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naraburns  nihil supernum  1yr ago (text post)   27856 thread views

Culture War Roundup for the week of December 26, 2022

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Six years ago, Sarah A. Hoyt coined "roll hard left and die".

Years ago, watching science fiction magazines and newspapers of various sorts come and go, I identified a process I called “roll hard left and die.”

When a magazine or a newspaper or any news or entertainment media was in real trouble, they went hard, hard left, then died.

It took me a little while to realize this was a sane strategy. In a field completely controlled by the left, when you knew that your job was in peril be it through missmanagement or whatever, your last hope was to go incredibly hard left, so you could blame the failure on ideology. And instead of not being able to find a job, you found yourself lionized by all the “right” (left) “thinking people.” New jobs were assured.

In his December 15th newsletter, Josh Barro wrote the following about Elon Musk:

Some people are spinning out baroque theories of what the underlying business strategy is, but my strong feeling is that there isn’t one. I think what’s happened is that Musk has greatly overpaid for this company, he’s not running it in a way that’s likely to produce financial returns that come close to justifying the price he paid, and leaning into the idea that he is serving a great social mission (vanquishing the proprietors of the “woke mind virus” who were trying to destroy our society) helps him feel better about the unpleasant business position he’s gotten himself into.

If you’re going to lose money, it’s best to feel like you’re losing it for a cause [...]

The difference here is that I can't see Musk's root motivation as "not being able to find a job" when all is said and done.

And if that's the case, it makes me reconsider how much of "roll hard left and die" really does boil down to Hoyt's lifeboat theory, and how much is "losing money for a cause".

I think Musks always was buying twitter partly for control. Twitter is a classic example of a company that fails to create a lot of its own value creation. A lot of value goes thru twitter, I believe it’s the most powerful media property in the world, but it doesn’t monetize well. It always had a bit of being a trophy assets. With fairly high confidence I believe trump wins the election in 2020 if Musks was in charge. Which makes at 50 billion twitter relatively trivially cheap.

That being said I do believe he can turn around twitter and make it financially viable. If he can get twitter to 6 billion revenue and 4 billion costs then it’s worth 50 billion. Meta has 120 billion in revenue. And from twitter he can spin off into tick tocks and other side projects.

It’s going to be ugly financially for a bit but it’s an asset that creates value for people and musks just needs to figure out how to capture a bunch of that.

If he can get twitter to 6 billion revenue and 4 billion costs then it’s worth 50 billion.

Interest rates are 4.09% as of yesterday, so a highly liquid $2B revenue stream guaranteed by full faith and credit of the US government is worth $50B.

Even if Musk gets twitter to make $2B/year, it's certainly not highly liquid and/or guaranteed by the US govt. Hence it's worth less.

That said, if Musk can get twitter to $1B EBIT then debt service is handled and he eventually owns twitter outright and just needs to keep it in the black. Then it's his prestige property, much like the Bezos Post or the Soros Conspiracy (I have no idea what to call Soros's shadowy enterprise that gets you called antisemitic if you acknowledge it's existence and influence).

That’s not exactly how you do a dcf.

And your a bit high on rate. I am seeing 10 year at 3.8% and 30 year at 3.9% - which are better duration matches.

But twitter presumably once achieving $2 billion income would still be growing income at inflationary rates or more. Even if Twitter just grows at nominal income growth that’s another 3.5% yield.

Twitter at $2 billion at $50 billion valuation would have yes a 4% cash flow yield plus earnings growing at 3.5% a year which is still a nice premium over a 3.9% US treasury 30 year.

I looked at a 20 year: https://www.marketwatch.com/investing/bond/tmubmusd20y?countrycode=bx

Which I admit is perhaps a little cherrypicked to be the top of the long term yield curve, and also just a mental ballpark calculation: https://www.ustreasuryyieldcurve.com/

But twitter presumably once achieving $2 billion income would still be growing income at inflationary rates or more. Even if Twitter just grows at nominal income growth that’s another 3.5% yield.

Or it could be shrinking as competition in that space grows (due to Amazon + Microsoft getting in the game).

I agree that a blue chip history of growing with inflation twitter could be valuable, but that's not just getting twitter to $2B profit. That's getting twitter to the point of having had stable profits for long enough that equity markets consider it reliable. That's quite a ways in the future, just to get back to the $44B price tag.

Well figure is unpredictable.

But a standard dcf would just assume out a modest out year growth rate. They could do better and take market share or they could shrink but most would just throw in some kind of long term growth rate of nominal gdp trend.

Also $2 billion was just a number I threw out that seems possible. They could normalize to $4 billion or more. Don’t think anyone knows what twitters ultimate monetization value is.

Inside baseball - 20 year old doesn’t have market liquidity support. It’s been 20-30 bps higher yield than anything else near it for about a year. So odd you happened to pick that year because it’s been out of synch with every other benchmark for a year.

Equity is priced differently than debt. In part because debt is often a fixed return. If we give a 20x return then 2b is 40b. You need higher multiple to get to 50b. I don’t think you see that unless interest rates fall.

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