Right in the centre - In search of real people
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- Published on Friday, May 20, 2022
By Ken Waddell
Neepawa Banner & Press
It鈥檚 interesting to look at how business deals unfold. Particularly fascinating is the bid by Tesla鈥檚 Elon Musk to buy Twitter. Nobody seems to know if Twitter actually makes money, many doubt that it does.
It鈥檚 a huge company, nonetheless, and Musk has put in a bid for many billions of dollars. The shareholders have accepted the deal and why wouldn鈥檛 they? They will likely make profit on their speculative purchases of shares, a profit that I doubt Twitter has ever really made. That鈥檚 the problem with a lot of shareholder companies, especially new ones. The only profit they make is often in the share trading or speculation. People buy shares in companies because they think the share value will go up. Nobody buys shares if they think that they are going to decline in value.
The problem for Twitter now is that, like any deal, it is subject to a practise called 鈥渄ue diligence鈥�. That鈥檚 like a house buyer having a home inspection and finding out that the basement floods and the furnace doesn鈥檛 work. It鈥檚 grounds for backing out of the deal or a demanding a price reduction.
Musk is doing his due diligence and he obviously enjoys the task. Twitter has millions of users, but there鈥檚 a problem. Allegedly, not all the 鈥渦sers鈥� are real people. Some are robots or 鈥渂ots鈥� that simply pretend to be people. Twitter鈥檚 problem is that the company鈥檚 value is based on having many users that are real people who will view the content and the advertising alongside it. Robots, or bots, aren鈥檛 real users. Twitter says it鈥檚 five per cent. Musk says it could be 20 per cent. If, in fact, 20 per cent, or one fifth, of Twitter users are phoney, the company is worth a whole lot less.
Why would that be, one might ask. Let鈥檚 relate it to the newspaper world. If a paper circulates 1,000 papers in a small market, that might be pretty good coverage. If it distributes 3,000, that is even better. But, if there are hundreds of papers that never leave the distribution centre, then the newspaper is of less value to advertisers. Papers sell ads based on the number of people picking up and reading the paper. It鈥檚 the same with Twitter鈥檚 platform. If there are 20 per cent less people involved than stated because the users don鈥檛 actually exist, then Twitter is overvalued.
If Musk gets a better price, it is obviously better for him. He may get Twitter鈥檚 reach or circulation back up to where Twitter claims it to be or Musk might just want to stay at a certain level and maximize sales. Either way, it鈥檚 a smart move on his part.
And, if Musk walks away from the deal, even with paying a penalty, he will have achieved one of his main purposes. He loves to disrupt things, he鈥檚 known for that. Even if he walks away, he will be able to say, 鈥淚 told you so,鈥� proving he is smarter than all those other guys. He will then want everyone to listen up and follow his advice on other stuff, like his space program and electric cars.
Disclaimer: The views expressed in this column are the writer鈥檚 personal views and are not to be taken as being the view of the Banner & Press staff.
