Can Musk Make Twitter a Super-App?

After months of chicanery, Elon Musk has, in principle, informed Twitter that he intends to proceed with his acquisition of the firm. Musk has realised the Delaware chancery court will likely force the acquisition. He plans to take Twitter private at a price of $US44 billion or $54.20 a share.

This is in no way a guarantee he will do what he says, or that he can raise the money. Yet, it does present an interesting set of financial implications. Quite frankly, this might go down as one of the worst technology acquisitions in history – unless he can bootstrap all of the other firms he has large ownership stakes in to create the West’s first “Super-App”.

But first the numbers, which are astounding – and not in a good way.

The Numbers

When Musk made the offer to acquire Twitter, the stock was at $32 a share. Twitter has not, since then, outperformed Snap or Meta, which have both declined markedly, and certainly not when looking at revenue and EBITDA. Market analysts are saying the true value of Twitter should be around $13 a share or around $10 billion. Given that $44 billion of equity is needed, the current plan is touted to be around $21 billion from Musk, $10 billion from his investor cohort and the final $13 billion via a debt issuance. If the transaction goes through, in real terms the equity of the firm will be close to zero. The enterprise value will probably be about one-third of the acquisition cost.

On a closer look, the interest on the debt that a private Twitter has to take on might cost more in interest than Twitter’s free cashflow. It currently has $1 billion in EBITDA and will immediately have an additional $13 billion in debt the day it goes private. This could mean the Musk will need to continue asking his billionaire friends for more money to support his ill-founded venture to “protect free speech”. Or, in bad news for Tesla shareholders, he will support the debt himself. Call me old-fashioned, but an enterprise value should in real terms be its fair market value less debt. If Musk removes the bots he seems to be so worried about, we can only assume the EBITDA will decline as the reach of the platform will be far lower than is reported for advertisers.

Fixing Twitter

To be fair, Musk has performed some Houdini-like financial escapes in the past. And it does seem to me that there is a path forward to recover Twitter’s value. He could do this by fundamentally changing it from a social network and into a Super-App — an app which becomes a fulcrum device to much of our digital interactions.

First, he’d need to fix Twitter. He could do this by removing all of the bots and trolls and make it the only social network in the world where every single user is verified. By installing a ‘Know Your Customer’ regime, in the same way banks must, it could elevate the service and create levels of trust not seen social networking. This is one thing the Chinese apps do so successfully.

Privilege of Reach

Knowing who everyone is would not only allow for better advertising targeting, it could facilitate it becoming a subscription-based revenue stream. Knowing that every follower people have is genuine would create real value for users and corporate accounts. Twitter could charge for the privilege of reach.

A simple model could be to allow users free access up to, say, 10,000 followers. After that, an increased amount is paid based on the number of followers a person has — a bit like an advertising reach CPM (cost per mille or cost per thousand).

Doing this could only create a new type of recurring revenue and would enable to platform to shift away from algorithms which encourage engagement via enragement. The platform would become more civilised.

While you may wonder why anyone would pay for a service they once got for free, a better question to ask is who would risk losing their influence over the price of a streaming subscription? Those with millions of followers would surely pay a significant price (which they most likely could afford) to maintain their ability to influence on the channel. This important step would create the credibility need to do much more for their customer base.

Pieces of the Puzzle

As I wrote almost a year ago in the Eureka Report, a Super-App would need three key things to be successful. The first is daily usage — Twitter has this with many of its users. The second is trust which could be built quite quickly through user verification and a subscription model. And the third is the addition of a number of digital utility services it either owns or controls. This final step is where Musk comes in.

Having a financial service run through a Super-App is the first digital utility required. As you may recall, Musk’s first successful foray on the web was as the founder of x.com. This was one of the Internet’s first payment systems, which was eventually rolled into Paypal. Not only does Musk have experience in the digital payments sector, he has a penchant for crypto and what a fintech could and should look like. Once payments are functional it opens up many types of services which could compete with banks. If Musk managed to turn Twitter into a fintech platform, then linking other utilities he controls start to make sense.

Tesla Robo-Taxis

The most obvious of these is to create a ride-sharing services leveraging Tesla. Musk once touted he’d have 1 million robo-taxis on the road by 2020 — this might be his chance. If he created a ride-sharing service, then special financed offers could be created for drivers for lower-priced Tesla vehicles. Tesla could even lease out cars to the new firm and essentially reinvent a taxi service where the drivers don’t own the cars, but the cars work the roads 24/7. Of course, this would be until fully autonomy arrives (if it ever does).

Another part of the equation could be providing internet access via Starlink. Firstly, this could be done via the home. Eventually it will be able to be done via the phone itself – no satellite dish required. The iPhone 14 already has limited satellite capability, which will only improve. The phone could be then used as a tethering device wherever the subscribed user happens to be anywhere in the world. It would allow Twitter to compete with telcos the world over and facilitate a wide subscriber base – even in 3^rd world developing economies.

Selling Dreams

And finally, inhome energy could be part of the equation, where again people subscribe to the energy their home needs, rather than paying volatile bills. By turning Solar City (a Tesla division) into a subscription service, the revenue streams would be longitudinal and it could reduce the barriers to purchase and transition to renewables in homes.

Of course, all this is a very long bow to draw, but Musk has been good at selling dreams – just look at the Tesla market capitalisation compared to other original equipment Manufacturers. Somehow it defies gravity. For Musk to turnaround this almost inevitable Twitter acquisition, then he needs a set of miracles, like those described above. And if he did pull this off, he’d probably become the world’s first ever trillionaire.