Musk Hinges Twitter Deal on Bot Claims

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Well, it's the saga that's playing out in real time, and a big part of it is because, well, Elon Musk, he just cannot stop

tweeting about it. Just this afternoon, Musk suggested via Twitter, of course, that the SEC should investigate whether Twitter's claim that only five p of its users are bots, This coming just a day after he said the idea was on hold until he got more information on said bots. And in the meantime, Twitter is just hemorrhaging senior employees,

three more leaving the company. According to our team at Bloomberg News, let's get into it with Bloomberg Intelligent senior technology analyst Man Deep saying, who joins us live in the Bloomberg Interactive Broker studios in New York. Man Deep, I don't know about you, but it just seems like each day that passes, this deal is looking less and less likely. Well, so you have to look at it

from two different aspects. One is the funding aspect. So from a funding perspective, Ellen was by himself and he announced the deal. Now he has six point five billion dollars of commitment from Cope Partners. Now that's not a big deal because he still needs to raise, you know, an additional twelve point five billion to offset that margin loan. So he doesn't want to do the margin loan anymore. And that is where he's struggling because he has said

he's not going to sell additional Testla stock. So there is that funding gap. But at least he has got that six point five billion additional commitment, So that's a positive in terms of his ability to close. The other aspect is he waved the due diligence claw and now he's you know, talking about bots. But okay, yes, he

waived officially waived the due diligence clause. But anyone who's read anything about Twitter in public filings you don't necessarily need due diligence to do that, has seen the language that Twitter has talked about when it comes to five percent of its users or bots. Well, so now they're talking about very fine things. Is the number of accounts equal to the number of m d A use And they're saying the m d A use the monthly daily

active users. Yes, five percent, our bods. But if you compared to the total number of accounts, and he specifically took the example that the most like tweet on Twitter has about five million likes, so the total m d YE use around two dred ten million. How can it not be more than five million? Five million? I heard him say this at this tech event yesterday, the summit, and my immediate thought was, well, maybe only five million

people like the tweet. Okay, So if you compared to YouTube, YouTube has one billion daily active users, the most like video on YouTube has got a lot more like, so

he does views as well. I mean again, now we're getting into very fine distinction between saying yesterday, So that's this is the point about diligence, Like now he's saying total number of accounts isn't equal to the total number of daily active users, and then he's trying to kind of tie it with the number of followers, so that we are playing with the different terms here and and that is where the fine language the contract, the agreement he signed comes into play to create Well, I was

going to say, aren't just supposed to do your due diligence before you make the offer? You've covered M and before. Yeah, but look, I mean this the way this deal was signed was like, you know, one fine day the board said, oh, we're instituting a poison pill. The next weekend they said, we are, you know, merging with We're accepting his offer. So I don't think there was a lot of diligence

downe from either side. But we are at a point where the language really matters, and he may have to pay the one billion you know, breakup fee, but then he should be able to renegotiate it at a lower price because the market valuations have compressed so much. Look at Snapchat trading at thirty five thirty seven billion. How

do you justify paying forty four billion for Twitter? Well, let's bring it back to Twitter here and talk about the fundamentals, because it's not just about the daily users and and the likes and and the tweets and all of that. It's also about how many people you actually have at the company. We talked about some senior level officials up leaving and resigning, but I believe there was a round of layoffs before that as well. Is Twitter

downsizing ahead of this potential deal. Yeah, so a lot was made about, you know, their bloated cost structure and how their revenue per employee was much lower than the competitors. So just while you said bloated cost structure, really quickly let you finish. But we did actually have headlines from Netflix, by the way, also saying that they're addressing their own cost growth and they let around a hundred fifty employees

go today. But back to your point, So, I think that's a great point that every tech company is thinking about, are we overhired right now? And look, this is not a high growth environment anymore. So companies that are not profitable, or in the case of Twitter, if they're issuing more dead they have to think about interest payments and free cash flow. Now suddenly you're thinking about optimizing the cost structure, and that just goes to show that Twitter won't be

a high growth company even if it goes private. They'll be focused on optimizing the free cash flow. That just means they're not going to grow. But that's what he said in his slide deck to potential investors recently, was that he wants to see Twitter users grow. And forgive me, but I think in four years to a billion up from two million today. Yeah, so that's an ambitious plan.

