Foreign What's up guys and welcome back to Wall Street Millennial On this channel, we cover everything related to stocks and investing. Last week, Tesla and SpaceX founder Elon Musk finally closed his 44 billion acquisition of Twitter After months of drama on his first visit to the company's headquarters in San Francisco, he brought a sink with him, helping to let his ownership sink in for the social media. Giants More than 7 000 employees Musk's primary reason for acquiring the company was to change its content moderation practices, which he viewed as infringing on Free Speech But now that the deal is done, he is also responsible for operating the company profitably. Twitter was already losing hundreds of millions of dollars per year before the acquisition. Now it will be saddled with an additional 1 billion dollars of interest expense, as Musk has used debt to finance much of the 44 billion dollar purchase price. Within about a week of taking over, Musk informed about half of the company's 7 800 employees that they would be laid off as part of sweeping cost-cutting measures. Another step he took to increase his company's financial performance is starting to charge eight dollars per month for blue check mark verification. The success or failure of Twitter under Elon Musk will have massive implications for Silicon Valley and the corporate world in general. Over the past decade, headcount and technology companies has exploded as they all rush to hire as many Engineers as possible. The idea was that the more people you hire, the better your product will be and the greater your Revenue will grow. High Personnel Costs have caused many tech companies to remain unprofitable. even as their revenues have grown rapidly. Twitter has been no exception. Despite Revenue increasing tenfold over the past decade, they still lose money in most quarters. Pretty much all the revenue they've generated has gone to hiring new employees instead of rewarding shareholders. This can be clearly seen at Twitter with its number of full-time employees doubling since 2016.. a company like Twitter doesn't make any physical products, and its platform should in theory be infinitely scalable. So this begs the question: what are all those new workers doing? and would the company be better off without them? Musk is now putting this Theory to the test with the recently announced Twitter layoffs. This is the first time in recent history where a non-distressed company laid off half his Workforce overnight. If Musk's layoffs are successful, hundreds of other companies are likely to follow suit, and this could drastically alter the nature of corporate America and the economy as a whole. In this video, we'll look at why Musk is firing so many people at Twitter, what other changes he plans to make, and what this means for the social media giant going forward. 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It has been extremely successful with a number of monetizable daily active users more than doubling over the past five years from about 100 million in 2017 to almost 250 million Today, the increase in the user base has led to a commensurate increase in Revenue with the company relying almost exclusively on digital advertising to generate sales. But to the great Chagrin of shareholders, this growth has not translated into profitability with the company failing to achieve consistently positive net income Today, it's not immediately clear why Twitter has had such a hard time becoming profitable once the website and apps are built. Continuing to operate it shouldn't be rocket science. The platform hasn't changed that much over the past five years or even the past 10 years for that matter. Of course, with hundreds of millions of users, there are significant Data Center and infrastructure costs to store and process the 500 million tweets that are published every day, but this would be far less than the roughly 5 billion dollars of annual revenue that the company generates. The reason that Twitter was not profitable is because they hired people and a lot of them. 8035 to be exact, according to LinkedIn The majority of them have been hired over the past five years. So what exactly do these employees do? Twitter doesn't disclose exactly how many employees work in each division, but we can get somewhat of a sense of what the employees do by looking at the teams. that Musk has gotten rid of. As part of the layoffs, Musk completely got rid of the Human Rights Accessibility AI Ethics and Curation teams. The Twitter Human Rights Team work to protect users who are at risk in global conflicts such as Ethiopia Afghanistan and Ukraine. This is, according to Shannon Raj Singh who previously worked at the Human Rights team. It's unclear what Twitter could do to help in Conflict zones, but this team did exist. The accessibility team was responsible for developing features to make Twitter more accessible for people with disabilities. These include things like text-to-speech features that visually impaired people could use. The AI ethics team researched how to make Twitter's content recommendation algorithms more transparent and fair. The curation team was in charge of the explore tab on Twitter which keeps track of trending topics on Twitter as well as news articles. When you have so many different teams doing so many things, you also need internal Communications people whose full-time job is to tell other employees what the company is doing. They also have PR functions communicating company developments to journalists. While Musk did not ask the entire Communications team, he did cut it significantly. The Deep cuts to the communications team should not have been surprised to anyone. In 2020, Musk fired the entire Tesla PR team. In his view, PR people are a waste of money because Musk can handle all the public relations with his personal Twitter account and finally all these teams that must disband. it required support from software Engineers to integrate their work onto the platform. With these teams no longer existing, Musk was able to lay off a lot of software Engineers as well. Musk appears to have planned the layoffs by getting rid of non-critical teams to maximize the cost savings while minimizing disruption to the core platform. Another reason that Musk laid off so many employees so quickly is because of worsening Revenue challenges at the company. Almost immediately after he took over, Civil Rights groups started pressuring advertisers to pause spending on Twitter. They fear that Musk could loosen content moderation policies which could allow for more hate speech. Brands including but not limited to General Motors Audi Pfizer and Coca-Cola have boycotted Twitter. In a recent event, with long-time Tesla investor, Ron Baron Musk explained the problems that Twitter is facing. so and then. We also recently had a lot of difficulty with activist groups pressuring