Elon Musk’s disclosure of a “substantial” drop in Twitter’s revenue since taking office 10 days ago underscores the social media company’s finances after taking on $13 billion (Rs 1.05 billion) in debt, credit experts say The situation is precarious. .

Musk said on Twitter on Friday that Twitter was losing more than $4 million (about 330 million rupees) a day, mainly because advertisers started fleeing after he took over. He accused civil rights activists of pressuring advertisers, even though many in the advertising industry say his spreading conspiracy theories played a role.

Even before the upheaval, however, Musk orchestrated an acquisition that pushed the San Francisco-based company’s finances to the brink.

Twitter faces a total of nearly $1.2 billion (Rs 98.3 crore) over the next 12 months due to Musk’s piled-up debt on Twitter following a string of Fed rate hikes, an analysis of Twitter’s financing terms shows. interest payment. Regulatory documents show.

The sum exceeds Twitter’s recently disclosed cash flow, which stood at $1.1 billion (about 90.1 billion rupees) at the end of June, according to Twitter’s financial disclosures before Musk took it private on October 27.

Some aspects of Twitter’s current financial position are uncertain because the company hasn’t made enough disclosures. It is unclear how much Twitter has $5.29 billion (approximately Rs 43,330 crore) in debt before the acquisition is refinanced or remains in the company. It is also unclear how much of the $2.7 billion (about 221.2 billion rupees) in cash Twitter held at the end of June would need to be kept after going private.

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Debt investors and analysts say Musk needs to make sure the company is profitable enough to pay the debt, or it will require a cash injection.

“Unless Mr Musk contributes significantly more equity than previously expected, or significantly improves profitability, leverage could soar into double digits,” S&P Global analysts wrote in a credit research note. ” They gave the company a “junk” B- rating.

for Twitter and Musk did not respond to requests for comment.

Musk and his co-investors collectively wrote more than $30 billion (approximately 245.8 crore rupees) for the Twitter deal. That money is at risk if Twitter needs to restructure its debt.

Musk has already started slashing costs, laying off half of the company’s 7,400 employees. Overall, he is trying to save up to $1 billion (Rs 81.9 crore) in annual infrastructure costs from things like servers and cloud services. In 2021, Twitter’s total costs and expenses will be $5.6 billion (approximately Rs 45.9 billion).

Musk also outlined plans for a new subscription service that would include verifying the authenticity of Twitter users for $8 (about 655 rupees) a month. The credit analyst said it would be a boon if he could generate enough revenue to diversify Twitter’s profits without alienating users.

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Analysts at Standard & Poor’s also said in their report that the expected recession will affect Twitter’s ad revenue next year. Musk said last week that Twitter is more vulnerable to ad cuts than other social media platforms because much of it comes from brand ads rather than direct-response ads that involve with consumers. Advertisers cut brand advertising in bad times.

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Twitter’s woes are also a problem for the banks that backed Musk’s acquisition, even as the company continues to meet its debt obligations as they need to get the debt off its books and sell it to investors. They’ve held it so far because higher interest rates made it attractive to investors, who had to sell it at a discount. A deterioration in Twitter’s business threatens to turn the bank’s current losses of hundreds of millions into billions.

“With business expected to decline next year, it will be difficult to sell debt,” said Roberta Goss, a senior managing director at Pretium Partners, which invests in corporate debt.

© Thomson Reuters 2022

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By Rebecca French

Rebecca French writes books about Technology and smartwatches. Her books have received starred reviews in Technology Shout, Publishers Weekly, Library Journal, and Booklist. She is a New York Times and a USA Today Bestseller...