Last week saw several events on Twitter that took place almost simultaneously. Each event overlapped. Elon Musk explained how he would fund his proposal for $54.20-per-share on Thursday. This eased any doubts about his sincerity. (He didn’t touch on this at all in announcing his offer, even though such unsolicited bids almost always do, an effort to ease investors’ nerves.) By the weekend, Twitter’s board was meeting to discuss Musk’s offer and quickly concluded they better take him up on it. Due to the $25 billion of Morgan Stanley debt and 11 other banks, Musk proved both serious as well-funded.
Here’s something else: The board was inevitably not just weighing the numbers around Musk’s bid and their own private calculations around the company’s valuation, they were also looking at the first-quarter figures that’ll be reported publicly on Thursday. (Generally speaking, if a company is reporting on, say, a Thursday, the board’s directors get to see the figures the previous Thursday or Friday in a presentation by the CEO; this typically follows a series of increasingly late nights in the Accounting and Financial Planning and Analysis departments and maybe some testy Slacks about who has what Excel sheet. It’s a rhythm as natural and recurring as fireflies in summer and bonus-check Rolexes in mid-winter.) Now, in this whole mix around Musk, we haven’t talked too much about these first-quarter numbers, and maybe we should.
Twitter’s board almost certainly had those first-quarter numbers last week, and while we’ll probably never get a clear-cut answer from the company about this, but it’s curious to think about how much those first-quarter numbers might’ve played into the board’s quick decision making. “I think in all likelihood, the lack of strength around these earnings probably played a big factor in Twitter feeling like it had to sell to Musk,” says Ygal Arounian, a managing director at Wedbush Securitites.
Quickly, let’s go over the numbers from Wall Street’s collective tea-leafing reading. Analysts predict Twitter will lose $162 million (19 cents per share) on $1.2 billion in sales—compared to $68 million in profit and $1.04 billion in revenue a year ago. The active user count is expected to rise to approximately 227 millions, compared with 217million in the prior quarter.
Here are some other numbers that you should keep an eye on: Twitter’s goals for next year, $7.5 Billion in sales, and 315 MILLION users. The last year saw a lot of investor sentiment around whether Twitter is on track to reach these goals. Wall Street’s pre-Musk estimates showed the company wasn’t entirely on course. They had 294 million users and $7.2 billion sales.
Why exactly would this quarterly earnings report have factored into the board’s thinking? It’s just from one quarter, you reasonably point out. One quarter! Well, if the figures are worse than expected—even if only “slightly” to “moderately worse”—they likely would’ve tanked Twitter’s stock price Thursday morning. These things happen, and they have occurred recently to Twitter. In November, shares fell 10% following a Twitter loss of $537million in the third quarter. The company’s disappointing user growth (up only 13% to 21 million) made its aim to grow to 100 million by 2023 look increasingly unlikely.
If the board hadn’t already approved the deal and the report did send the shares into a plummet on Thursday, maybe Musk sees the earnings and loses interest. Things have been done by Musk. Oder he might see them and reconsider his offer. Lower. He might do nothing. The Twitter board probably took a higher risk than they were willing to. If it lost Musk’s $54.20-a-share deal, it might be a good long time—possibly never?—before it could attract a similar figure. Twitter’s stock was down over 50% in the 12 months preceding Musk’s entrance, no higher than in 2018.
Twitter will end one tradition of the earnings season on Thursday. It’ll release the numbers, but it canceled the usual remarks from the CEO and senior executives typically following it (as well as the concluding Q&A with Wall Street analysts). It is rare that this happens. A management presentation almost always follows a report’s release by about 45 to 60 minutes. (Again, natural rhythms—fireflies, Rolexes, etc.)
The general vibe from Twitter’s decision not to have one: Enough has happened at the company this week without more happening on Thursday than strictly necessary.
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