Twitter layoffs, subscription fee, reduced cloud expense and potential impact to valuation

Twitter is estimated to lay off 50% of its workforce, or 3,250 people, today.

Elon Musk recently purchased Twitter for $44b.

Other announced changes include;
– $8 per month for Twitter Blue subscriptions
– $1.0b reduction in cloud expense (rumored to be deleting historical bot tweets … which naturally no one cares about anyway)

Now that Twitter is a private company and venture backed (Sequoia Capital, DFJ Growth, Andreessen Horowitz) they’ll most likely fall into the 15 largest private companies by valuation in developed market and be included in the AG Dillon Pre-IPO Equity Index starting 01 Jan 2023.

I was interested in how these changes would impact Twitter’s profitability and future valuation. The proforma below details my work. Naturally there are assumptions layered into these numbers but – generally speaking – the three announced changes alone dramatically improve the free cash flow and net operating income for the business.

Interest expense is not included in the proforma below. Interest expense will go up significantly with the $21b of debt that Twitter took on through the Musk acquisition. Even if this debt has a 6% interest rate that is only $1.29b in interest expense … toss in principal payments, if any … and Twitter will go from a 10% operating income loss to at least a 40% operating income gain.

Needless to say, there is a high probability that Musk & his investors stand to make a healthy profit on the Twitter acquisition when they IPO the company in a few years time.