Elon Musk is exposing social media’s greatest flaw and few people notice. Musk is abandoning plans to buy Twitter (TWTR) because he thinks a high percentage of that platform’s users are really bots.
To explain, a bot is a digital robot that performs a specific task such as Tweeting messages. Musk thinks a high percentage of Twitter users are bots, but provides no numbers. However, Twitter executives claim less than 5% of users are bots. Musk thinks the numbers of bots is higher but provides no estimates.
If 5% of Twitter users are fake, there could be 11.45 million fake Twitter accounts. To explain Statista estimates Twitter had 229 million monthly Twitter users in the first quarter of 2022. If 10% of Twitter accounts are fake, there could be 22.9 million Twitter bots in operation.
Such numbers could be realistic. Twitter executives admit their techs are removing one million spam accounts (Bots) a day in July 2022, Politico reports. That’s double the number of spam accounts Twitter CEO Parag Agrawal Tweeted in May.
Interestingly, Agrawal and company are suing Musk to force him to buy Twitter from, The Washington Post reports. Thus, Agrawal thinks Twitter is so worthless he wants to force Musk to buy it. If Twitter had real value, I do not think Agrawal would try to force Musk to buy it.
What Does Musk Know that we don’t?
I think Agrawal is trying to force Musk to buy Twitter because it could be impossible to determine how many bots are on Twitter. Hence, a large percentage of Twitter’s business could be fake and nobody can tell.
Despite his eccentricities, Musk is not a stupid guy. If he’s making an allegation, we need to listen. We also need to ask what data has Musk seen? Does Elon have access to some sort of technology that can detect or expose the bots? What does Elon know about the bots we do not?
Notably, Musk is financing the artificial intelligence company OpenAI which built the Dall-E image generator. Additionally, Musk has been a friend and business associate of notorious billionaire Peter Thiel. Thiel co-founded the Big Data intelligence and surveillance company Palantir Technologies Inc. (NYSE: PLTR).
I think Musk could have access to some algorithm that could detect Twitter bots. Perhaps Musk used that app on Twitter and he didn’t like what he saw. I don’t know why Musk hasn’t revealed this to the public, but it could be some sort of proprietary technology he cannot talk about.
Is Musk Exposing Social Media’s Greatest Flaw?
Skeptics will ask if a large percentage of Twitter’s accounts are fake. What about other social media? In particular, Facebook (FB) and TikTok.
How many of Facebook’s 2.9 billion monthly active users are bots? Are 179.65 million Americans really using Facebook each month? Does TikTok actually have 750 million users? Many of those users could be fake.
I think many Facebook and TikTok users could be fake because they count any account that has stuff posted to it as an active user. Moreover, there is no way to tell if the entity posting is human or a bot.
This could create problems because Facebook, TikTok, and Twitter base advertising rates on the number of monthly active users. Additionally, the high user counts are the basis for the social media companies’ market capitalizations.
Elon Musk could have stumbled onto social media’s greatest flaw and nobody is paying attention. Yet, a large percentage of the media dismisses Musk as a flake.
My guess is the journalists don’t want to admit Twitter bots fooled them. Many reporters and news organizations rely heavily on Twitter. Yet they may have.
What Value Does Twitter Have?
If Musk is correct, Twitter (TWTR) could be worth far less than its market valuation. I think one reason to ask why Musk is walking away is that Twitter is worth far less than the $44 million he offered for it. Notably, Twitter had a $28.084 billion Market Capitalization on 13 July 2022.
Twitter is a small company that loses money. Twitter reported quarterly revenues of $1.201 billion, a quarterly gross profit of $694 million, and a quarterly operating loss of -$127.83 million on 31 March 2022. Moreover, Twitter’s quarterly revenuers shrank from $1.567 billion on 31 December 2021.
In contrast, Meta Platforms Inc. (FB), the company formally known as Facebook, reported quarterly revenues of $27.908 billion, a quarterly gross profit of $21.903 billion, and a quarterly operating income of $8.524 billion on 31 March 2022. Thus, Twitter is a tiny player in social media that could be incapable of making money.
How Much Cash can Twitter Generate?
Twitter (NYSE: TWTR) generates some cash. It reported a quarterly operating cash flow of $180.74 million and a quarterly ending cash flow of $2.308 billion on 31 March 2022.
Twitter had $6.270 billion in cash and short-term investments on 31 March 2022. Twitter’s cash and short-term investments fell from $8.81 billion on 31 March 2021.
Twitter pays off enormous amounts of debt. Twitter reported a quarterly financing cash flow of $1.148 billion on 31 March 2022. Yet Twitter had $6.626 billion in total debt on 31 March 2022. The total debt grew from $6.278 billion on 31 March 2021.
Twitter has a little value. It had total assets of $13.551 billion 31 March 2022. The total assets shrank from $14.984 billion on 31 March 2021. Hence, it is easy to see why Musk believes Twitter is not worth $44 billion.
Interestingly, Mr. Market could agree with Musk’s appraisal of Twitter. Mr. Market paid $36.75 for Twitter on 13 July 2022. That price was down from $70.27 on 14 July 2021. Moreover, Twitter had a $28.084 billion Market Capitalization on 13 July 2022. Hence, Mr. Market thinks, Twitter is worth $15.916 billion less than Musk offered for it a few months ago.
Can Musk Afford to Buy Twitter?
Notably, Musk could fear he cannot repay the money he borrows to buy Twitter because of rising interest rates, Android Police speculates. The interest rate was 0% when Musk proposed the deal in March, the rate rose to 1.75% in July.
It looks as if Twitter is not worth that much and damaged by bots. Yet only Elon Musk notices because he seems to be the only person examining the company.
I have to wonder how fake social media is and could other social media suffer Twitter’s fate. All investors need to examine Musk’s adventures at Twitter and ask how fake social media is. I have a feeling we may not like the answers we get.
Smart investors need to learn from Musk and avoid both social media and Twitter.
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