Acquisitions Anonymous - #1 for business buying, selling and operating - Move over Elon - Here's what we'd do if we acquired Twitter - Acquisitions Anonymous Episode 90

Episode Date: April 28, 2022

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) discuss the Twitter deal at this special Episode. We talk about the financials, the value, cashflow expenses considerations, vested vs unvested stock treatment, both businesses’ performances within Twitter (Ads & B2B), pricing power potential, how we would turnover cost centers to profit sources, new product ideas, breaking out of the culture bubble, and much more!We had a ton of fun recording this one, let us know what you think!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes:0:00 Intro1:17 Deal numbers3:19 What is Elon actually doing?6:13 It isn’t closed yet: Timing & steps in this kind of deals9:00 What is being bought? Take us through the financials Michael13:04 Stock-based compensation considerations14:59 Why aren’t they vomiting cash?16:00 Twitter is actually 2 businesses: How do they perform?18:15 Revenue Build: How do we make it grow faster? What’s changing on the operational side? What is the potential?20:34 Let’s put the Private Equity hat on:  What would we do?22:31 Exploiting the monopoly pricing power24:29 What’s happening with the advertisement rates? How does the ad engine work?29:04 Monetize these new business lines: We got 4 to start with. 36:40 Billion dollar idea: Get into recruiting39:57 Operational improvements: How do you reduce headcount organically? Why does moving the HQ make sense? 43:44 Let’s treat this as a growth asset-----Links:* Twitter M&A-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#83 Can you grow a business in a shrinking market? Featuring baller @WilsonCompanies as a special guest!#82 How GreatSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, welcome to Acquisitions Anonymous. It's me, Michael. Today, we did something pretty special. Me and Bill got together and talked through an M&A deal going on right now. It's not a small business M&A deal. It's the Twitter deal. And we were just so passionate about digging into this and how it could work and being power user Twitter, power users of Twitter how we can make it all run well and make it economic sense. So we came out of it from that angle, went through it and talked about the whole structure of how it's priced, how it's financed, and then what you do with the deal after you're done if you're Elon Musk. So enjoy this one. We have a ton of fun making it. So this week, we have a very special episode of Acquisition Anonymous. We are talking about a social

media company that is for sale. So I want to throw it over to Mr. Michael Gurdley, who brought this deal for us this week. Yes. It is an anonymous social media network that's being bought, maybe would be considered to be bought by a certain richest man in the world with a bird icon. Might rhyme with Witter. So I know this breaks a rule of being over 20 million enterprise value, but it's just so much fun to talk about. So that's what we're doing. So I have some of the numbers. So Twitter, as you know, is a social network that is both loved and hated by many.

I'm thankful for it because, Bill, that's how you and I met. It's like super wonderful. And Mirko, that's how, you know, who's our editor and producer. That's how you and I got connected to some extent. So it's great. So Elon is buying Twitter for, and quote me, or correct me if I'm wrong on this bill, 46.5 billion, is that number right? Or 40.

Yeah. Ever take. So I pulled up on the screen. We actually found how he's financing the deal. So he's bringing $21 billion of his own cash. He has a loan that he got, again, against the deal itself. So it's basically backed up by Twitter itself.

So there's $13 billion. So that sits behind or that sits ahead of his cash. And then he borrowed $12.5 billion against Tesla stock. So he has basically, he's putting $25.5 billion in debt on this business and $21 million in equity. So what does that come out to? That's basically like 40% or so.

Or 60% of value? It's about 4% equity. But, but to put a small business lens on this, he's brought 40% cash down, but then he has personally guaranteed half the debt, right? So a $12.5 billion margin loan against his Tesla shares, that has nothing to do with Twitter at all. So he basically began $21 billion of cash and then borrowed another $12.5 billion of cash against his portfolio and injected that too. and then only $13 billion of debt is actually kind of non-recourse secured only by the acquired assets, aka Twitter.

So this is essentially, you could look at this as like a 75% equity deal, cash in a deal, which is just bonkers, what, $35 billion of equity, essentially? Right. From one guy? So where, I mean, at some point, like, I guess, I guess after you have your first billion and you don't really care about money because you live in a tiny house,

you're like, whatever. I've got 250 billion. I might as well yolo. So I'm pretty fun. So I think that, you know, that's sort of a good setup, actually, Michael, for this episodes because I think the question that the world is kind of grappling with here is what is this?

Like, why is this happening? Is this a business decision? Everywhere from this is a business decision, and Elon's going to make a zillion dollars to Elon is Satan incarnate. and intends to manipulate the entire media landscape to Elon is Jesus Christ incarnate and intends to save us all from the cesspool that Twitter has become. There's all these takes people are trying to figure out what is he actually doing here.