It's centered around growing subscription revenue, which is again not the norm when it comes to you know, social media companies. And look, I think a time will only tell whether he will be successful. But I find it hard to imagine that if Twitter has thirteen billion dollars of debt and it has to make all these interest payments, that they will continue to invest so aggressively in all these new initiatives even if they go private. So, Man, Deep by no time will tell you just said that, but

I gotta put you on the spot. Here does the deal still happen? And if you ask what what price? I think he's going to pay a breakup fee of billion, then the deal happens at around thirty to thirty five billion, and uh it will involve more co partners, so he still needs to address that funding gap. But if the price comes down, then at least the margin loan is taken care of and he needs more private equity partners

to pitch in with the remainder amount. There you have it, well, man, Deep it's trading right now at about a thirty point two billion dollar market cap, so uh yeah, this is about where you think the deal. We'll go through Mandy Sing, a senior technology analyst for Bloomberg Intelligence, joining us live in the Bloomberg Interactive Broker's studio in New York. You're listening to Bloomberg Radio, and this is Bloomberg Business Week.

You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Just in the last hour, we learned that Netflix is laying off a hundred and fifty employees. The company is saying that's slowing revenue growth means that it's also having to slow its cost growth as a company. In recent weeks, we've seen layoffs at robin Hood, hiring freezes and Rescented offers a Twitter and a focus on cash flow at Uber.

All of this to say, the belt is tightening and startups are no exception after years of easy money and big growth during the pandemic. Well, in the words of one venture capitalist, the world is falling apart and we need to act accordingly. Joe Weber is editor at Bloomberg business Week. He's with us in the Bloomberg Interactive Broker studio. Lizett Chapman is the author of Today's Big Take. Also, her store is featured in the upcoming issue of Business

Week magazine. You can read it now at Bloomberg dot com and on the Bloomberg terminal. Is that, his technology reporter at Bloomberg News was that joins us on the phone from San Francisco, Joel, I want to start with you, what is the temperature like in Silicon Valley right now? It was kind of balmy, and then all of a sudden it got a little more frigid. And you know, when you when you think about what's been happening in the markets here today, and I was like, this is

should not come as a total surprise. But I think what Lazette got into here was like exactly what the mood has been like there's a there's a ton of money, still a lot of dry powder, and yet there's you know, the VC world and how they interface with startups has slowly begun to change. And maybe that slowly, maybe it picked up a little bit here more recently. Was that what what did you discover as you were reporting this story? Yeah, I think, like you said, it was more than bombing,

it was white, white hot. I mean it was it was scorching. Last year, you know, we had record amount of funding and these mega rounds that were pushed all of these levels you know, of of um, the amount of VC in the market and the amount that started to raise two historic you know, twenty plus year level

things never seen before. And just like you said, and just like you know, we were talking on the intro here that NASA dec you know, you know, decline in the public market squeezes pushing the late stage companies down. So it's huge hundred million dollar plus grounds that were almost daily in one we're not seeing those happening anymore.

That's slowing down in a major way. And all of these startups that we're looking to raise that higher and higher evaluations um are are not trying to do that anymore. They're doing a lot more slowly. There's a big humbling of all of these unicorns, and it's starting to trickle down to even earlier stage, although not quite yet. Humbling starting to trickle down. I've got to ask about the timeline of that. How much farther can this go? Oh,

it could get really bad. Um, there's a lot of you know, like Joe was saying that investor sentiment right here is the most negative it's been in twenty plus years. I mean, um, you know, PayPal co founder David Sachs, who is now a partner and investment firm Craft Ventures. Um, you know, put that out there and people were very quick to pile on with that. Bill Gurley of Benchmark big uber investor that he was known for that that big investment heated. UM. He's also said that it's it.

He's been calling this for for many years, like this bull market is not sustainable. But there's just a real reckoning that um, you know, like that there is a overvaluation in the private market and they now are being called upon to justify those valuations. In many cases they can't. But Lizette it's it's not all bad news as you report. There is a silver lining here, at least according to some vetric capitalists who have lived through other big Googles.

