# Analysis-Twitter’s ‘massive’ revenue drop adds to heavy debt burden Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-11-07 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Elon Musk's Twitter takeover leads to massive revenue Meta Description: Credit experts warn of Twitter's financial instability as Musk reveals $4 million daily losses and $13 billion debt burden. URL: https://financedigest.com/analysis-twitters-massive-revenue-drop-adds-to-heavy-debt-burdenhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-11-07t110740z1lynxmpeia60d6rtroptp4twitter-m-a-musk-firing-1736814902999-compressed.jpg) By Matt Tracy NEW YORK (Reuters) – Elon Musk’s revelation that Twitter has suffered a “massive” revenue drop since he took over 10 days ago underscores the precarious nature of the social media company’s finances after he saddled it with $13 billion in debt, credit experts say. Musk tweeted on Friday that Twitter was losing more than $4 million a day, largely because advertisers started fleeing once he took over. He has blamed civil rights activists pressuring advertisers, though many in the advertising [industry](https://www.financedigest.com/advertys-multi-patented-and-industry-leading-in-game-viewability-technology-brainimpression-now-available-within-oracle-moat.html "Adverty’s Multi-patented and Industry-leading In-game Viewability Technology BrainImpression™ Now Available Within Oracle Moat") say his tweets spreading conspiracy theories have contributed. Yet even before this upheaval, Musk had engineered an acquisition that pushed the San Francisco-based [company’s finances](https://www.financedigest.com/allianz-trade-wins-global-banking-finance-reviews-best-trade-credit-insurance-company-asia-pacific-2022.html "Allianz Trade wins Global Banking & Finance Review’s Best Trade Credit Insurance Company Asia Pacific 2022") to the edge. Twitter faces interest payments totaling close to $1.2 billion in the next 12 months on the debt that Musk piled on it, following a string of interest [rate hikes](https://www.financedigest.com/hopes-of-slowdown-in-rate-hikes-bolster-shares-ahead-of-u-s-gdp.html "Hopes of slowdown in rate hikes bolster shares ahead of U.S. GDP") by the Federal Reserve, an analysis of the financing terms disclosed in regulatory filings shows. The payments exceed Twitter’s most recently disclosed cash flow, which amounted to $1.1 [billion as of the end](https://www.financedigest.com/td-other-banks-reach-1-35-billion-settlements-to-end-stanford-litigation.html "TD, other banks reach .35 billion settlements to end Stanford litigation") of June, according to financial disclosures Twitter made before Musk took it private on Oct. 27. Some aspects of Twitter’s current [financial health](https://www.financedigest.com/how-can-fintechs-better-engage-zillennials-with-their-financial-health-the-answer-lies-in-speaking-to-them-in-their-own-language.html "How can fintechs better engage Zillennials with their financial health? The answer lies in speaking to them in their own language") are uncertain, because the company hasn’t made enough disclosures. It’s not clear how much of the $5.29 [billion debt Twitter had before the acquisition](https://www.financedigest.com/chipmaker-infineon-ready-to-spend-billions-on-acquisitions-ceo.html "Chipmaker Infineon ready to spend billions on acquisitions – CEO") was refinanced or remained with the company. It’s also not clear how much of the $2.7 [billion in cash](https://www.financedigest.com/british-pensions-step-up-multi-billion-pound-asset-fire-sale-as-need-for-cash-soars.html "British pensions step up multi-billion-pound asset fire sale as need for cash soars") that Twitter held as of the end of June it got to keep once it went private. Debt [investors and analysts said Musk needs to ensure the company is profitable](https://www.financedigest.com/aviva-boosts-investor-payouts-after-profit-beat.html "Aviva boosts investor payouts after profit beat") enough to meet its debt payments or it will require a cash infusion. Leverage could spike into the [double digits](https://www.financedigest.com/analysis-east-europes-party-is-over-as-double-digit-inflation-bites.html "Analysis-East Europe’s party is over as double-digit inflation bites") unless Mr. Musk contributes significantly more equity than previously contemplated or significantly [improves profitability,” S&P Global analysts wrote in a credit research](https://www.financedigest.com/nvidia-shows-new-research-on-using-ai-to-improve-chip-designs.html "Nvidia shows new research on using AI to improve chip designs") note. They have given the company a “junk” B-minus rating. [Twitter and Musk](https://www.financedigest.com/most-twitter-shareholders-vote-in-favor-of-sale-to-musk-sources.html "Most Twitter shareholders vote in favor of sale to