And I think Michael, you and I come at this from a little bit, our initial blush takes were a little bit different. My initial blush take was that this was akin to, in any of Elon's eyes, almost a charity project or a passion project because he just kind of believes that he can better the better the discourse or humanity right by by making this a public, making the changes to this public good that need to be done as a private company away from the eyes of public investors. But Michael, you came at it instantly very differently. So you can share your time. Well, I mean, for those of you on YouTube, I actually put together the world's worst revenue build pitch deck because I did it at eight minutes before this. But as I've thought about

this deal, I think he can have his cake and eat it too. I started to build a revenue build of how I think he can go pretty quickly to unlock a ton of the value that everybody sees in Twitter that just doesn't go anywhere. Nobody's really doing good advertising. Nobody's really taking these subscription opportunities that they have and monetizing them at a good price or make people pay for blue checkmarks. There's just none of that stuff going on. I think he could very easily do five or six things from a revenue build standpoint without removing any people and basically double the revenue of this business right now.

Go kind of from $6 billion to really, say, closer to $12 billion. So that was my lens to it. I think he's a pretty smart guy. In his shoes, I'm like, I'm going to win all the ways. I'm going to win. I'm going to have fun. I'm going to look cool. It's going to help Tesla.

And oh, by the way, I'm going to show you guys all because I'm going to make a ton of money doing this. And it does look kind of crazy at first. You're like, oh, man, like, he's paying, well, six billion is the forecast revenue for this year. He's paying $45 billion for it. So six times nine is $45. He's paying nine times this year's revenue as a multiple for this, for a business that doesn't make much money. So at first thing, it looks kind of crazy. But it's not so crazy if you think that he could do some stuff for the next couple of years and double that revenue. And that's where I'm coming from on it. Yep. So I think this is going to be fun. Let's sort of approach it from an MAA perspective. So we've laid out purchase price, $45, $46 billion. He's financing it with 40% equity, about 25% or 30% personally guaranteed debt, another 30% non-recourse debt on the asset. Paying a huge sales multiple. Also a couple, I read through the merger agreement, which got posted yesterday or the day before.

A couple other M&A terms that folks might be interested in. There is a $1 billion mutual breakup fee. So if either sidewalks, they owe the other party a billion dollars. So if Elon gets cold feet, he owes Twitter a billion dollars. If Twitter walks or even takes a higher offer, Elon is owed a billion dollars. So I thought that was pretty interesting. And another thing I want to point out is a lot of breathless. news stories say Elon Musk bought Twitter, right? But if you're an M&A professional, you know that you

don't close a $46 billion deal in three days, right? No matter how late you say. Yeah. So actually what Elon does is Elon has Twitter under LOI is a pretty easy way to think about it from a more standard business perspective. So the close date, Elon has six months to close this deal. The target closed date is on or before October 24th, and that date can be extended by up to six months for several reasons, mutual agreement, regulatory issues, et cetera. So in actual reality, Elon Musk may not own Twitter until a year from that. And so we're going to be treated to essentially another six to 12 months of, I'm sure he's going to get dragged before Congress. You know, it's going to get renegotiated several times. You know, maybe someone else will bid. There's

a lot of M&A drama still to come. Because he's essentially just under LOI, and there's a billion-dollar break-up fee that cuts both ways. Yeah, so in essence, a call option to buy it at this price. And in worst case, he has 9% of the stock that he's already bought, and maybe it runs up or maybe it runs down. There's all kinds of really big advantages for him now from doing that. It's a really good point.

It's really funny because you're seeing people like, oh, this deal's already closed. is like, whoa, whoa, whoa, there's a feasibility period going on here. And, like, there's still plenty of time for the wheels to come off the clown car six months. Oh, yeah. And I don't know if you ever heard that Zuckerberg was attributed to him as how he described Twitter, the business, was like a clown car that ran into a gold mine.

Yeah. It's a pretty funny description of the company. That is a true story. So we got kind of six months where Elon has six months to kind of make a plan. So he's got this business under L-O-I. He's pretty excited about it. He thinks there's a lot of upside. So one of the things we want to kind of talk about in this episode,

and Michael's done some great pre-work, is to say, like, what is Elon buying from a business perspective? And what are the numbers? And what are some of the levers that he could pull to actually maybe make money on this thing? Yeah. So Michael, I would love you to kind of share with the listeners, so please read out lab for folks who are not,

who are not avid YouTubers, kind of take us through the financials of this business. Yeah, yeah, super cool. Well, so I'm using the analyst projections for performance. So we have those up on a slide here. The numbers to kind of know are that in 2022, the average estimate for revenue for the company is about $6 billion. And they're projecting in 2023,

just based on the plan they're running right now and what they know, the estimates are $7.3 billion. So it's growing about 22%, just based on kind of status quo of how it's being run now as a business. So $6 billion to $7.3 billion is kind of the number of if we were reading a buy-biz sell listing. That's what we would be reading right now. And then earnings per share? Going backwards, though, in 2020, they did $3.7 million.

In 2021, they did $5 million. This year they did $6 billion, sorry, billion with a Billion. Thousands of millions. $6 billion and then $7.2. So this is growing significantly a billion dollar scale. Yeah, this is a growth asset. They've been growing 18, 27, 30% year over year, despite doing some of the things they're doing,

which we'll talk about those in my kind of revenue bill that I put together. But yeah, I mean, this thing is growing and not slowing down, best we can tell. Now, they did have some COVID tailwinds because that's when I got into Twitter because there was nothing else to do. I just sat at home and wrote tweets.

