Elon Musk, Bag Holder?

Watching billionaire narcissist Elon Musk's machinations over buying Twitter, aside from drawing attention to himself and his warped "libertarian" view of freedom of "speech" (i.e. hate speech), we wonder what was the point? Twitter is what many on Wall Street call "an asset in decline," with diminishing value and having a host of up-and-coming competitors. Musk himself waived his right to review Twitter's assets before his purchase, something that this boy genius may come to regret. From Business Insider Linette Lopez's sharp reporting:

"As it stands, Twitter does not exactly rake in money — it brought in just under $5.1 billion in revenue last year and posted a net loss of $221 million, in large part due to the settlement of a class-action lawsuit brought by some shareholders. But even that doesn't tell the whole story.

'There's a lot of volatility and maneuvering in the reported profits, unusual items, and massive tax adjustments,' [Bond Angle CEO Vicki] Bryan told me.  'You can't gauge this company until you know those numbers.' In other words, you don't really know what you've got until you look under the hood.

The most notable under-the-hood item, according to Bryan, is the roughly $630 million Twitter paid in stock compensation to employees last year. Instead of paying their workers bigger salaries upfront, tech companies like Twitter (and Musk's Tesla) offer employees stock that they then can sell down the line. That can be good for employees who hope that the stock is more valuable when they're able to sell, and it's good for Twitter because the company doesn't have to pay that money out in cash or count it as an expense. But once the company goes private that will change, and employees will need to be compensated in cash. Twitter's debts will need to be paid in cash too."  (our emphasis)

Musk will have to dip deeply to pay those and other debts, and he's not receiving the best terms to secure debt financing. As one anonymous hedge fund source told Lopez, "Musk's terms are commensurate with him being an over-levered clown." Ouch!

Lopez also notes that Wall Street has a term for someone potentially like Musk, comparable to the person left standing in a game of musical chairs: a "bag holder."  It's "a person who is stuck with an asset in its decline, usually with no hope for a turnaround and no one to step in to help keep it afloat." That would be fine with us.

(photo: CNN)