Following Elon Musk's purchase of the social media platform Twitter, now rebranded as X, for $44 billion, the company has experienced a substantial decrease in its valuation, dropping to $19 billion within a year. Musk has acknowledged this decline, admitting to overpaying for the acquisition and currently valuing the company at $20 billion. He has interestingly referred to X as an "inverse start-up."
The company has faced significant hurdles under Musk's leadership. According to internal documents, these challenges include an 80 percent employee turnover rate and billions in debt accumulated from the acquisition. Additionally, changes in verification and content-moderation rules have resulted in a nearly 60 percent decline in U.S. advertising revenue.
In response to these issues, X has taken steps to compensate its employees. The company has distributed new stock grants in the form of restricted stock units priced at $45 per share. It has also pledged cash payments of $54.20 each for outstanding shares from the previous management.
Despite the challenges and the unexplained discrepancy between share price and company valuation, Musk continues to express optimism about X's future. On the first anniversary of the deal, he outlined his vision for X as an all-purpose app offering multifaceted services, marking a significant transformation from "Twitter 1.0". This vision is supported by CEO Linda Yaccarino, who urged employees to ignore critics during a company meeting.
A spokesperson for X declined to comment on these developments.
InvestingPro Insights
According to InvestingPro, X's management has been actively buying back shares, a move typically seen as a sign of confidence in the company's future outlook. This aligns with Musk's optimism about the company's future, despite the challenges it is currently facing. In addition, X has maintained dividend payments for 33 consecutive years, demonstrating its commitment to rewarding its shareholders amidst the turbulence (InvestingPro Tip 0 and 8).
On the other hand, the company's revenue has been declining at an accelerating rate, reflecting the nearly 60% decline in U.S. advertising revenue reported in the article. Furthermore, InvestingPro's data shows an 18.35% revenue growth over the last twelve months as of Q3 2023 (InvestingPro Tip 3).
In terms of real-time data, X's market cap currently stands at $7530M USD, significantly lower than the $44 billion valuation at the time of acquisition. The company's P/E ratio is 6.66, suggesting that investors may see it as undervalued. However, the PEG ratio of -0.1 could indicate that the company's earnings are expected to decrease in the future. Lastly, the company's stock price is trading near its 52-week high, despite the ongoing issues (InvestingPro Data).
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