So will he, won't he? is the question of the moment.

Naturally, we are talking about Elon Musk's purchase of Twitter.

A purchase he cast doubt on – in a tweet of course – where he said the "Twitter deal [was] temporarily on hold."

What he was asking for, proof that spam or fake accounts make up fewer than 5% of the platform's users, may be a ruse, and is something Twitter will be hard pressed to prove anyway.

Figure 1: The world's richest man thinks free speech is in jeopardy.
(Source: JD Lasica via Creative Commons)

In other words "a strategy to row back on the amount he is prepared to pay to acquire the platform," Susannah Streeter, an analyst at Hargreaves Lansdown, said in an email to Light Reading. (It would however cost Musk $1 billion to walk away from the platform's $44 billion price tag entirely.)

Still, the 5% number is "a key metric, given that establishing an accurate number of real tweeters is considered to be key to future revenue streams via advertising or paid for subscriptions on the site," said Streeter.

So what this means is Musk's journey becoming Twitter's owner is likely to be "a bumpy ride," one that "risks hitting the skids," she says.

Bloomberg's Parmy Olson points out (also in a tweet) that using the proliferation of spam bots is particularly odd: "Purging spam bots was Musk's top objective in buying Twitter. Now he's positioning himself to argue the problem is worse than he was led to believe?"

A long and winding road

"I made an offer," announced Elon Musk three weeks ago.

The plan, to buy the remaining 90.8% shares of Twitter he did not already own, soon appeared to take shape, again through a series of tweets (and speculation).

We know, for one, that Twitter CEO Parag Agrawal's days in office appear limited – and he only took over from founder Jack Dorsey in November 2021. Elon Musk apparently intends to spend a few months in the CEO suite himself.

And Agrawal may not be the only one up for the chop. Musk wants to get rid of 1,000 of the company's 7,500 staff as soon as his purchase completes.

Anticipating this, Agrawal has so far let go general manager Kayvon Beykpour and head of revenue and product Bruce Falck, and announced a hiring freeze.

But Musk then anticipates hiring 2,700 new engineers between 2023 and 2025, according to a pitch deck he has been showing to investors, according to the New York Times.

What else is up for the chop? Advertisements, at least as Twitter's sole source of revenue. They made up a whopping 90% of it in 2020. Musk plans take this down to 45% ($12 billion) by 2028 – with a brand new source, subscriptions, making up $10 billion.

He may have a point. Twitter is vulnerable because big brands make up 85% of its advertising revenue, and like other platforms has been hit by iOS's privacy changes making measurement difficult. It has not yet managed to devise advertising products aimed at small e-commerce businesses.

Subscriptions – a tricky thing to make viable on social platforms – might take the form of what Musk has called a "slight" fee for commercial and government users. He also posted (then deleted) tweets that suggested slashing the price of the Twitter Blue subscription service and making it ad-free.

Getting on board

The offer that started this off probably should not have tempted Twitter's board. And the fact that it did says a great deal about just how deep Twitter's challenges are.

After all, Musk, a self-described "free-speech absolutist," has a radically different vision of Twitter's content moderation policies than Agrawal, who has taken pains to coax advertisers and keep regulators at bay by rooting out hate speech.

And Musk's $54.20 a share offer (valuing Twitter at $34 billion) is still a huge way off from the stock's $77 value only 14 months ago. Even if it's a 54% premium to where the stock was in January when Musk started accumulating shares in the company.

Light Reading's Iain Morris discusses Musk's $43 billion offer to buy Twitter.

On the other hand, Twitter as it currently stands is "an incredibly unprofitable model," according to a research note from New York tech analyst firm MoffettNathanson. The asset "does not generate meaningful profits and cash flows," it continues. And in that light, Twitter should "take the money and run."

It's a dim view – and one that other Wall Street analysts share. In the financial year 2021, it lost $221.4 million. In its bumper pandemic year of 2020, as its user numbers soared, it lost a whopping $1.14 billion.

Agrawal however has claimed Twitter's monetizable daily active users (mDAUs) could reach 315 million by 2023 (from 217 million at the end of 2021), pushing revenues from $5 billion today to $7.5 billion.

Despite the COVID boost "we remain below that forecast," commented Goldman Sachs' Eric Sheridan and two other analysts dryly in a February 2022 research note.

Not so free speech

There is a small irony that Donald Trump can't tweet, "yet the Taliban, Kremlin and Chinese Communist Party can," Jamie Moles from cloud cybersecurity firm ExtraHop told Light Reading.

"I have decided I want to acquire the company and take it private," Musk said in his SEC filing, because "I now realize the company will neither thrive nor serve this social imperative (ie, for free speech) in its current form."

"This is no investment for Musk, it's a passion project and one that will require him to take it private," Craig Erlam, a market analyst at OANDA, said to Light Reading.

Ultimately, Musk needs $36 billion to pull it all off, according to ratings agency Moody's: This is less than the $43 billion headline cost, because of share buybacks and cash generated from his existing 9% stake.

He has made significant progress here, including putting together $7 billion in funding from 19 investors, he said in a May 4 filing.

These include $1 billion from Larry Ellison, co-founder of Oracle (who sits on Tesla's board), $800 million from the venture capital fund Sequoia Capital, and $700 million from Vy Capital, a Dubai tech investment firm which has backed Musk's tunnel construction startup, The Boring Company.

This also assumes he isn't able to reduce the price tag, by kicking the tires with comments like his ones about the proportions of fake users on the platform.

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— Pádraig Belton, contributing editor special to Light Reading