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OA645: We Badly Underestimated Just How Terrible Elon Musk Is At Business (Patreon)

Published:
2022-11-04 05:59:38
Imported:
2023-01

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Hooooo boy. Ok, Elon Musk officially owns Twitter. Does that mean a big "Andrew was wrong?" Well... kinda but it's complicated. We really just did not fathom how irrational Elon is. His wealth has taken a perhaps unprecedented hit as a result of this terrible deal. Listen for the details!
Then, Liz Dye joins us for an update on Jan 6!


Links: Shareholder vote twitter, How Elon Musk financed his $44bn Twitter takeover, SC 13D, Prince Alwaleed bin Talal, SEC form 4 Elon, SEC filing AMENDMENT NO. 12 to  SCHEDULE 13D, Banks prepare to hold $12.7bn Twitter debt on books until early 2023, U.S. exploring whether it has authority to review Musk’s Twitter deal - The Washington Post, Tesla latest 10-Q, Eastman 9th cir brief, Liz Dye Trump coverage


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Anonymous

I'd like to say that I think Andrew (and Thomas) is wrong and in a very important way. It is extremely difficult during a period of inflation to correlate business behavior, stock prices and management team behavior. Yes, you are right that it does not look good for Elon. Yes, Elon might be in violation of his fiduciary responsibilities. I'm sure Elon has been in violation of those responsibilities before and they have not affected the share price. People have less money with inflation. Businesses engage in less activity during inflationary periods. Interest rates are increasing which could lead to people purchasing fewer cars (thusly fewer Teslas, which are expensive luxury goods and potentially more prone to inflationary shock) which should reduce the share price. Elon may have sold his stock during a period in the market where his behavior and market conditions were OPTIMAL for his behavior - proving that his behavior directly led to share price reduction in Tesla's share price is impossible to prove. Amazon, for example, was $160+ in April and $90 now, overall down 47% for the year (November 5th to November 5th). Bezos got knocked down a few pegs himself without selling any shares. With my Economists hat on, I find his $8 a month verification check payment more telling than anything else on how he neglected due diligence and how he might not be able to make interest payments on this pet project. Until Twitter is sold, any valuation of Twitter is essentially Trumpian (until he needs to refinance). It will be at least a year - perhaps more - until we can see what I expect to be a disaster unfold with Twitter, when his loans become due and he's forced to refinance. If he is successful at moving a portion of his twitter users to a subscription model of service he very well may be successful. If he maintains the status quo, if there are not any major service interruptions, he should be able to hit his interest payments by reducing overhead if advertisers return. Based on what I recall from yearly profits twitter made over a billion dollars each year in 2018 and 2019. In 2021 it lost 221m. The company is capable of making money and reducing personnel is a tried and true method of increasing revenue and profit (in the short term) while risking long term growth and stability. RnD makes profitable companies profitable in the long run, which requires expensive talented staff he may be laying off. While I agree with your overall sentiment, I disagree on the "evidence" you utilized to come to such a conclusion - his attempt(s) to generate a regular revenue stream from subscriptions are much more indicative of a mistake, considering how little twitter can monetize the community engagement it sold as THE product to advertisers. Being a self-labeled junior ivy educated "failed Economist" (I didn't finish the last 3 classes of my graduate Econ degree), I am mildly disappointed that two self-employed individuals would fail to observe that the economic environment could have played a greater role in his wealth reduction. You may be experience the effects of this environment yourself, though it could be through a reduction in growth as opposed to a major contraction, given your revenue streams are in part based on micro-transactions.

