In mid-July, ARK Investment Management CEO Cathie Wood decreased her company’s investment in Twitter by an astonishing 47%. This plunged the value of the company to just $23 billion.
It represents $11 billion less than Elon Musk paid for the social media platform in October 2022. Wood still believes in Elon Musk’s Twitter strategy. But the portfolio manager is adamant that she had no choice but to write down the value of its investment.
In the long run, Wood sees her shareholders reaping significant returns from its Twitter investment. It will take a little more time and a lot of intelligent ideas to be implemented by Musk and his team.
As for Threads, the so-called “Twitter killer,” supposedly has seen its usage fall by half since Mark Zuckerberg’s company launched the social media platform in early July.
Musk wants to turn Twitter, now renamed X, into an “everything app”. In other words, it would be one app where a user’s financial matters are easily handled at the touch of a button.
“X is the future state of unlimited interactivity – centered in audio, video, messaging, payments/banking – creating a global marketplace for ideas, goods, services, and opportunities,” CEO Linda Yaccarino said.
Where X is today, to where Musk wants to take it, is a long road ahead. In the meantime, Musk can take three actions to keep Threads at bay.
Create the X/Tesla Ecosystem
I use Apple (NASDAQ:AAPL), Google ((NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) products. The problem is that none of them give me everything I’m looking for all at once. If one did, I’d immediately get rid of the others.
The company that has gotten the closest to creating a flourishing closed ecosystem is Apple. It’s become a Products-as-a-Service (PaaS) provider where its hardware revenue is gradually being eclipsed by services revenue. In this situation, you buy fewer iPhones but more services to use on your phone and other Apple devices.
Tesla (NASDAQ:TSLA) has sold approximately 4.53 million electric vehicles since 2008. At the end of 2022, Twitter had about 450 million monthly active users. Why not create a closed ecosystem that exclusively serves the Tesla community?
So, you’d still have Twitter, but X would be an exclusive community. It would consist of Tesla owners using Musk’s “everything app” in much the same way that Apple uses Apple ID.
Early on with Tesla, is you were an EV owner, you were considered special. After all, your vehicle had its exclusive network of superchargers. Nowadays, Tesla is sharing them with all the other EV makers, reducing the value of owning the company’s vehicles. By creating X specifically for Tesla owners, you could build a suite of products and services to sell to this captive audience.
That has far more value than the 450 million Twitter users, but I digress.
A Reward for Being Nice
People are going to speak whatever they want, with or without a filter.
This leads us to the next option for Musk. He could simply reward users for good behavior rather than dictate what people can or cannot say. For example, if you use zero hate speech in your tweets, you don’t pay a cent to use the social platform. On the other hand, if you spew garbage, you’ll pay handsomely for that behavior.
Ironically, Twitter/X is suing the Center for Countering Digital Hate (CCDH), arguing that the anti-hate speech group’s research hurts the company’s financial situation.
“Based on the historical spend of the companies and organizations that have paused paid advertising and/or paused plans for future paid advertising, X Corp estimates that it has lost at least tens of millions of dollars in lost revenues as of the date of this complaint, with those amounts subject to increasing as time goes on,” The Guardian reported the comments from Twitter/X’s legal filing.
CCDH research suggests that 99% of the hate speech sampled from Twitter Blue subscribers was not censored at all by the company. (Twitter Blue users pay $8 per month or $84 annually for the premium service.)
In my proposal, the first option would be a free version of Twitter/X (including ads) and the second option would be a paid version (no ads). In the latter, people who post hate-speech can speak their minds for the low price of $25 a month or $262.50 annually.
This would create two revenue streams for the company. However, advertisers would likely be extremely hesitant to partake of such a social experiment.
Sell Twitter/X to Meta
As I mentioned earlier, Twitter/X’s value has fallen by nearly 50% from what Elon Musk paid for it last October. Even still, it remains considerably larger than Meta Platforms’ (NASDAQ:META) Threads social media creation.
Based on Meta CEO Mark Zuckerberg’s recent comments, Threads’ user base has fallen by 50% since the first week of its launch. This suggests Threads has approximately 50 million users, or about one-ninth of Twitter/X.
Meta’s cash, cash equivalents, and marketable securities were $53.45 billion as of June 30. As of the second quarter, its trailing 12-month free cash flow was $24.0 billion. Its long-term debt is $18.4 billion, or 2.3% of its market cap.
If Meta were to offer Musk $33.5 billion for Twitter/X, his investors would get back more of their investment (although they still wouldn’t be made whole). By doing so, Meta would eliminate its biggest competitor. Without a doubt it has the financial muscle to make this happen.
Given Musk’s inflated ego, it’s hard to imagine he’d be up for such a retreat. The fact remains that he has a fiduciary duty to his investors to at least entertain this possibility.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
