Less than a month has passed since Elon Musk has taken the company private and, during this period, nearly 50% of the employees of Twitter have been fired. Musk has redeployed some of his Tesla engineers to take a crack at the new programming he has tried to institute into the Twitter application. Several prominent advertisers have moved away from marketing spending at Twitter, reducing the cash flow that the company once relied on. Another issue Twitter is facing is the reputation of each tweet. Before Musk decided to purchase the social media giant, users thought of specific tweets from prominent individuals with authority.
For example, when a sports reporter tweeted a trade was made in baseball, readers believed the tweet and the source. Unfortunately, this has gone by the wayside. Musk has tried to provide some authority to the individuals that tweeted, first by asking members to pay $8 for a badge. Twitter now offers badges to individuals but still finds many imposters, even as the company says they are aggressively going after impersonation and deceptive practices. The mayhem occurring at the once mighty social media giant is unsettling. Fortunately, Twitter is now a private company, meaning the impact is only on the psyche of those who trade. If there is more room for people to make comments that are not moderated, the new regime could bring about more volatility in the stock market.
What Happens to Twitter Now that it’s Private?
In late October, a transaction to purchase all of the outstanding shares of Twitter was completed by Elon Musk. Twitter’s stock was delisted from the New York Stock Exchange after listing in 2013. Twitter received a record of everyone who owned stock in the company who would receive cash and return in their shares. Musk agreed to pay $54.2 per share. Twitter shareholders no longer have rights in the company’s workings and can no longer vote on a board of directors.
What is Happening with Advertisers?
Twitter has been having a difficult time holding on to its advertisers. Fifty of the platform’s top 100 advertisers, which accounted for approximately $2 billion in spending, have announced they will no longer advertise with Twitter. In 2022 alone, this group brought in more than $750 million in advertising dollars. Some of the larger companies announced they would no longer advertise on Twitter. Then there was a group of so-called quiet quitters, companies that just pulled back and no longer spent money on Twitter. Some companies did not pull back because Twitter became private. Some companies like Kellogg said it was pausing and monitoring the situation. Many top advertisers showed concern over the company’s new strategy for moderating content and policies that could impact their brand image.
For example, allowing banned individuals back on Twitter could generate problems for companies that had made statements in the past. The lack of moderation could impact a company’s brand. Some companies have even expressed concern about the performance of ads during the takeover. While these companies did not specifically blame Musk for the underperformance of their Twitter advertisement, they believed there was a shift in the users on the platform, which ended up costing money. To add insult to injury, Musk has complained that there has been a widespread loss of advertisement on the Twitter platform. Twitter has introduced new performance advertisement solutions to stem the tide of advertising losses. At the Twitter Spaces events, Musk pleaded with brands to keep using the platform for advertising.
Musk Could be One of the Issues
One of the problems that Twitter faces is the lack of concern Musk has over the way Twitter is expected to conduct business. According to CNN, who had seen a message posted by a Twitter employee, Musk has little concern that the FTC regulators that are overseeing the company and its multiple legally binding agreements will continue to provide a robust security program to make sure there is written privacy. The buyout of Twitter did not insulate the company from billions in potential fines from the FTC over privacy issues that date back to pre-Musk ownership. Another problem facing Twitter is that top executives who handled the privacy issues and the company’s obligations to the FTC either quit or were fired. The company has to bear the loss of its chief information officer and its chief privacy officer. Musk claims that one of the benefits Twitter could be facing is increased user growth as people tune in to see how he is bumbling through taking the company private.
What are the Benefits of Musk Owning Twitter?
One of the issues that Twitter constantly faced was the ability of certain people to express their rights to free speech. Musk wants Twitter to be a town square where anyone can say what they want within reason. In recent years, Twitter needed to focus on misinformation rules to protect users. They did not want people to yell “Fire” in a crowded movie theater or tell lies that would generate protests. During the Trump Presidency, Twitter needed to focus on what the administration called alternative facts, which was the administration’s version of the truth. Twitter needed to become a moderator and determine which information could be allowed on the platform and which was denied. Musk wants users to decide which information is misinformation.
Musk also wants Twitter to move to open source, allowing the public to see how Twitter’s algorithms work. He wants additional transparency, so people do not believe there is a content bias to the information they receive on Twitter. Another benefit is that Twitter will now have the backing of Musk, with a strong track record. Musk has succeeded in turning Tesla into an electric car giant. He founded PayPal, which grew to become one of the largest online payment platforms. Musk is currently also the CEO of Tesla and the Founder of SpaceX.
How Will Twitter Impact Stocks?
The biggest impact on the stock market could be the change in how Twitter is moderated. Musk has been fined several times for tweets about his company. Suppose Musk decides that handling the privacy and security of Twitter is not a priority. In that case, Tweets from fake and real accounts can begin to generate volatility. For example, if someone decides to create a fake account that resembles a report by a prominent analyst, they can sway the price movements of instruments on a forex app. If Musk decides that individuals are responsible for determining if the news is real or fake, the tweets on Twitter could take on more significance.
Twitter could continue to be an issue for political use. The United States saw how Twitter was used by former President Trump, which eventually generated a ban on the former President for propagating mistruths. Musk would rather see a town square scenario where people can make their own decisions about tweets instead of becoming a moderator. Unfortunately, Twitter has already agreed to many stipulations from the FTC, which will create further confusion for the user community.
The Bottom Line
The upshot is that Twitter is now a private company in the hands of Elon Musk. The Tesla CEO wants the company to be more of a “town square” where there is less moderation on free speech. Unfortunately, his vision is receiving pushback. Dozens of companies have decided to stop advertising on the Twitter platform. Some made announcements that they would terminate advertising, and others quietly stopped. Some are sitting on the sidelines. Musk faces several challenges. He has released 50% of the Twitter work staff, and some high-level employees have quit. Some high-level employees dealt with the FTC and many of the issues that Twitter faced. Musk is pleading with advertisers to come back into the fold, but many do not want to face scrutiny if problems arise with the new way that Twitter will function.
The new way Twitter could work could generate additional volatility for stock prices. Musk has yet to come up with a way to ensure that users can determine whether a Twitter handle is real. Users can impersonate other users generating issues for stock prices. While Musk says they will actively crack down on these fakers, it will be a challenge for the company to make this a reality.