Musk purchase could position Twitter as a pioneer of trust-based communications

Introduction

Following a dramatic courtship during which several executives and board members initially opposed the transaction, Twitter Inc. ultimately accepted Elon Musk's offer to purchase the company for $44 billion. If approved, the deal would bring Twitter's nine-year span as a public company to an end, giving Musk control over the social media network, where he is one of its most influential users. The deal ranks as the fifth-largest technology transaction of the past 20 years, and the price is more than twice the amount that Meta Platforms Inc., owner of Facebook, paid for WhatsApp Inc. in 2014.

The announcement of Twitter's sale has added to the ongoing controversy among users and regulators over the influence that technology firms have in defining and policing acceptable discourse online, fueling speculation about the direction that Musk will follow. While these concerns are not unfounded, this move presents an opportunity for Twitter to perform a major turnaround. Changes such as making its algorithm open-source, eliminating spambots and authenticating users could significantly impact the future of Twitter and digital communications. Combining social networking, mobile messaging and real-time communications, its unique approach — coupled with its legacy as a communications tool for social movements and initiatives such as Project BlueSky — positions Twitter as a player that could emerge as a pioneer of trust-based communications.

Deal details and rationale

Twitter agreed to be acquired by an entity wholly owned by Tesla Inc. CEO Elon Musk in an all-cash, take-private transaction worth about $44 billion. Musk secured funding commitments for his bid, including $25.5 billion of debt and margin loan financing, plus an equity commitment of roughly $21 billion. Twitter will become a privately held company post-close.

Twitter was facing mounting pressure from investors as it struggled with user growth and turning a profit in its advertising business, its main source of revenue. Taking the company private could give Musk more leeway to work on the service without having to answer to investors and regulators. While he has not yet presented a detailed plan, Musk has talked publicly about major changes at Twitter — including making its algorithm an open-source model, restraining content moderation policies, and increasing trust by eliminating spambots and authenticating users.

These changes could significantly impact how users engage with social media, Twitter's role as a real-time news outlet and how the company monetizes its service. Although it pioneered microblogging and social networking, Twitter has seen newer contenders enter the space and rapidly expand their user bases. Since going public in 2013, Twitter reported an annual profit only twice, in 2018 and 2019. Although its ad business grew 40% in 2021, it remains a relatively marginal player when it comes to digital advertising — a segment dominated by Alphabet Inc.'s Google LLC, Facebook and Amazon.com Inc.

These factors have contributed to a weak stock performance over the years. Before news of the sale, Twitter shares reached a low of $33 — up only 27% from its IPO price of $26, leading several companies to consider but eventually back down from buying Twitter, including Apple Inc., Walt Disney Co., Google and Salesforce Inc.

The changes outlined by Musk align with key trends identified in 451 Research's 2022 Trends in Workforce Productivity & Collaboration research — namely, the growing relevance of trust-based communications. Trust-based communications relate to online discourse and the need to balance free speech with issues such as online harassment, fake news and propaganda. It also encompasses customer engagement and unwanted communications — such as robocalls and spam messages, and digital channels, including social media and over-the-top, or OTT, messaging/chat apps like Facebook Messenger, WhatsApp and Snap Inc.'s Snapchat.

Twitter business profile

San Francisco-based Twitter is a microblogging and social networking service provider founded in 2006 by Jack Dorsey, Biz Stone, Evan Williams and Noah Glass. In September 2013, it filed to become a public company, announcing the news in a tweet. Twitter initially emerged from a podcasting venture called Odeo, founded in 2004, which pivoted into a short message service for real-time, blog-like updates — combining aspects of social networking websites with mobile instant messaging enabled the company to establish itself as an outlet for celebrity "e-watching" and as a communications tool for news organizations, businesses and political campaigns.

Twitter has become an influential real-time news outlet, playing a pivotal role in disseminating information during major events such as the Iranian presidential election in June 2009 and the earthquake that struck Haiti in January 2010. It was also instrumental in movements such as The Arab Spring, Occupy Wall Street and Black Lives Matter. These associations keep Twitter close to its roots in TXTmob, a predecessor service conceived as an activist project in 2004 to support street protests during the U.S. presidential nominating conventions.

In late 2019, former Twitter CEO Jack Dorsey launched Project BlueSky to develop an open and decentralized standard for social media and explore elements of crypto and Web3.

Twitter has inked several acquisitions, bringing together various assets to support messaging services and customer engagement initiatives in a group led by Oji Udezue, formerly head of product at Atlassian Corp. PLC and chief product officer at Calendly LLC. 451 Research's M&A Knowledgebase shows that Twitter's deals include the purchases of in-app messaging software vendor OpenBack Ltd. in April 2022; Stellar Aurora Inc., better known as Quill Chat, in December 2021; and group messaging app developer Sphere Knowledge Ltd. in October 2021.

Twitter's platform features a range of paid products and services, such as Promoted Ads, Twitter Amplify, Follower Ads and Twitter Takeover, and a Tips feature to send small one-time payments on Twitter using various payment methods, including bitcoin. Super Follows is a paid monthly subscription offering positioned to support and connect with creators on Twitter through bonus content, exclusive previews and other perks. Similarly, Ticketed Spaces supports creators on Twitter in exchange for their time and effort in hosting, speaking and moderating the public conversation on Twitter Spaces. Additional offerings include the Twitter Audience Platform, a service to support extensive advertising campaigns; Twitter Developer Platform, which enables developers to build tools for people and businesses using a public application programming interface; and paid access to Twitter data for partners with commercial use cases.

Competition

The competitive landscape for Twitter includes other global social networks and OTT messenger/chat apps such as Facebook, YouTube LLC, WhatsApp, Instagram, Tencent Holdings Ltd.-owned WeChat, Beijing Byte Dance Telecommunications Co. Ltd.'s TikTok Inc. and Facebook Messenger. Although Twitter has remained hugely influential, it trails these other players in user growth and revenue. Its microblogging site has an estimated 436 million monthly active users — significantly smaller than Facebook's 2.91 billion, YouTube's 2.56 billion and WhatsApp's 2.0 billion. Even Snapchat, which launched several years after Twitter, counts 557 million monthly active users.

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}

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