For Twitter’s Next CFO, Lots of Debt and a Slowing Economy

Regardless of who will lead the finance department of Twitter in the future, the San Francisco-based company has debts of $ 13 billion due to private acquisitions, including new funds to pay off those debts.

Twitter’s net debt totaled $596.5 million as of June 30, the most recent period reported, compared with $2.18 billion in debt a year ago, according to S&P Global Market Intelligence. Cash equivalents were $2.68 billion, down 35% from a year ago, the report shows. Bad debt often indicates that a company has more cash than it actually has, a sign of financial strength. The company plans to delist from the New York Stock Exchange on Nov. 8.

Analysts estimate Twitter’s annual earnings at more than $1 billion, based on statements previously posted in business-related publications by Mr. Musk. The company, among others in the social media industry, is also struggling with declining digital advertising revenue as the economy slows.

Twitter’s earnings will grow to six to eight times before interest, taxes, depreciation and amortization based on new debt from sales and recent acquisitions, said Rohit Kulkarni, managing director at equity research firm MKM Partners LLC. . This is based on the Ebitda period as of June 30–the latest date available––according to data from S&P Global Market Intelligence.

It would take at least three years for the company to capitalize and improve profits to bring the ratio back to a sustainable level, which would be about twice Ebitda, Mr. Kulkarni said. “The increased number will be very important because the company has been investing heavily in the last 24 months by adding people and selling new products,” he said.

The average total debt to Ebitda ratio for S&P 500 companies is 2.7, down from 2.9 a year ago, according to financial research firm Bespoke Investment Group LLC.

Ratings firm S&P Global Ratings said Mr. Musk’s takeover of Twitter should result in a downgrade of many credit ratings, which were issued in April. Twitter’s BB+ rating from S&P has remained on the credit watch with a negative outlook since July. S&P will assess the level of financial risk from the financial crisis and negative publicity in the merger case, said Scott Zari, director of S&P.

“This big new structure can double the debt, the decline in Ebitda is going into trouble,” Zari said, adding that investors tend to pay back the debt when it falls. “We believe there will be a significant increase in power.” Moody’s Investors Service, another rating company, in April put Twitter’s Ba2 rating on review to reduce compliance with Mr. Musk’s acquisition deal. Fitch Ratings does not rate Twitter.

The future of the CFO will largely depend on whether Mr. Musk is driving the company to grow by building new businesses, which could be as part of the development of the platform into a program called anything, or for the benefit to reduce costs, which is still unknown. , researchers said. Mr. Musk said that the purchase of Twitter will help his creation of a program that combines the capabilities of several programs in one.

The new CFO will also help to try to turn the debtors into owners, by giving them sweeteners such as documents, and look to invest more in the business to pay off the debt, said Youssef Squali, an online analyst at Truist Securities, a financial institution. – hard work.

The chief financial officer must also look after Mr Musk – who has previously threatened to pull out of the deal before changing his mind – and ensure he is focused on Twitter while managing his other responsibilities as chief executive of carmaker Tesla. Inc.

and rocket company Space Exploration Technologies Corp., among other things, said Brent Thill, chief analyst at Jefferies Group LLC, an investment firm. “You have a 10,000-piece jigsaw if you take this part. It’s going to be difficult,” Thill said.

The new CFO may also focus on cost-cutting by reducing the company’s operations and laying off employees, said Brian Fitzgerald, managing director at Wells Fargo Securities LLC. Mr. Musk’s attorneys have reported the layoffs and Mr. Musk has not barred them from discussions with employees in recent months, the Wall Street Journal reported.

Twitter will have to cut about 30% of its workforce to cut costs, although Musk has previously said that a major purge is coming, said Dan Ives, an analyst at Wedbush Securities Inc., an investment firm. “The biggest head-slashing is about a company that was already bloated,” Mr. Ives said.

The company had 7,500 full-time employees by the end of 2021, up from 5,500 a year earlier, the filings show. Its revenues and expenses totaled $1.52 billion during the quarter ended June 30, up from $1.16 billion a year earlier. Twitter’s revenue fell 1.2% to $1.18 billion and general and administrative expenses rose 53.1% during the quarter, compared to the previous year.

The $44 billion valuation is nearly double Twitter’s market cap, making it the cheapest since Time Warner. Inc. Profile

$100 billion plus AOL than two decades ago, Wedbush’s Mr. Ives said.

Future managers that Mr. Musk plans to share his vision for Twitter, Mr. Ives said, and plan to support growth strategies that will take years to build.

“This will be a herculean effort to turn Twitter around, after the last decade,” said Mr. Ives.

—Jonathan Randles and Nina Trentmann contributed to this story

Write to Mark Maurer at [email protected] and Dean Seal at [email protected]