major advertisers to stop spending money on Twitter. This is despite us doing everything possible to appease them and to make it clear that moderation rules and hateful contact rules have not changed and we're continuing to enforce them. The a number of major advertisers have stopped spending on Twitter So this, but this is this doesn't seem right because we've made no change in our operations at all. and um, but nonetheless, the activist groups have been successful in in causing a massive drop in Twitter advertising Revenue One of Must's major rationales for buying Twitter in the first place was because he thought the platform was unduly infringing on free speech. and while he has not made any changes to content moderation policies yet, it is all but guaranteed that major reforms are coming soon. Many commentators, especially on the right wing end of the political Spectrum have long criticized Twitter for what they view as unfairly targeting conservative opinions. These criticisms escalated dramatically in October of 2020 when right-leaning New York posts published an article reporting to show emails from Hunter Biden's laptop showing Communications between him and a Ukrainian businessman. the emails appeared to implicate his father. then Vice President Joe Biden Twitter said that publishing this article violated their terms of service and temporarily banned the New York post's account. The emails were eventually independently verified and Twitter admitted that they had made a mistake by censoring the story. Incidents like this at the very least give some people the impression that Twitter unfairly targets right-wing users for censorship. Musk has long stated his libertarian views on free speech, and it is all but guaranteed that he will drastically loosen the platform censorship policies. But the problem is: Musk's personal whims may be at odds with what is best for the company financially. Currently, ninety percent of Twitter's Revenue comes from advertising. Most large advertisers care deeply about brand safety and don't want their ass to be shown next to overly controversial tweets. There's a fundamental disagreement between what Musk wants for the platform and what advertisers want. Because of this, he is desperately trying to diversify the company's revenue streams to become less beholden to advertisers. According to Musk, Twitter is now losing 4 million dollars per day. This translates to an annual loss of 1.5 billion dollars. The layoffs are estimated to save about 500 million dollars per year, but even still, he has a one billion dollar per year hole he has to fill. in. One of the first ways that Musk plans to do this is charging eight dollars per month for blue check mark verification. Previously Twitter would manually review large accounts, verify their authenticity, and then give a blue check mark next to their name. This was meant to avoid people impersonating celebrities or other public figures. Under Musk's new policy, anybody can get blue check mark verification so long as they pay eight dollars per month. The question is how many people would be willing to pay. Currently 420 000 people already have the blue check mark. Those mostly include journalists, public figures, and other people who have large Twitter followings, which is presumably very important to them. It's probably safe to assume that most, if not all of them will Fork over the eight dollars. However, even if every single one of them opts in, this will only generate about 40 million dollars per year. If Musk wants any chance of making back his losses, he needs to get people who are not currently verified to get verified. Twitter Currently has 450 million monthly active users globally. If just three percent of them pay for verification, they'll make roughly 1.3 billion dollars enough for the company to at least break even. The problem is in the digital age where people are used to free apps, why would anybody, especially casual users pay for a service that they could get for free? As it turns out, Musk is ahead of the curve and he has a crafty plan to extract as much money as possible from Twitter's users. Part I Want to try to achieve with this sort of enabling everyone to be payment verified with with Twitter Blue is to try to get as many people payment verified as possible. It's only eight bucks a month. Um, although for some people that were complaining about that and these are people who pay more with the net for their latte, I'm going to be one of your Twitter because thank you, thank you and we're going to prioritize Twitter research replies, mentions by verified users first. Um and and yeah that's okay, that's what calls Amplified Yes so so the so the if you're payment verified with the blue check mark then you'll be prioritized so the the net effect will be over time that the the verified users will be will pretty much always be at the top of of comments and search and you won't really see. You'll have to scroll far to see the unverified uh users which will be the Bots and and trolls and whatnot. Basically, what Musk is proposing is a shadow ban of all users who do not pay for verification. Unverified users will still be allowed to post, but the algorithm will penalize them such that very few people will see their tweets or comments on other people's tweets to see how effective this strategy will be. We have to understand what Twitter users want from the platform. Some Twitter users and perhaps the majority of them are just casual users who scroll through Twitter with their morning coffee to get up to speed on their news. These people don't tweet often if ever, so they have no need to pay for verification. The second group is people who use Twitter actively getting into debates and Twitter Wars with people they disagree with. Not being verified would be a huge disadvantage in their Twitter Wars as nobody would be able to see their angry tweets and replies. The number of active users is almost certainly much smaller than passive users. but remember, Musk only needs three percent of them to sign up for the company to break even. Of course, the plan could backfire. Twitter is not a monopoly. People always have the option to go to Reddit or Facebook to debate with random people on the internet If people are unwilling to pay, Twitter's user base could decrease significantly. Twitter became the world's virtual town square based on its free to use model that was accessible for everyone. Musk is taking a big gamble, turning it into a quasi-paid platform, but Musk is taking many risky bets in the past and it's never a good idea to bet against him. Alright guys, that wraps it up for this video. What do you think about Musk's plans for Twitter Are you a Twitter user? Would you ever pay eight dollars per month for blue check mark verification? Let us know in the comment section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.