Three Concerns Surrounding 'Musk-style' Twitter as Layoffs Begin Immediately After Acquisition...

[Image source=Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Elon Musk, CEO of Tesla, has been in the spotlight since completing the acquisition of the global social networking service (SNS) Twitter on the 27th of last month (local time).

The market is flooded with numerous concerns about how Twitter will transform under Musk, the world's richest man and a well-known 'eccentric,' what kind of content policies will be established, and how the massive loans taken during the acquisition will be resolved.

① Where is the reform of the 'company' Twitter headed? Musk takes on his fifth CEO role

CEO Musk now holds the CEO position at five companies: Tesla, space exploration company SpaceX, tunneling company The Boring Company, neurotechnology startup Neuralink, and now Twitter.

According to Bloomberg and others on the 1st (local time), he immediately began a major overhaul of the management team right after acquiring Twitter. On the day of the acquisition, he fired Twitter CEO Parag Agrawal, CFO Ned Segal, and CLO Vijaya Gadde. Subsequently, key executives such as Sarah Personette, Chief Customer Officer (CCO) responsible for Twitter's advertising and marketing, resigned one after another.

Following the management team, he also dissolved the board of directors. In a document submitted to the U.S. Securities and Exchange Commission (SEC) the day before, he stated that the nine board members "are no longer directors," declaring himself the sole director. Shortly after the document was reported, Musk explained on his Twitter that the board dissolution is "temporary," without providing detailed information.

Twitter employees are also expected to face large-scale layoffs. Current reports suggest that the first round of layoffs will affect 25% of the total staff. Including additional layoffs, about 50%, or roughly half of the current employees, are expected to leave Twitter. Although this is less than the previously reported 75% before Musk's acquisition, it still amounts to thousands of people.

[Image source=AP Yonhap News]

As CEO Musk has been replacing Twitter's 'people' day after day immediately after the acquisition, the market is paying close attention to how Twitter will be restructured. Especially, Personette, the CCO responsible for Twitter's advertising sales, was a trusted figure among advertisers, so foreign media report that this could inevitably affect Twitter's advertising revenue.

Since changing the management and staff so extensively significantly alters the business characteristics, it is impossible to predict what impact Musk's actions will have on Twitter.

② Musk emphasizes 'freedom of expression'... advertisers are uneasy

More than 90% of Twitter's revenue comes from advertising. Therefore, advertisers are Twitter's most important customers. During the acquisition process, Musk emphasized 'freedom of expression' and even hinted at restoring former U.S. President Donald Trump's account. Just before the acquisition, he tweeted to reassure advertisers that "Twitter cannot become a hell for everyone," reflecting this background.

However, advertisers are viewing Musk and Twitter with suspicion. Shortly after Musk's acquisition on the 28th of last month, he posted a conspiracy theory tweet insulting the husband of House Speaker Nancy Pelosi, who had been assaulted by an assailant, which drew heavy criticism and was deleted. Musk announced plans to form a content moderation council, and the former CCO Personette emphasized to Musk the importance of adhering to standards set by the Global Alliance for Responsible Media (GARM), but advertisers' concerns remain.

The Global Alliance for Responsible Media (GARM), established by the World Federation of Advertisers (WFA), opposed Musk allowing inappropriate content to remain on Twitter, stating on the 31st of last month that this is "non-negotiable." Also, the world's largest advertising company, IPG, recommended through social media agencies on the same day to suspend advertising spending on Twitter for the time being. General Motors (GM) also announced it would temporarily stop advertising on Twitter.

[Image source=Reuters Yonhap News]

Platform reliability and stability are key factors for advertisers' decisions. Reports that far-right figures are returning to Twitter after Musk's acquisition are unwelcome news for advertisers. Cathy Klumper, CEO of Black Glass, a consulting firm and IPG subsidiary, told The New York Times (NYT) that after surveying major advertisers such as Walmart, Pepsi, and Cadillac, they plan to suspend advertising on Twitter until its direction becomes clear.

In this situation, Musk has made a bold move toward monetization.

On that day, the subscription fee for the paid service 'Twitter Blue,' which includes user verification features, was raised from the previous $4.99 to $8. This was the first Twitter service-related decision made less than a week after the acquisition, and it is a price increase for a service that could reduce dependence on advertising.

Musk said, "The current 'Twitter Blue' system, which distinguishes between landlords and tenants based on whether you have a blue checkmark or not, makes no sense," emphasizing, "Twitter will create a revenue structure that rewards content creators more."

As Musk persuades advertisers while expanding the proportion of non-advertising services, Twitter's future content policies are expected to inevitably impact its performance. Moreover, given Twitter's significant influence in the SNS market, Musk's decisions could greatly shake this market.

③ Twitter bought with debt, "Banks agree not to sell bonds until early next year"

Another party closely watching where Musk's Twitter is headed is Wall Street.

Because global major banks, including Morgan Stanley, provided funds during the Twitter acquisition process, whether they can recover these funds depends on Twitter's future. Musk secured $13 billion in bank loans out of the total acquisition amount of $44 billion (approximately 62.4 trillion KRW).

[Image source=Reuters Yonhap News]

According to Bloomberg and others, the banks initially planned to sell these loan bonds to institutional investors. However, due to the Federal Reserve's interest rate hikes causing the credit market to freeze and the market's uncertainty about Twitter's direction, it is considered difficult to dispose of them immediately.

Therefore, banks are expected to hold the loan bonds until early next year while waiting for Musk to clearly announce Twitter's business plans. According to major foreign media, seven lending institutions believe that Musk must present strategies, including cost reductions affecting Twitter's finances in 2023 and 2024, to attract investor interest.

The problem is that the costs banks must bear have significantly increased. Since April, when banks first agreed to participate in the acquisition, market conditions have drastically changed. Bond market interest rates have risen sharply, and the market has frozen, making it difficult to find buyers for these bonds. Bloomberg reported earlier last month that Morgan Stanley, which holds the largest amount of related bonds, is facing a $500 million loss.

Bloomberg stated, "The drama of the Twitter and Musk deal is just beginning for Wall Street banks," adding, "They must convince investors to justify the massive debt."

Twitter's financial situation is deteriorating.

Credit rating agency Moody's downgraded Twitter's credit rating by two notches from 'Ba2' to 'B1' on the 31st of last month. The B1 rating is the fourth highest within speculative grade. The credit outlook remains 'negative.' This reflects the significant $13 billion debt and increased debt ratio due to reduced cash holdings. Additionally, concerns about a recession have frozen the advertising market, leaving Twitter's performance unstable.

This content was produced with the assistance of AI translation services.