This is pretty great. But now, you know, it's even still, like the analysts don't see it slowing down. So in terms of earnings per share and that sort of stuff, it's all kind of depending on how many shares there are, but this is not a highly profitable business. So as a multiple of revenue, that's kind of a tough way to look at this business

because this is very much a growth asset. This is how you would look at this. If you were going out to buy a software company that look like this, this is a high margin but growthy asset where profits aren't how you think about it. You think about it as a multiple of revenue in terms of rules with thumb around it. A couple things.

So have those numbers up. Something I want to add in, Michael, to the profit number. There's a big difference in the case of Twitter between kind of gap earnings per share and an actual cash flow. So they have huge amounts of stock-based compensation that they're issuing shares to employees and all Silicon Valley style companies do. But those are required to be recorded as real as cash expenses or as expenses, but they're not cash expenses.

So there is a significant amount of stock-based comp baked into that, which is not really real. Now, of course, you've got to figure out how to incentivize your folks. I think we're going to talk about maybe what happens to the workforce here. And I also read the merger agreement is really interesting as far as stock-based comp goes. The way they're handling it is all vested stock is, of course, being paid out at $54.20 a share. all unvested stock is converted to a cash payment, a future cash payment at time of vesting of $54.20 a share. So essentially it caps all the upside. So if you're an employee and have vesting shares in the next five years, you're still going to vest.

But even if the company is worth $100 a share in five years because maybe some of things we'll talk about on this podcast, you're not going to produce paid in that upside at all, which I thought was pretty interesting. Super interesting. Yeah. Well, and that's as a small business employer, like that has made, especially in tech, it's so hard to compete with these like big giants,

probably traded giants, because they'll come at you and they'll try to recruit your people. And you'll be paying, you know, just total today dollar compensation, like base plus bonus. And let's say somebody is making $200,000 total comp, right? So 150 base and 50 bonus.

You know, you'll see these fangs come in, you know, Amazon or whoever, and offer them $500,000 worth of the shares, provided they stick around for three years and a base of like 110 or 120. Like pay less than you, but basically give you this free gift from the shareholders,

which is what you're talking about. Like these shares, they're dilutive because they're issuing new shares to pay these people from stock-based or restricted stock units. It just makes it really hard to compete. And then sometimes you have to sit down with these employees and you're like, okay, make sure you look at the Amazon vesting schedule because a lot of these vesting programs are only like 5% the first year.

So like that's why they have such huge attrition and they take big risks on people because they know they probably don't have to pay you much, right? Especially if they're going to wear you out and spit you out within a year. Anyway, that's my small business rant, down with the fangs. They suck. Anyway. So Twitter spent $630 million on stock base com last year. Yeah. So, and that's the shareholders pan then, right? Because it's, it's, it's, it's, straight delutive. And it's good they have to take it as an expense. I like that.

Yep. Yep. So second chart we pulled up here. Cash flow is probably a little bit better than their gap earnings. So their cash flow, just to give you guys a sense, last year on their cash flow statement was about $200 million on about $5 million, $5 billion of sales. So pretty hefty cash flow multiple. That's $4 billion, right? Like, what's that? 50? It is, it is crazy. They are not vomiting cash. I just, like, I see people run $80 million companies or $100 million companies with these type of gross margins

producing 30, 40% EBITAM margins. Like, you can do it at sub-scale. You can definitely do it at scale. It gets easier as you get bigger. So to me, it's kind of crazy that you can't do that. And I think it's a testament to kind of the culture that you have inside Twitter right now, which is the epitome of institutional capture, right? This idea where, like, you look up and the institution operates

for the benefits of the people working in it and not for the stakeholders. If I think about which is the most institutionally captured entity outside of government, like that it's this one. So it's such an opportunity there to transform the culture. Very cool.

Notice what I'm saying all this in the most non-cancelable way possible to lose group this week? It's a very polite way of saying with their culture is a little upside out. A little bit, a little bit. So I pulled up a second thing here. So it's important to know, like, really Twitter is actually two businesses, right? They have,

their number one is kind of this advertising services business. So that's like the bad ads they show you on the timeline, paid placement, all that kind of stuff, promoted tweets. And that actually, in 2021, I pulled up the numbers, was about $4.5 billion of the five. And then they actually have a second business, which is their B2B business, which is the old kind of Gnip business that they bought. and I believe is mostly still located out of Colorado. And that's the data business. That's where the people who come in and pay to read all your tweets and get the fire hose of Twitter and see all of them,

like that is that business. And that does about $500 million. And so there are varying levels of data access that people pay for all the way from like small developer who wants to access, you know, direct messages and pays to use the API to like basic kind of analytics to the, people that come in and pay 20, 30, 40 million dollars a year,

the hedge funds, the three-letter government agencies, they come in and pay huge money to have direct real-time access to everything people are typing in Twitter. So, like, the algorithmic traders, that's a lot of where the Twitter business is, let's say about 10% of it, is revenue coming from those hedge funds

located in Greenwich, Connecticut, or Chicago with Quants running computer programs against what you're saying, and that's that kind of business. And it's a very steady, growing, good B2B business. So really, in summary, Twitter is two businesses, about 90% this advertising B2C stuff. That surprised me. It was that bigger percentage. And then the other part is this data licensing and kind of data mining stuff that they do. And again, if you look at the chart,

it's explosive. I mean, the ad business is growing incredibly well, and the data licensing business while small is steady as she goes, grown. Yeah. So I mean, yeah, great, great example. So $2 billion in top line revenue from the advertising services plus or minus. This year it'll be four and a half from 2021. So like doubling every few years at this scale, like pretty amazing quality of a business when it comes down to it. And yet they can't make any money. I can't make any money.

