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Interestingly, the new Twitter valuation is less than half of what Elon Musk paid for the social media giant in Q4 2022.
Elon Musk has reportedly halved the valuation of social media giant Twitter in a new employee internal memo. According to the outspoken Tesla (NASDAQ: TSLA) CEO, Twitter’s staff will receive stock grants based on a $20 billion valuation. This figure is less than half of what Musk paid to acquire the microblogging platform last October. Musk acquired Twitter on October 27th, 2022, for $44 billion, six months after initiating the purchase. At the time, the billionaire sought to take the company private and intimated on plans to increase its earnings potential.
However, the new stock compensation program suggests that Twitter remains financially precarious. In fact, at some point, the social media company was reportedly close to a full-blown solvency crisis.
Elon Musk Details New Twitter Valuation & How it Applies to Employees
In an email, Musk explained that Twitter employees would receive stock in the holding company he acquired Twitter with, X Corporation. Furthermore, the Tesla CEO added that employees could cash in their stock grants at specified periods. According to Musk, Twitter’s staff can sell the company’s stock every six months, similar to the practice at SpaceX. He further explained that selling private stock allows employees to have “liquid stock” without pricing problems and lawsuit burdens that may affect a public company.
Amid plans to “reshape Twitter rapidly,” Musk views the company as “an inverse start-up” that requires “radical changes” to transform its fortunes. These changes include significant downsizing and cost-cutting measures, which has helped avoid bankruptcy and streamline operations.
Nonetheless, Musk’s efforts to set Twitter on the right path have been consistently met with a decline in the company’s valuation. A significant chunk of this decline is due to the Twitter advertiser exodus that occurred soon after Musk’s takeover.
As it stands, Elon Musk claims to see a path through which Twitter can achieve a lofty $250 billion valuation. This ambitious agenda could make the social media company’s current stock grants ten times as valuable as they are now. However, Musk also admitted that his quest to drastically increase Twitter’s market cap is also tricky.
Twitter, which boasted 237.8 million daily active users just before it went private, has lost a ton of advertisers since October. A recent Vox report stated that more than half of Twitter’s top 1,000 advertisers no longer show ads on the platform. Much of this development stems from advertisers worrying about Musk’s well-documented history of courting controversy online. As one advertiser put it:
“There are other places I can spend my money without having to worry that I’ll be attacked by Elon, or my clients will be, or that he will say something that will force me to turn off my ads.”
Another advertising executive said, “Trust is such an important currency in advertising. I don’t trust Elon at his word.”
Meanwhile, ad industry executive and AJL Advisory founder Lou Paskalis opined that Musk does not “understand how advertising works.” Paskalis added:
“I think he thinks it’s a science first and then an art, when in fact, it’s an art first and then a science.”
Twitter’s revenue slid by approximately 40% year-over-year (YoY) in December.