There's always a silver lining exactly. I mean, look, they say, hey, some of the best companies around we're started during recessions or the fact that there is this belt tightening that I was talking about in the intro and that you wrote about with these larger companies. That means that the Amazons and Microsoft's and metal platforms, they're not going to be working on all the innovative stuff that they would

be throwing money at necessarily. That's exactly right. I mean you sound like a venture capitalist, Yeah you do, and fair venture capitalists get paid to look for where they can make money, where there's opportunity, and right now, the focus is firmly on early stage companies because there's seven

to ten years before they have to go public. It's not like these you know, late stage companies um that you know, um, you know, people are plowing hundreds of millions dollars into The risk is a lot less when you're only writing a two million dollars check, you know, and if one or two of those hundred checks that you right survive and thrive. Well, then great, you've got your next Airbnb, You've got your next Uber, You've got

your next you know, insta cart. All these were founded during the downturn UM you know, to your point into DC points. But you know, are they going to be able to find the right ones and you know help them through? You know this all the way to public markets. You know, it's the same same thing that it's the

same dynamic that exists even during an uptime. But right now this is where we sees are seeing that they can make the most money and it's really no skin off their nose to write a two million dollars check when they've got a three billion dollars funds. I'm curious, because you talked to so many people in the VC side, but also in startup playing. I'm curious how you know there's been a number of layoffs, there could be more

layoffs at some of these companies. How has it gone over for the people who have you know, everything was quite hot until it wasn't. What what have they What's it been like to be on the receiving end of

this stuff? It's been really confusing, um for a lot of employees who see that their companies raised you know, in one case, you know, you know, forty million dollars um just just a few months ago, and they were adding all these benefits you know, this is new um and uh, the you know both weight loss fitness company, and and and then they went ahead and they laid up you know, hundreds of people. So there's a real reckoning between that saying Okay, well, what are your priorities.

You just you know, raised all this money. You were preparing to scale really fast into to grow into that valuation. You can't now you're cutting back. UM. So there's a lot of fear uncertainty. But then at the early stage, like I talked to a founder at a party um last week at at a venue here in San Francisco that opened up for the first time since it shutdown

because of covid Um. But this founder was saying that he's a very early stage health tech company and he already he already has talked to dozens of investors, more than a dozen investors, and he's got quite a few term sheets that keeps selecting between. So it's really taled

to two markets. There's the late stage and there's the early stage, the late stage, lots of belt tightening, layoff, fear, denial, confusion, I think is the way one VC described founders reactions to having to humble their expectations and kind of pull it in for this reception what could be a very you know, much much longer correction UM. And then early stage companies UM are still about a team in a dream, right, and if they've got a good idea and if they

can find product market fit. Talent is easier to find, and it's a lot cheaper to start a company in a downturn. The team and a dream. That's us in here in the Bloomberg. There's a T shirt there that tim Yeah, definitely, Oh yeah, that's that will. That will just sort of like, you know, put the icing on the cake. When it comes to my venture capital persona, Lizette Chapman, love it when you join us on a Bloomberg business week. She's technology reporter, she's venture capital reporter.

Excuse me for Bloomberg News on the phone from San Francisco. It's her big take today. It is the big take. Check it out. High flying startups feel the pain of a long predicted downturn. It's featured give the upcoming issue of Business Week magazine. Joe Weber is the editor of Bloomberg Business Week. He also joined us in the Bloomberg Interactive Broker Studios. This is Bloomberg Radio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim

Stinovic on Bloomberg Radio. Well, Walmart shares are down eleven point three right now. They're currently having their worst day since nineteen seven and, in fact, at their lows, the worst day since nineteen seventy four. This after the company cited rising expenses from supply chain that includes fuel, that includes food. The retailer is going to balance pricing with a need for profit growth. That's according to Walmart CEO Doug McMillan. Let's get into it with Jennifer bartoushas senior

retail stables and packaged food analysts at Bloomberg Intelligence. Jennifer joins us from our Princeton, New Jersey bureau. Uh, Jennifer, good to have you with us. You've had a few hours to digest this report from from Walmart. Give us

your takeaways. Well, I think one of the things that is is important to remember is that part of the myths that Walmart had today was selfa afflicted and it really comes back to how well they were able to manage their own UM forecasting for things like labor, which was a big component of the of the profit missed today, and further understanding where that consumer is in terms of

their shopping behavior and how they're changing their patterns. UM. Because the retailer seemed a little surprised that some of their their consumers were pushing more of their spending into food. UM. But that shouldn't necessarily have been a huge surprise. Jennifer bartoshes UM. Why was this so surprising to investors? Though? If if this shouldn't have necessarily been such a surprise to two people who have been paying close attention to

the company, then why are shares getting crushed? Well, the shares are down because the company really missed a couple

of key things. UM. When I say it was self inflicted, you know, there were things that investors couldn't have anticipated, and so the profit miss really did was really a surprise because people didn't know that Walmart hadn't efficiently you know, managed their labor force in the getting of the year, you know, or that they were not able to offset some of the costs of fuel through more dynamic pricing changes.

