Elon Musk completed his deal to buy the social media giant Twitter last week, and has already begun implementing changes. The billionaire has installed himself as CEO, dismantled the company’s board of directors, and is reportedly on the verge of making sweeping cuts to the workforce. Here are four challenges Musk must overcome if he is to make his purchase of Twitter a success.
Manage the Debt
The $44 billion deal was the largest leveraged buyout of a technology company ever. Musk made it possible by loading $13 billion in debt onto Twitter, a company which failed to turn a profit in eight of the past 10 years.
The social media giant paid interest expenses of around $50 million last year. With the new debt Musk has introduced, that figure will skyrocket to around $1 billion a year. Last year the company generated about $630 million in cash flow to meet its financial obligations. All that means Twitter is generating less money than what it owes.
The rising levels of debts, together with unfavorable economic conditions, means Musk needs to cut costs quickly at Twitter. Before the deal was completed it was reported that 70% of Twitter’s workforce would be let go. Musk denied that but fresh reports now say half of staff will be fired. He needs to make Twitter leaner if the company is going to pay its interest expenses, but that may have a negative impact on his other goals for the company.
Address the Free Speech Issue
Musk describes himself as a “free-speech absolutist” and has already expressed his desire to lift bans and promote more discussion on his platform. But he may soon find this more difficult than it appeared on the outside of the company. Twitter, like any social media company, relies on content moderation to keep it relevant and legal. In a completely unregulated platform, advertisers and users are sure to walk away. Musk will need to find a balance between his beliefs and what is practical. He’s already off to a shaky start, tweeting and then deleting a conspiracy theory from a news source known to spread false information.
Find New Sources of Income
Twitter has always struggled while relying heavily on advertising for income. If Musk is unable to fix the content moderation question and economic conditions worsen, revenue from advertising is only going to fall in the future. One scheme reportedly under consideration by Musk is to charge verified users to stay verified. The company is apparently considering implementing a monthly fee to keep the blue tick which shows a user is a noteworthy public figure.