Anonymous
>>95044208

Find the thread I stole it from, please. Should be easy considering it's copypasta. Not an Elon fanboy. Think he made a terrible business deal - very Bruce Wayne of buying expensive things not for sale for too much money. But buying a thing does not go bad until you can't make the loan payments or it's value is determined by markets to be less that what you paid. A Banksy, for example. Or a house in the past year. Got friends in Colorado who bought a house 1 month after it previously sold for 2x the original sale price. Think they overpaid but wouldn't call the decision stupid a year out - mortgage payments are still lower than their rent was and their fixed interest rate is as low as it can go. In hindsight, overpaying then in a lower interest rate environment was a better, more rational choice than buying a house now, even tough the house was predatorily flipped. But, if I podcasted about it then, I would have said it was a terrible, completely non-rational decision. That is, Elon is/could (TBD) be a terrible businessman who blew a fraction of his unfathomable wealth yet still pull this off adding a few billion to his bottom line than he had previously, at the expense of every Saudi who gets jailed for tweeting. Unlikely, IMO, given his efforts to monetize the producers of the product. He can purchase a good management team; all of his ideas (Tesla, SpaceX) are NOT his own. Even PayPal wasn't an original idea, it was someone elses he iterated into a billion dollars because he was already Kardashian-ish rich and could afford to take the risks. Elon has options unavailable to any common man. And if he "timed" the market perfectly for lower interest rates he'd be adding to his mystique as an amazing businessman. He may have overpaid. May is the key word. But, please. Find the thread I copied this from. Love to read it. Would have saved me some time writing and thinking. Elon is rolling a die no ration person without billions of dollars would roll. But until Twitter is sold for $0, he hasn't actually lost anything - to the contrary he gained an entire company with a revenue stream which recently HAD turned a profit. Regardless, Forbes is going to have a hell of a time valuing Twitter in the next year. Also, this is called discourse, fyi, not copypasta. Might want to engage in it yourself instead of making the dumbest remark possible.

Anonymous

Bro do u need a hug r u ok

Anonymous
>>95044208

If only there were a large basket of publicly traded companies, maybe like 500 or 1000 of them to compare Tesla stock to... Or better yet, a basket of most tech companies. Only then would we really know.....

Anonymous
>>95044208

Yes, that's getting close to figuring out the effects of Elon's behavior on Tesla, but you still are in the problem of interest rate increases and their subsequent effects on high-end discretionary consumption. There are few companies which directly market consumers and are not B2B. You should also account for if Tesla is overvalued as a company and by how much: Bed, Bath and Beyond was $30 once and they had a definitely poor CEO who continued a share buyback which may bankrupt the company - to increase his compensation. Carvana was like $350 at one time...7ish now. Roku? Peleton? You increase interest rates and suddenly every money losing company engaging in risky behavior is at material risk because cheap money became expensive. How is this effecting Tesla? Deciding the market basket and then controlling for variables is a huge job. Take BBBY. It's easy to show that their CEO was terrible and bad at business because the company is flirting with insolvency. It takes that much evidence. If, in a year, Tesla recovers after a splashy new acquisition or pivot, this episode will age like fine room temperature milk, even if, as I believe, Elon is bad at business. But, lets look at how he is bad for business: trying to monetize authentication services, fired all the senior engineers of a far-more-advanced tech company than he thought it was (and they ain't coming back), decreases in ad revenue. I'm waiting for more with popcorn from the free-speech absolutist because he has the very real possibility of burning this company to the ground. Even then, the premise of the episode will be fundamentally wrong if Tesla stock rebounds and he costs his investors nothing. His twitter team took senior personnel from Tesla, but if they did their jobs right they may have drop-in replacements trained and ready (being lazy, this is the way I operate at work) and Tesla, as a business, will continue on uninterrupted. I don't disagree with the thesis. The evidence is wrong. It's bad. Fundamentally flawed. Too many uncontrolled variables being tied to the valuation of a single company, in a high interest rate environment, with inflation - but importantly NOT a recession (there's more to the official definition, colloquial definition of two decreasing GDP quarters is technically incorrect). If, in 6 months, Twitter is bankrupt, you should re-record this episode and hopefully Tesla is not up. If it is, parts of this thesis are bad. Elon may be materially important to Tesla. Or it is materially important to Elon that he BE materially important to Tesla, but isn't. I mean, how much work can a guy being CEO of 5+ companies be doing making as many babies as he's making?

Anonymous
>>95044208

Actually, it just occurred to me that nearly every area where Elon is a "success" is he's concentrating and pumping money into areas that normally would be financed by government spending, but currently aren't (in a competitive way). Clean cars, solar, broadband internet, space. These areas are the traditional purview of government directed RnD dollars but since Regan we've pared back dramatically while not pursuing anti-trust regulation, thusly he's a competitive market entrant in stagnant and highly consolidated markets nominally driven by our tax dollars - like Lockheed and Boeing working on rockets, together. Those are easily identifiable markets ripe for disruption but require insane sums to even compete as a trivial player. He's got to be bound to fail in social media as he can't concentrate his wealth as he has previously on a good the government should be financing.