Business Basics and Twitter Acquisitions
Can Elon Musk Make the Math Work on Owning Twitter? It’s Dicey. - The New York Times:
Last year, Twitter’s interest expense was about $50 million. With the new debt taken on in the deal, that will now balloon to about $1 billion a year. Yet the company’s operations last year generated about $630 million in cash flow to meet its financial obligations.
That means that Twitter is generating less money per year than what it owes its lenders.
In my paid employment I often take time to explain to companies who do not benefit from the largesse of venture capital that the number one priority must be to keep revenue ahead of expenses, and avoid saddling their firm with debt.
Musk has ignored these basic tenets of business because the culture of tech bros is that the rules don’t apply to them. In a falling market, however, other people’s money becomes less accessible. At some point, the music stops, and the debtors knock on the door.