Taking a company private via LBO, firing a quarter of the staff so you can afford the debt payments, and then streamlining and flipping the profitable parts of the business is the classic corporate raid playbook. So far he's done the LBO part, and is apparently doing the layoff part. Of course, he's the richest person in the world and his finance partners are well connected Saudis, so there are obviously many plausible reasons to operate it at a loss and never do the actual looting part of the corporate raid.
Sure. But Musk is betting that Twitter is not profitable because of the people running it. And Twitter was profitable for a while before the marked management change in late 2018.
It's not a result of bad management. Twitter is only non-profitable because they choose to spend all that excess revenue on R&D; Partly because, that's what tax law incentives, partly because that's what investors in tech companies want: Growth
If you look at twitter's own financial filings, they could easily be profitable if they just dropped their R&D budget. The filings claims in the 2021 year it only cost about $500 million to "operate" the platform, and the platform bought in over $5 billion in revenue.
All Musk is doing is switching the company priorities from growth to profit extraction.
In theory, you can drop the R&D spending to zero, and you can sit there claiming a cool 90% profit ratio. However, some of that R&D spending is probably "necessary" to the continued functioning of twitter as a platform, and it's improvement. If you dropped R&D to zero twitter (the platform) would slowly wither and die, but theoretically there is a happy medium where you can maximise for long-term profit and extract the maximum value over time (though, it still might be profitable to run the company into the ground eventually)
R&D covers all development that would qualify as more than “maintenance mode” for Twitter. It’s not necessarily a bunch of skunkworks teams making moonshot bets. It’s a very loosely defined tax category.
The dirty not so secret of “we could be profitable if we just dropped our R&D budget” is that maintaining your existing revenue depends on that new development work.
> Of course, he's the richest person in the world and his finance partners are well connected Saudis,
Care to point to your sources or are you just spreading misinformation?
Saudis are second largest shareholder in Twitter but their share is relatively slim. Also, just because Saudis bought the same thing I bought does not immediately mean they are my finance partners even if it somehow helped my goal.
Here, official Saudi statement that they are maintaining their $2bn stake in the company because it is in the long term interests of the Kingdom. So, maybe just business partners, not finance partners, although that's $2bn of cash that Musk won't have to pay out. Anyway, the substance of the point remains intact - there are many plausible reasons the current owners of twitter could want to continue operating it that are not in the classic corporate raiding plan.
Saudi finance partners were the reason he tweeted 'Funding Secured' in relation to Tesla. That's Tesla, not Twitter, but does show he has partnerships with the 'well connected Saudis'