Well, that institutional capture thing. So I gave myself a challenge. Like when I came into this, I said, Bill, you know, I like Elon. I think he's going for the cake and eat it. two things. So I did, I put on my private equity hat and I did a revenue build where I said, okay, well, like if we're going to pay nine times for this thing and it's growing, like, how do I make it grow faster? Like how do I double revenue pretty quickly? And I started to go through

the things in Twitter that I would do differently, just being a user and go from there. And then the second thing I looked at was, okay, well, what's going to happen on the operational side? Like the bottom line profitability side, I didn't spend too much time on that because I don't really care about it at this point. When I look at this business, I'm evaluating this as a growth asset. I want to grow faster because the market will reward that. Right now, profitability matters much less, right, than is this thing growing 50% year over year? That's just my perspective and lens of what I think the world wants out of this. Anyway, I'm happy to go into my revenue bill. We could argue about features on Twitter and what I would do, but let's go

where you want to go. So just to give our listeners an idea of how big Twitter is versus how big maybe, say, Facebook is, right? So Twitter's going to put up about $5 billion of revenue. this year, Facebook is going to put up almost a hundred billion dollars of revenue, right? So it's about 20 times the size Facebook is versus Twitter. And yet I would, and of course, Facebook here means Instagram and WhatsApp and, you know, there's a lot more there in what is now meta. But just to give you a sense for perhaps how much room this asset has to run being quote unquote only five billion. Yeah. So and then how bigger those relative to number of active users. So

Twitter's what, like $350 million? And then Instagram's at like, or I'm sorry, the meta company is like $2 billion. Is that right? So 3 billion monthly active users for meta, right, for everything. So that I mean, WhatsApp I think is probably

severely booing that. But still, so Facebook is by, or rather Twitter is one-tenth by user count. and one-twentieth by revenue, which means they're monetizing your users half as well as Facebook is, right? Just on a per user, dollars per user per month.

So there's probably a lot of upside there. So Michael, I know you brought a couple interesting ideas. Let's get into it. So you're even on must. You now own this growth asset, which is by comparative metrics, under-monetized. Yeah. How do you prove this?

Yeah. Yeah, yeah. So private equity had on. This is a poor man's version of what private equity does when they go and look at a deal. It's like, okay, well, let's say we're going to try to reach XYZ number. Like, what's my bill to get there? Like, show me the initiatives that we're going to do and how much each one's going to get me. So I did this in like five minutes.

So when you get it from private equity, somebody has sent it to like a cool like a consulting center in like India. It's come back with like charts and like pictures of stuff. Mine is just so. I put in Google slides because I was really busy. So, but I said, okay. Well, let's make this so Elon's purchase price is only four times revenue, right? As opposed to nine, let's give them to four. So let's double the revenue.

And that would be not unfeasible, right? Because you just said that meta is getting dollar per user, right? Like the ratios are off. We have room to just be as effective as Facebook meta is and double our revenue. So it seems pretty reasonable. So here's the stuff I would do. So to get to double revenue, you've got to either not monetize any better at all and double your user count from 325 million to 600 million,

or don't grow users at all and monetize twice as well. I think, Michael, you're mostly about monetizing twice as well here. I just went down the monetized twice as well. I think that's the lowest hanging fruit. And if we get to a, hey, we can grow the top line. I didn't even really do a good job reviewing that. I don't know how you get more people on Twitter. I mean, yeah, it's hard to onboard now.

A lot of people bounce from Twitter just because the entry point is so bad. but I think that's another opportunity. We can put it in there. I'll add it to the list. So add new users. Okay. Just take care of that. Just let me know how that works, Bill.

So first thing I would do, first thing I would do, you have this data business. My hypothesis is there's a huge amount of pricing power that you have in this data business. It's about a $500 million business. I would just walk in tomorrow and I would just say, congratulations, all of our rates are doubling. Because you basically have monopoly pricing power.

Where else are these hedge funds going to get this data from? Who else are they going to buy it from? There's nobody else that has the data trove of real-time information that Twitter does. And these hedge funds who are trading billions of dollars a day of contracts, of all this kind of stuff, futures, like it's worth it to them. Like, you could just keep going. And I would just keep raising the prices on it until they start bolting. And then the interesting thing is, as they bolt, right, that means you're going to have fewer customers.