And so those are some of the operational things that I think people take for granted that the that the company is on top of and the fact that it had such a large toll and profits was really driving the surprise. Today, Jennifer, I have to ask about the dollar story. I come onto the show all the time and bothered him and Carol with all my dollar You love currencies. I do love currencies. I wish we had

a currency show. It would it would be great. But the reason I ask is because Brendan Case made a very strong point this morning, and he said that international sales fell by about and he related it to the dollar. I'm curious, if you're looking at forecasts on Wall Street for a stronger dollar in thanks to a very hawkersh federal reserve, how much does that eat into walls Walmart's bottom line. Well, it certainly does have an impact UM.

But what I will also say is that part of the decrease in in international revenue UM from dovestitures UM, so that there's no longer the size of the operation is no longer the same as it was before. UM, So part of the decrease was due to that UM. But the strength of the dollar is something that when especially because the largest UM overseas components for Walmart right now are in Mexico China. UM, you know that that dollar exchange rate does does make a meaningful impact on

the bottom line. One thing that I wanted to talk about with you is, and we love hearing from Walmart and other large retailers because we get kind of a good read on the American consumer. There was some interesting nuggets about what consumers are buying right now. The idea that they're moving more towards generics or you know, buying smaller portions. How did you read into that? So when I listened to that, what I really think of is that they're really seeing a bifurcation of the consumer in

the United States. UM. You know, we had home Depot report earlier today where they had a positive surprise. Right UM, people there were spent thing on the Walmart side. The the idea that people are trading down, or more importantly, that there are fewer items in the basket when they're

checking out. That to me signals that those those consumers who are on the mid to lower end of the income scale are really starting to fill a pinch because of inflation or because of inflation is a big is a very big part of it, because if you think about it, in the last year and a half, a large swath of that population had meaningful pay rises. So the the the average you know, paper hour has gone

up quite a bit. Um. There was some relief in terms of rent and things like that, and so people had more money, and they had stimulus funds in their pockets as well. Um, but inflation has gone up at a point to a pace where they're there for a while. The higher the higher hourly pay helped offset some of that inflation. But we may be hitting that inflection point

where it just isn't doing that anymore. It's interesting that you talk about the lower income scale because I also think when I think of Walmart, I also think of the supercenter I lived by and close by, and they had a gas station as well. Something that Walmart talked about was the fuel part of it, how it's eating into their margins. But for the lower income crew that wants to or needs to actually fill up their gas tank, Walmart is kind of the go to place to do that.

Can you square the two for us when it comes to fuel prices, we have about thirty seconds. Sure. So when it comes to fuel prices, obviously, the more you have to pay to put in your tank, the less you have to feed your your yourself or your family. Um. And so where it comes you know, where it comes to play is that Walmart plays in that space where people can consolidate their trips and maybe they don't go to the grocery store into Walmart, but they shop only

at Walmart because of the price. So that's that's how you you can get those two to kind of come together and see where the consumer is. Jennifer, thank you so much for joining us. That's Jennifer Bartashes, senior retail, staples and package shoot analyst at Bloomberg Intelligence. Jennifer joining us on the phone from our Princeton, New Jersey bureau. This is Bloomberg Business Week with Carol Messer and Bloomberg

Quick Takes Tim Stinovic on Bloomberg Radio. Well, we are just about ten minutes away from the close of trading here, and if we take a look at what's going on with the major industries right now. The del was hired by one point two percent, the SMB five hired by one point eight percent, the NASTAC higher by two point five Let's count down to the clothes right now, and we do that with Quincy Crosby, chief equity strategist at LPL Financial. Quincy joins us on the phone from South Carolina. Quincy,

how are you? Thank you? It's really good to have you with us today. And I'm looking. I know it's only Tuesday here, but it does it does seem like we've at least turned a corner in these last you know, at least today. I don't want to go back too far here. And I'm wondering, Quincy, from from the from your perspective, given the retail sales number that we saw, given what we saw with home Depot, I mean, I don't know if you know this, I'm ignoring Walmart. Are

we out of the now? We're probably not out of the world. Okay, I'm not surprised with that answer. But but one thing about about the tone of the market though for the actually the last couple of days, the manic, the manic tone that that we've had has eased. It almost feels maybe by comparison on this normal, the zix is down. The tone, the tone is almost quieter, which which maybe maybe is comforting and comforting us into believing