Musk-sources") representatives did not respond to requests for comment. Musk and his co-investors collectively [cut a check for more than $30 billion of their own money for the Twitter deal](https://www.financedigest.com/gazprom-gas-cut-tempers-economic-hopes-after-ukraine-grain-deal.html "Gazprom gas cut tempers economic hopes after Ukraine grain deal"). That [money would be at risk if Twitter required a debt](https://www.financedigest.com/necessary-lessons-in-debt-six-out-of-ten-brits-wouldnt-feel-comfortable-discussing-any-money-issues-with-their-children.html "Necessary lessons in debt? Six out of ten Brits wouldn’t feel comfortable discussing any money issues with their children") restructuring down the line. Musk has started to dramatically slash costs, letting go of [half of the company’s 7,400 employees](https://www.financedigest.com/half-of-employees-aged-40-and-over-in-the-accounting-banking-and-finance-industries-think-they-will-have-to-work-longer-to-live-the-life-they-want.html "Half Of Employees Aged 40 And Over In The Accounting, Banking And Finance Industries Think They Will Have To Work Longer To Live The Life They Want"). Overall, he is trying to find up to $1 billion in annual infrastructure [cost savings](https://www.financedigest.com/how-to-save-money-as-a-student-during-the-cost-of-living-crisis.html "How to Save Money as a Student During the Cost of Living Crisis"), including from servers and cloud services. In 2021, Twitter had [total costs and expenses of $5.6 billion](https://www.financedigest.com/iraq-and-total-sign-27-billion-energy-projects-deal.html "Iraq and Total sign billion energy projects deal"). [Musk has also outlined plans for a new subscription service that will include the verification of Twitter](https://www.financedigest.com/elon-musk-plans-to-cut-half-of-twitter-jobs-bloomberg-news.html "Elon Musk plans to cut half of Twitter jobs – Bloomberg News") users’ authenticity and cost $8 per month. If he can generate enough revenue to diversify Twitter’s [profits without alienating users](https://www.financedigest.com/datawallet-partners-with-indorse-and-steemit-allows-users-to-earn-profit-for-sharing-data.html "Datawallet Partners with Indorse and Steemit, Allows Users to Earn Profit for Sharing Data"), that would be a boon, credit analysts said. BRAND ADVERTISING In their note, S&P analysts also said that an [expected economic recession](https://www.financedigest.com/german-businesses-expect-only-mild-recession-as-disruptions-ease.html "German businesses expect only mild recession as disruptions ease") would weigh on Twitter’s advertising revenue next year. Musk said last week that [Twitter is more vulnerable to cuts in advertising than other social media platforms](https://www.financedigest.com/twitter-social-platforms-could-see-spike-in-election-misinformation.html "Twitter, social platforms could see spike in election misinformation") because most of it comes from advertising of brands, rather than direct-response advertising that involves interaction with the consumers. Advertisers [slash brand advertising first during lean times](https://www.financedigest.com/georgias-tbc-bank-slashes-loan-decision-time-with-fico-solution.html "Georgia’s TBC Bank Slashes Loan Decision Time with FICO Solution"). Twitter’s woes are also a problem for the banks that backed Musk’s acquisition, even if the company continues to meet its debt obligations, because they need to shed the debt from their [books and sell](https://www.financedigest.com/best-selling-books-of-all-time.html "Best selling books of all time") it on to investors. They have held on to it thus far because higher interest rates have made it less [attractive to investors](https://www.financedigest.com/5-ways-that-start-ups-can-attract-investors.html "5 Ways That Start-Ups Can Attract Investors"), and they would have to sell it at a discount. A deterioration in Twitter’s [business has the potential to turn](https://www.financedigest.com/6-expert-tips-to-turn-your-photography-passion-into-a-business-2.html "6 Expert Tips to Turn Your Photography Passion into a Business") what is currently a loss of hundreds of millions of dollars for the banks into billions of dollars. It’s going to be hard to sell the debt because the business is expected to decline next year,” said Roberta Goss, a senior managing director at Pretium Partners LLC, which invests in [corporate debt](https://www.financedigest.com/green-bonds-are-set-to-drive-corporate-esg-debt-out-of-slump-in-2023-barclays.html "Green bonds are set to drive corporate ESG debt out of slump in 2023 -Barclays"). (Reporting by Matt Tracy in New York; Additional reporting by Abigail Summerville in New York; Editing by Greg Roumeliotis and Leslie Adler) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---