You're going to have more concentrated paying more. It's going to be worth more to those people because their competitors are going to be in there paying for that data. It's this messed up like you're actually going to get more revenue by raising prices by having fewer customers. It's like a crazy mind F, right? So I would do that. So that's $500 million immediately in terms of my how do I find $6 billion in revenue for Twitter. So I'll stop right there. You can tell me that's the stupidest I do.

I think that makes a ton of sense because this is literally the only data set in the world, right? That is Twitter. The Twitter fire hose is unique. And also, by the way, as you mentioned, I think a lot of your customers are three-letter government agencies for whom money doesn't matter. Yeah. Just tell them that's how much costs. And I mean, look, the NSA may get to tell you how much they're paying. That's maybe one you have to deal with. But like SAC capital, like pony up, suckers. Like you guys, you bought it in New York Mets. Good news. You're paying 20% more, 50% more. I don't care.

All right. So 500 million of our, how much we got to add here? Five, six billion. So we got to go from six, we're going from six billion to 12 billion. We got to find six billion dollars. So we've found, whatever that is, 12% of it. So that's just one initiative. All right. Let's go. Let's next. Okay. Number two, number two, their advertising business is huge. It is a miracle. It generates $4.5 billion. And I think you go through two initiatives there immediately. Number one, raise the rates.

Because if people are paying this much for terrible advertising on Twitter right now, they could definitely pay more, especially because meta just got totally screwed, right? The the CAT costs on Facebook, on all their platforms with the iOS change are just like terrible now. Like Twitter, we've got to do better. Just charge more. Rates all going up 30%. That's another $2 billion. Yeah.

So I'll push back on this one a little bit because you raise rates 30%. percent on advertising product that sucks is kind of a tough pill to swung, right? This is America, man. It's America. I mean, like, I'm coming at it from an econ point of view here. Nobody that is conversion focused at all advertising on Twitter, because it does not convert. Like, you can't, the mindset that the person is in as they scroll the timeline, like, to break that is almost impossible and get somebody to bounce somewhere and buy something.

So if I'm Twitter and I want to, because your next bullet point is maybe ads not suck, right? But I think before you, I think you're going on backwards. You can't raise rates until the ads suck, right? So I think first you've got to make the ads not suck. And you think you think that's good for probably $3 billion. And that would be a roughly like, you know, what, 75% growth in the ad business just by making it suck, which I think you could. So some of the things you would have to do, I think Twitter should go ham on a few of the things Instagram has tried to do, like product tagging in feed, lead generation in feed.

Because what we know is people don't want to leave Twitter. It doesn't convert. But what you might get them do is tap this button to share your email address with the advertiser. So the advertiser can follow up app. It's not going to be, I'm not going to drive a conversion right away. but there's so many other ways to try to monetize and get some interaction on these ads that's not just increasing the ad load. It's not just about putting more ads in feed.

It's about making those ads more effective. And that's something that Google has understood since time immemorial. And that's why Google Analytics exists. The whole point of Google Analytics being free is you can see how effective your Google ads are. And so you spend it. Right. So Twitter has got to lead into. Making these ads conferred. Yes, go.

By the way, hilarious anecdote for you as a 47-year-old man. Yesterday, TikTok showed me the following two ads within 30 seconds. One, ADHD medication. Two, adult diapers. Well, if you're on TikTok and you're 47, maybe you need both. I was like, what are you talking about? Okay, so I fixed our revenue build here, and it's become like the fix the advertising engine to be useful. I think that's the whole thing.

Can you start to monetize the feed for them in a way? And that's $3 billion of the build to get a $6 billion. And then after we do that, we go raise rates because deservedly so, it's actually going to be useful, as opposed to now, which apparently it is arbitrageable to show me a link on Twitter that is clickbait and then take me to some other website and show me somebody else's ads. That is just the most amazing sign that your ad engine is mispricing and misoperating everything,

is that that works. That just blows my mind. So I think there's so much opportunity here. But you're right. Fixing the ad engine, based on what we know, that is most of the upside here. It's $5 billion of the $6 billion. I thought the data business would have been bigger,

but it's not big enough to move the needle at this point, even if we double the prices. It just doesn't work. Yep. Yeah. I mean, you fix this advertising engine, and you really move mountains here. It is hilariously bad.

And, I mean, Facebook and Instagram, The crazy thing is, if you look at Twitter's users, so many of them are influential, monetizable, right? I mean, these are kind of the good users, right? These are the ones they're United States-based, I think, for the most part, which are more monetizable, typically than international. So it's not that they don't have the core raw material, it's that they are not monetizing well at all. Yeah, totally. It's totally true. It's totally true.

All right, so the fourth initiative is to add and monetize these new business lines. So I wrote down four that are pretty straightforward to me, and there's probably more. But I think these are just the obvious low-hanging fruit that is just like, I can't believe they haven't done this. So the new business lines, I've worked down four of them. So number one, like, I think this is a total Jeff Bezos' Amazon Playbook. Right now, the blue checkmark validation system is a cost center for them. They should turn it into a profit center. So if you want to get validated, you get this little blue checkmark that shows that you're verified user

and you become part of the verified superior race on Twitter, they basically make you go through this whole hassle. There's a whole data center of people like refusing checkmarks from people like me. That's what they do. And every month I'm like, hey, how about now? They're like, no, not now. Turn that from a cost center into a profit center and make people pay for it. Like really straightforward. And just here it is.