that the worst is UH is passed. Can you fold in the cross asset story for us as well, because if you actually look at what the bond market has been doing as the spin of potentially bounces back big after emphasis on potentially, the bond market yields are actually staying below three square the two for US, well, it is in US. I know there's been rebalancing, so you

you've seen buying in the treasure market. The other there's another aspect to it which is a little bit uncomfortable, and that is UH, the notion that there could be a growth scare. I'm thinking that perhaps that has dissipated a bit, but there is this notion that as the tenure treasure yield saves below that perhaps it's factoring in slower, much slower growth. I'd like to think that really the reason is that we're seeing buyers come in and then

helping to push the yield down. I have to ask also about the flows story as well, because if you start to talk about rebouncing in the bond market, I think It's also worth mentioning the currency market and how much of the flows coming into the stock market are actually coming from abroad at a time where Europe is at far greater odds of a recession, where China is

looking at UH continued and more aggressive. I want, I'd argue lockdown policies is the there is no alternative narrative back for some of those foreign investors when it comes to the US stock market. Well, yeah, I mean they're they're they're definitely finding value here in the United States, and you could see that today. The fact of the matter is that you even look at the valuations on

the market. It you know, when we started this, it was twenty three times forward earnings at at the top, and that was when free money range and underpinned the market, and we had negative real rates and liquidity was plentiful. And now it's I th trading today at about seventeen times forward earnings. And there's there is a sense that the one thing about the United States about companies, the way they're managed, they will do what it takes to

manage their companies. If you I'm just looking at one thing right now, take a look at Wayfair. It had been down, down, down. They talked about, you know, uncertainty and that they were going to freeze hiring for about ninety days and look at their share price. And this this considered to be a flexibility that American managers have in their companies in order to make certain that the company, uh you know does well, that the that the bottom

line does well. And I think I think we're beginning to see that, and invest just globally are are seeing that as well. So Quincy. It raises the question is what's happening with American companies right now? Is that exactly what the Federal Reserve wants to see? Well, it's the set, I mean. And this is the difficulty for the set. You know, there's an essence between a rock and a

hard place. What they want to see if if if they feel that inflation and supply chains will never ease, that you know, you'll continue to see supply chain constraints work today. You know, the headlines even about Shanghai have helped you know that that perhaps the restrictions will ease the supply chain out of a major part of the global supply chain, will be more readily available. Uh, what what they said, I would have to do is see

financial conditions tighten more. And that comes through the market, because what do they want to do above all of to slow the economy? Slow down consumer's spending, slow down, uh, corporate spending. In fact, they you know, because they have another mandate, which is full employment. The fact that companies are saying, hey, we're going to hold off on hiring.

That helps them, but only up to a point. But it helps because if we look at the data, there's there's one point, there are one point nine jobs available for every one worker in the workforce out there looking for a job right now. So if we do see

hiring freezes, and right now we're seeing them. You know, we're having anecdotal evidence of that right now with with Wayfair and you know, we see layoffs at Netflix, and we see hiring freeze of Twitter, and I could go on, and our big take is about this today in Silicon Valley at least. Then then we are starting to see that and and potentially we'll get to a place where there aren't so many jobs looking for less than so

many people. Well, that's true. And on the other side of that equation, though, is if the economy turns up, let's say, we have to have a host of positive surprises. You're going to need more workers coming in in order to increase the increase the supplies, you could keep wages down. This is the difficulty. We're in that period right now. We're seeking clarity. We're seeking clarity. Even you didn't say Walmart, Okay, I'll say it, yeah, Uh, but it was that a

one off? Was it just about execution at Walmart? Are we going to hear about it tomorrow or next week? Uh? You know from Costco. This is what we're piecing together. Uh, this picture of whether or not the slowdown is becoming increasingly entrenched. You know, short of the pandemic, where it was almost seem like it was overnight. One day we were all find an day, we were all terrified. But normally, uh, you know, slow down don't happen overnight. They inch up

on you. And then at the same time you want to keep that balance. So the FED wants to keep it in that path towards them, you know, a shallow, shallow, soft landing. But the fact of the matter is they don't want to see unemployment skyrocket. I don't think they mind what's now, but but it is it's it's not it's not a science. That's the right. It is not a science. It's not a science. Quincy Crosby, chief equity strategist at LPL Financial, joining us on the phone from

South Carolina. Quincy really appreciate you taking the time and joining us on Bloomberg Business Week. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Sarah to Bloomberg Global News