truth Social brand?
Or is it more subtle – does he just want to show its perfectly possible to make Twitter work with a fraction of the overheads and staff, thus shattering a few myths about the whole Tech sector’s value and sense of entitlement? Meaning he can look to shave headline headcount costs across the Muskosphere?
Full marks to Elon for pissing-off the banks which lent him $13 bln for the purchase. A banker chum is furious. His bank is involved on the top line, on the basis Musk had promised way back when they committed back in April to deliver a clear plan to monetise the opportunity and pay back the debt. Apparently, that debt was bid at 60 cents in the grey market last week – making Musk’s threat of possible bankruptcy very real. Twitter has a $1.5bln interest payment to meet annually. It can’t cover it now. The Ratings Agencies rate Twiter as B1 – Junk Cubed. Banks will inevitably be making provisions on their Twitter positions.
If I was Musk, I’d be planning to surreptitiously be buying back that debt, at say 50 cents on the dollar about the time he retweets a bankruptcy imminent warning… (Just saying, not that I condone such illicit market abuse… but that’s not how Elon thinks… I suspect.)
You have to wonder what the Banks were thinking? Did they think the Tesla experience shows Musk is no longer a problem child and is now a reformed financial actor aware of his corporate governance responsibilities? That Musk would deliver on promises? That there will lots of new business coming their way from the Musk platforms?
Big risk choices:
- If the banks hold the debt in hopes of future income streams from Musk, they may get hosed.
- If they sell, they lose out if he thrives.
- If Musk delivers all he promises, he will seek to replace them through the new SuperApp X anyway! Evil laughter fades into distance……
It feels Musk has sullied the Twitter brand – such as it was. It feels like he has pissed off everyone; staff, users, advertisers and the media. Who would want to pay him to be on the site? What advertisers will want to be associated with it? Sounds like Elon has broken it profoundly. But.. maybe not. What if Musk is un-assembling the bricks to put them back into a new form – and has a real vision for what Twitter version 2 should look like – and the opportunity it offers.
Regular readers will know I am no Musk fanboy. I don’t like him, deplore his behaviours, and I don’t believe he’s the genius he’s persuaded many to acclaim him. BUT! I have repeatedly underestimated him.
(I don’t want to make that mistake again – which immediately makes me wonder: Is that why Musk succeeds? Because folk are so conscious of his mould-breaking, consensus defying successes, and he’s so full of self-confidence… they are scared to call him out? That’s the core of any great scam: reinforce folks belief in something improbable on the basis everyone else believes it’s real!)
Or maybe it is real?
Maybe Twitter will become something transformational after being given the Musk shake-up treatment.
After all, when Musk bought his way into Tesla, he converted it from a hobby/passion-project to create an electric sportscar into a world beating car company. Tesla, despite all my doubts and multiple calls as a bubble about to pop, is now a successful, profitable car manufacturer with an expanding market share. It is, currently, still leader of the favoured EV sector.
I used to get furious about Tesla. How could other’s not see it was a complete bubble run by a raving liar and charlatan? Now I am more content. It’s just a company. Companies come and go all the time. Tesla’s stock price may be down nearly 60% this year, but it’s worth $525 bln!
I am so convinced Tesla is a great auto-maker that I am going to recommend it as a screaming buy relative to all its peers. It will command a significant premium to them. That will occur around a P/E of 15. Its currently trading at 51 times P/E – so my target is around $48, which infers a market cap of $150 bln. Ouch, but fair.
$150 bln may be much less than the $4 trillion plus some stock analysts, fanboys, barkers and Cathie Woods thought it was going to be worth.. Still, creating a genuinely good company worth $150 bln from nothing over 12 years – that’s still a great result and worth more than it was in April 2020. (Telsa does have substantive issues to face, not the least being its claims for autonomous driving and issues around competition and battery recycling, but let’s not spoil the moment…)
So what, then is Musk’s Game with Twitter?
I suspect the key to understanding Musk is to ignore what he says and does, and watch and listen to what he isn’t saying. In the case of Twitter, that’s a short-term project for him. His objectives there are around the value of “content” and how much money he can extract from it.
Musk seems to be going back to his PayPal roots with Twitter. His comments on wanting to expand from whatever Twitter is into a “payments and everything” SuperApp X sounds fantastical, but give it some thought. It could redefine the distribution of paid for content. All the other stuff about it becoming a video service or an effective bank and even money-market investment manager sound like noise and frankly dangerous after watching exchanges in the Crypto-verse implode with client money.
I already use my ApplePay account as a de-facto bank on the net. That’s not new. There are very valid fears across the fund management sector re how large tech firms with unlimited access to customer data, like Apple, Amazon and Google could monetize that information to become new form wealth managers – potentially displacing the current behemoths (more about that later this week.. if I can get the net working!)
Back to Twitter! There is an opportunity in Payments. You need users to make it worthwhile.
PayPal is already a dinosaur. I use it to process subscriptions for the Morning Porridge, and it’s clunky and troublesome. It’s very expensive, and impossible to get any help with issues. Anything that could distribute and monetize content simply on a simpler, subscription, pay-per-view or the marginal income some form of streaming would create is potentially interesting for content providers. A meaningful, monetizable conduit for Content has value. Paypal doesn’t fit. Every content provider is looking for the right way to get paid and to monetize their work. If Twitter were to offer an encompassing and seamless way to receive payments for content, then it’s a potentially lucrative site.
The question then becomes, what do content providers get from Twitter, and by how much will these returns outweigh the costs of being on Twitter. Its that simple.
Building a payments/compliant payments system shouldn’t be that difficult for Twitter – with the full resources of SpaceX and Tesla to build something more smooth for the future digital payments age that satisfies regulators and customers.
The question then is how do you attract the audiences?
My Morning Porridge content is unlikely to find much traction in a World comprising nothing except MAGA wearing Trumptards, or a Conservative Party round-robin. But, the potential “audience” Twitter reaches has got clear value as a content/opinion conduit. Twitter is tiny in the Social Media sector – about 400mm users compared to 3 bln at Facebook. It’s not much larger than LinkedIn with 300mm users.
They key is who these Twitter and LinkedIn users are, and what they are on the platform for. LinkedIn is largely a business/commerce audience. Twitter is more… frenetic. But, their audiences aren’t looking for music videos, short-form cinema masterpieces, photogenic cats doing funny things, smart-dresses, the latest must-go holiday venue, or even paid-for-bespoke-porn – they are looking for news, views and opinions. That’s why Twitter and LinkedIn work as specialised social media sites – because they are idea exchanges.
The question then becomes how does Musk make Twitter pay? Once everyone realises its actually a better content platform than anywhere else. That’s when content providers start paying for their right to post, subscribers pay for access to premium content, and advertisers seek to pile back in..
And that’s why it’s all a short-term goal for Musk. He’s in it for the long-game – which is to see the flows and where the money goes. Ultimately Elon wants access to that money directly – not via difficult banks. And that’s why the eventual evolution of Twitter into SuperApp X may be the transformational moment for Elon Musk to ensure the continual feeding of his empire with the capital it needs to really, really expand.
I may not like Musk, but I feel respect coming on…
No internet access today, so can’t get 5 articles to send..
Out of time, and back to the day job..
Strategist – Shard Capital