If you're an individual, it's $5,000. bucks. If you're a corporation, it's between 25,000 and 150,000, depending on how big your corporation is. That's the whole thing. I think you do that, that's $200 million. Like, super easy to get there. You just do the math. It's like 0.01% of their user base agrees to pay for a checkmark. Like, cool, $200 million your business. And then, then you make them renew it every couple of years. So you go full TSA pre on them, like American Express recurring revenue payments. Oh, yeah. It's weird that they would just pay people. to not verify folks, right?

And then verification is free, right? So they're just paying people to swat back people who want to be verified. And so there's, let's talk about verification for a minute. Right now what verification on Twitter means is you are influential or notable. But what it actually means is you are subject to impersonation. And that's, you know, from talking to people that have gotten verified, this is sort of how I got verified was to say like, hook, there's a chance. Look, I'm notable.

I speak on stage. been in the press, people might try to impersonate me. And I found that is the best way to get the check, not I'm notable. Anyway, that's not the way it should work. Right. And part of the problem that Twitter has is part of the kind of the hate and bad feeling on Twitter, which I think Elon is very frustrated with, is Twitter is a haven for non-human accounts, right? Both bots but also anonymous accounts, right? So it's very easy to spit fire with no consequences on Twitter, right? With a, you know, a cartoon face avatar and no one knows who you are, right? But if you take Facebook, for example, right, very different, like real person verification on Facebook. And I know Instagram

allows non-person accounts, but Facebook knows they're real people so they can advertise to them, because Facebook tied them to their Facebook account. So I think one of the things that Elon is really going to push is real human being validation, which makes the users way more monetizable because you can start to know who they are and that they're real. And it will dramatically decrease ad fraud and click fraud because you can't spin up a bunch of Twitter accounts, hook them up to a bot service, and click on ads and send misinformation or whatever that means. right, and hate and stuff. So I think you'll see him push kind of more real user validation.

Yeah, love it. Okay, so that's how, I think that's how the blue checkmark system, that's how you get $200 million. And I'm sure there's some more stuff in there too, right? Like a twisted provider thing or whatever. Like there's just people paying to have increased their social status or status on there, like totally, totally monetizable. It's that valuable.

Number two, it is crazy to me how many people leverage Twitter as a way to build a paid community and Twitter gets no money from that whatsoever, right? They get zero revenue from that. So I think they build a very straightforward paid community products, take 30% of the cut, and people will sign up for it because, A, it'll be useful, but B, like, it'll increase your total cut, your total take because you get more users out of Twitter, right? Just the same way everybody uses the Twitter review newsletter thing and then takes and puts that in their own newsletter thing. They use the capture there. You know, they have to turn around and monetize that and make that useful. communities, that's $100 million business.

Shocking that nobody's built that as part of the Twitter platform. It's totally non-disruptive, totally there. And there's totally demand because you can see it from people like us, the other people running online paid communities. Just do it. Pretty straightforward. $100 million. This is basically the Google playbook, right?

It's to take the core asset and to say what other apps can we extend our identity product to? Google Docs, Gmail, Google Workspace for businesses, Google Voice, right? Then you build out this suite of tools that are all interconnected. So if I need to spin up a community and I'm a Twitter creator,

it's just so much easier to use review instead of substack because it's native. Right. And I use my Twitter login and all of my followers can use their Twitter logins. And you leverage that graph on other products. And Twitter doesn't do any of that right now, leveraging their identity or graph anywhere except Twitter, which is crazy. That's a $100 million business there. Next $100 million business, take Twitter Blue,

which is like the closest thing they've done to monetize power users, they should raise the price on that and add value to it. Like $15 a month, great, congratulations. You have your edit button. You got it. You earned it. I think that's $100 million business. And there's other stuff you can put in there, like special content,

priority, more analytics. All of that should show up when you sign up for Twitter Blue. By the way, rename it. I don't know what the hell. What does Blue mean? Is it Labat Blue? Do I get like a special Canadian beer? when I bet it's just like it's just the dumbest thing.

Call it Twitter Pro. Like that's what it is. Like just whatever Apple named stuff, name it the same way. It's not that difficult. This is just like we had to pick a name and we just decided to pick what color our logo was. Like it's just the dumbest name possible. I don't get it. So right, $100 million business.

Add more value. Charge me $15. I spend that much time on the app. I'm happy to pay for it. Like just make my experience better. I think so too. So there's really two products you're describing here, Michael, right? There's the pro-sumer app, which is now all blue, right, which you propose to be called pro,

$2 to $15 a month. But then separately, there is a business subscription. Like, if you are on Twitter, how many tens of thousand dollars of dollars a month would you pay for like a content creation suite? Like buy Buffer or later or like one of these, you know, or Hoot Suite. Like buy one of those, build it into Twitter, business data, analytics, content calendar, scheduling, you know, most important followers, VIPs, all that, like the business tools, holy cow, like you're telling me when Wendy's pays Twitter nothing,

and they've got millions of followers and they go viral all the time. Like, this is insanity. So you need the prosumer product, which I think is a smaller business, you've got it pegged at $100 million. But then there's also the business product, which you kind of had lumped in here with Verify. But I think there's a lot more there that businesses would pay for if you wrap it into the Twitter experience. Yeah, it's great. Okay, thank you.

