According to the price of Tesla stock plunging, the net present value in 20% growth rate tells us it is a bargain moment to purchase Tesla. However, the plunging reason is due to the Elon selling Tesla to rescue Twitter's financial problem.
Contributing to the losses, Musk sold around $3.5 billion worth of Tesla stock in recent days, according to a financial filing Wednesday night. That added to another more than $3.9 billion in Tesla shares sold by Musk in early November, according to the filings.
Thus, the main question is “Is Twitter profitable”. If the answer is right, Elon can regain the profit from Twitter and even buy back Tesla stocks. Let’s frame the problem like the McKinsey technique, issue trees, to help your decision-making for the Tesla investment.
Finance Status
According to Twitter's annual report in 2021, Twitter has three key metrics:
- Monetizable daily active usage (mDAU)
- Changes in advertisement engagements
- Changes in cost per ad engagement
Thus, the focus is advertising profitability. Moreover, the P&L statement tells the main Revenue is advertisement. It contains 90% of the Revenue, the remaining 10% is from Data licensing as the chart above.
As we can see, Twitter’s revenue increased in 2021. however, the operating income is negative in 2021. The reason is in 2021 Twitter spends extra expenses on the litigation settlement. I assume this litigation is related to Elon’s acquisition. On the bright side, if there is no litigation, Twitter has a slight profit of around 0.03M $ in both 2021 and 2020.
Furthermore, we can analyze ratio performance. I have a doubt that revenue increase is proportional to costs and expenses. Even though the server may require more computing power, the costs and expenses should not increase proportionally in my opinion. Thus, Elon definitely has a huge room for cost management.
Future Growth
It is all about the discussion in this section. No one can tell you the future but we shall seize some basic ideas to steer in the right direction. I want to address the advantages of privatizing Twitter out of the market.
- No mandatory quarterly and annual reports in the semi-recession period
- The flexibility of Department reconstruction
- Litigation department will be handled by SpaceX litigation team
- Development department will be handled by Tesla AI team
As aforementioned, if there are no litigation expenses and even fewer development expenses, Twitter is a profitable company. Twitter has not so many innovative ways to be profitable. I believe Elon has visionary plans to create more charming products. For instance, with Paypal experience, Elon was talking in the Podcast to brainstorm the payment service for Twitter users. Of course, it requires time to implement those ideas. Thus after removing Twitter from the market, Elon has more time to fulfill the vision, and this privatizing decision moderates the social media's harsh inspection during the transition moment.
Summary
Statement of Finance Status and Future Growth shows the potential profitability of Twitter based on the points below.
- Without litigation, Twitter has a slight profit of around 0.03M $.
- Elon has a huge room for cost management because Revenue increase should not be proportional to Costs and Expenses.
- Privatizing Twitter moderates the social media’s harsh inspection and creates time for Elon fulfilling the visionary products.