I added it to the revenue bill here. So we have the Twitter, we have the prosumer thing, evolve Twitter blue, that's $100 million business. Then we have the business subscriber creator like suite, that's $250 million.

So you know where I pulled that number out of? Yeah, you're exactly right. Okay, this is the last one. This is the best idea possible. This is the half billion dollar build idea, and it could get bigger than the advertising business. Get into the recruiting business. Everyone hates LinkedIn on this stuff.

So many people want to go to Twitter to hire people saying really smart stuff on Twitter. This is the place to do it. And also, by the way, you hear all those people saying all that bull crap about, oh, there will be proof of work on the blockchain, like Web3 stuff. We have that already. It's on Twitter. If you write smart stuff, I want to hire you. That's exactly what it is.

So they have this unfair advantage, which is people demonstrating their intelligence. it's on the app all the time through the way the Algo works. So give them a chance to put their resume on that and then charge recruiters to come find them. Like the in-mail, LinkedIn play, that's this. That's that whole business. And I think within two to three years, you do that right and you do it in a way that makes users feel right

and it makes a place that scammy, like half-billion-dollar business. So you undershot this. LinkedIn does $10 billion in revenue. Okay, fine. I'm putting $3 billion on here then. Right? So if you could do this one-tenth as good, and by the way, all of LinkedIn's revenue is basically recruiter and advertising. Yeah. So if you do this one-tenth as good as LinkedIn, you've probably added a billion dollars.

What I think is powerful about this, like we haven't talked about any cost cutting yet. Like, and I think it's going to happen organically, the cost-cutting well. But I haven't talked about any of that stuff. But we're just two chumps who buy it and sell small businesses. Like, we came up with all this stuff. like there's got to be, you know, this is just the tip of the iceberg.

Like there's another $5 billion in there somewhere that we just don't even see. Like that's, so that's why like, everyone's like, Elon's crazy. You're paying this multiple. And I'm like,

crazy like a fox. Like, this dude's going to make some money. Like, he sees all of this very clearly. Like, it's straightforward to me. Yeah. And not only that, I'm sure there are plenty of product managers inside Twitter that see this stuff too.

And for some reason, I mean, they're getting stymied. I don't know why. It's clearly a culture problem. But like Michael Gurdley and I are not geniuses here. You know, this is, there are plenty of smart PMs in Logan Valley, right? You know, Michael's got one tied up in his closet

that he feeds cheese every morning. And that's how he got on these ideas. But there's other ones besides the one locked in my closet. This was eight minutes after I clicked send and get off of a phone call before this. Like, I was like, I got to go. I got to write a pitchneck. The fruit is this low hanging that me crawling across the ground through the muck banged my head into it.

That's what this is. All right. So that's my revenue build. And then I think you added a good one, which is, you know what? Let's figure out how to add more users. Like, where is like the onboarding tutorial for Twitter? Like where does it like the starter kit? Like even video games I play are like, here's the intro like demo level.

Like try this and we'll guide you through it and press the right, you know, the right mouse button to zoom. and the left mouse button to shoot some bullets. There is nothing like that for Twitter. You show it to most people and they're like, I don't get it. This is really hard. I'm going to TikTok. Yep, yep. Huge opportunity there.

All right, you did have some operational improvements as well. All right, let's go to offer. So that's the revenue built. So you're building up and you'll see this in the slide when you do a private equity deal. You say, okay, we're going to start at this amount of revenue and this, how we're going to get to this. And here's all the initiatives that we're going to do there. So I did have some operational improvements. I have put three.

I put three operational improvements. And this is, I have much less data of this because I don't know. Anyway, also I spent more time on the revenue because that was much forefront. But anyway, three things. One is I wouldn't do any layoffs. I think that Twitter is going to lose the people that don't fit with Elon's hard charging culture. I think they're all going to leave on their own. And I think they're already starting to. I think the recruiters are already calling in there. I think they're trying to pull people out of there. And I think that's going to organically work for Elon. Those people are all jump and chip pretty quickly, especially the people that don't want to work hard for him

and have this profit first kind of growth first motivation. All right, agreed. So no layoffs, but probably reduce headcount, like, let it happen. No layoffs, but I think headcount will be a third smaller, just organically. I think he'll lose 40% of people and I'll hire another 10 to 15% back, if that math works. Number two, I would move the headquarters out of California. Like, I would move the headquarters to Austin. and this is blasphemy because I'm from San Antonio,

but it's either Austin or Miami. I think Austin actually gives the company the greatest opportunity to both attract talent, but then secondarily reflect, I think, more of middle of America. Austin is the most liberal city in Texas, of the big cities, but it's still much more middle America than really what downtown San Francisco is, which is, I live there.

The conservative candidate was the Democrat, and the liberal candidate was the communist, the actual communist. Like the guy who was like, yeah, I'm part of the Communist Party and I'm running for office. Like, that was the politics there. Like, if you want to expand this and have it reflect more and be inclusive of all of America, like having the headquarters located someplace that actually reflects the real America rather than an isolated, you know, into the spectrum, I think is the right way to go about it. Yep.

And also, if you're trying to break out of a culture bubble, relocating a headquarters makes a big. impact. Sure thing. Sure thing. And everything, you know, I think, I think they have gone 100% remote. If you talk to Twitter people, they don't have to go into the office at all, which is like the recipe for no accountability as far as I could tell. Well, I also have, you know, a day of rest every other Friday, right, where they don't work at all. You know that? Yes. Yes. That sounds really good for them. Yeah, Instagram, hashtag institutional capture. Yeah, I mean, I think you go back to what is the future for every company, which is you're going to have a flexible in-office work environment. We're going to meet you with where you want to work because it's possible to work anywhere. I think everybody gets a

home office. There will be several home office clusters around the country. Your job is to be there some period of time per quarter as your boss decides appropriate for you. Maybe that's 100% remote or maybe that's fully in the office. Your boss gets to decide and build their team and run it. And that's just the way it works. But I think that I think this 100% remote thing with a company with cultural challenges like Twitter. Huge mistake. Like I wouldn't do it. But there needs to be,

you also can't just force everybody back in the office. You're going to lose 100% of these folks. I think the right balance is go ahead and adopt what the future is going to be, which is this hybrid work model. The meet you where you are models, I call it. Yep. I love that. You can think about the Archimedes lever sort of like you can't micromanage culture.

So what are the big things you can do that sort of all the other changes flow from? Yeah. What I'm not, notice here, I'm not proposing any cost cutting because I think this is a growth asset. I want to run it like a growth asset. They're generating a ton of cash. Like, just keep growing, but grow faster. That's what I want.

If I'm Elon, and I think it totally makes, it makes a ton of sense, which is different than almost every other small business deal where it's like, well, let's, let's buy it an EBIT or a multiple or a cash flow multiple. Here we're like, grow faster, suckers. This is a growth asset. That's the way life needs to go. All right. So then let's, to bring it home, then what?

Right. So if you're growing a growth asset, you're not. not going to get your $45 billion back on cash flow, right? So you got to eventually at least pay down the debt, even if you never get your equity. You've got to generate $20 billion of value here, well, really more, $30 billion of value from my payback and margin load also. So in order to get $30 billion back out of this thing, you've got to monetize the equity at some point in some way.

Do you take it back public again and reintroduce essentially all of the problems Elon says that being public caused, or is there some other way out? I don't know. I don't know. I just make the business better and fix it. Well, I mean, part of me also wonders, is this going to be like the solar city play, right? Or it's just like, oh, okay, like Tesla's going to buy you and it's going to be part of the mothership.

Like, there's definitely an option there. But look, I think this is kind of how I like a lot of private equity type transactions. Like, if you just make the business really good, your number of options just grow. Like, yeah, he could take it back public again. He could go, you know, sell it to Zuckerberg. Like, he could go find some even other billionaires and get together and sell them parts of it. I mean, heck, Toma Bravo and these guys have like $30 billion funds. What do they do with all that money?

Like, you could definitely buy some of that in there. Now you may say this is too big. They've got to get out too, though. Like, that's only a temporary stay of execution, right? Eventually, you've got to essentially take it public or, and I actually think this is more likely, just decide to own it forever. You know, like slowly pay down the debt, pay off the margin loan with proceeds from selling Tesla, and he just owns it for it, much like I don't think Bezos ever plans to monetize

the Washington Post, right? Yeah. You know, like, this is just part of his forever portfolio, which is an option. Yeah. I love that. Well, I mean, I think it's somebody was on there, I think it was a Washington Post reporter who was like, you know, Elon's just doing this as an ego trip, whatever. And I tweeted back, I was like, oh, yeah, billionaires never want to own like the papers of record

or the media platforms to make themselves look better. And of course, Bezos owns the Washington Post. I was like, it's really funny how, again, another place for the inmates, sometimes don't see who the warden is. Yep, yeah. All right. Well, so we like it. We don't hate this deal.

I like it. I want to work on this deal. This is like one of the most expiring deals I've ever been. If they want me to be the CEO, I will quit everything else I'm doing, and I will come in and do this. This sounds like the most amazing fun thing ever. And then after a year, I would have even less hair. But I think it would be amazing.

I don't think I need the package I don't think I need the package Parag got the CEO he got like $80 million or something for four tweets and six months of service just like the craziest deal unreal I mean so you do it for a little less only one

I'll do it for 10% discount how generous how many animus that's what I do all right well let us know what you guys thought about this listeners you know we we wanted to go a different path and we also did this think, Bill, because you and I were just so passionate about talking about this, it's just been so much fun.

Yep, this is great. We put our own Exitianonymous spin on it. This was a fun one. Tweet us on Twitter with what you think.