Elon Musk's X Woes and the Impending Impact on Possible Share Sale Liquidating Tesla Shares

[Social Media]

 

Elon Musk’s financial challenges at X, the company formerly known as Twitter, are becoming increasingly apparent, causing concern among Tesla investors. As the tech billionaire struggles to stabilize the finances of his $44 billion acquisition, there is growing apprehension that Musk may need to liquidate more Tesla stock to inject fresh capital into the beleaguered social media platform.

 

The root of the problem lies in Musk’s antagonistic stance toward advertisers, which has severely impacted X’s revenue stream. His repeated outbursts against advertisers have dried up the platform's main source of income, leaving X in a precarious financial position. A recent decision to sue advertisers for following his advice to avoid placing ads on the platform has only exacerbated the situation. To salvage his massive investment, Musk may be forced to sell a significant portion of his Tesla shares, a move that could have dire consequences for Tesla’s stockholders.

 

“I would be expecting something between $1 and $2 billion in stock,” said Bradford Ferguson, president and chief investment officer of Halter Ferguson Financial, in a YouTube video posted on Wednesday. According to Ferguson, such a sale could result in a 5% to 10% drop in Tesla’s stock value. “It’s a massive hole they need to plug,” he added.

 

Elon Musk was not available for comment when contacted by Fortune. Ferguson’s assessment was based on internal second-quarter figures recently obtained by the New York Times. These figures paint a grim picture of X’s financial health. The report revealed that X generated $114 million in revenue from the U.S., its largest market, representing a 25% decline over the previous quarter and a staggering 53% drop from the same period the previous year.

 

As troubling as these numbers are, the situation appears even bleaker when viewed in the context of pre-acquisition performance. In the second quarter of 2022, before Musk took control, X’s revenue stood at $661 million. Adjusting for inflation, this represents an 84% collapse in revenue in today’s dollars.

 

The financial outlook for X remains uncertain, as the company does not release financial results. However, Musk himself acknowledged in November that X could face bankruptcy due to the ongoing advertiser boycott. Since then, any talk of achieving cash flow breakeven or turning a profit has ceased—an unusual stance for Musk, who is known for setting aggressive, often unrealistic, targets.

 

Musk's dilemma is compounded by the fact that, despite his immense wealth, estimated at over $236 billion by Forbes, he cannot easily use his personal fortune to bail out X. His wealth is largely tied up in various corporate holdings, including SpaceX, Neuralink, and his newest venture, xAI. None of these investments are easily liquidated. Only Tesla is a publicly traded company, making the sale of Tesla stock the most straightforward solution.

 

This is not the first time Musk has turned to Tesla shares to finance his endeavors. To fund the bulk of the $44 billion purchase price for Twitter, Musk sold off significant portions of his Tesla holdings, sending the stock to two-year lows. In December 2022, Musk attempted to reassure investors during a Twitter Spaces discussion, promising not to sell any more Tesla shares to fund the struggling platform for at least another 18 to 24 months. “Definitely not next year under any circumstances. Probably not the year after either,” he said at the time. “You can count on me, no stock sales until 2025 or something.”

 

While this pledge provided some relief to Tesla investors, it came with an implicit warning: the possibility that Musk might need to sell more stock in the future. With 2025 rapidly approaching and X’s financial situation likely worsening, Ferguson believes that Musk may be forced to cash in on his Tesla shares sooner rather than later. “He was probably a little more optimistic in December 2022 and didn’t anticipate it would get worse,” Ferguson noted.

 

The financial pressure on Musk may stem from the need to ensure X meets the loan covenants for the $13 billion in leveraged buyout (LBO) debt it assumed as part of the acquisition. A breach of these covenants could result in higher interest rates or even demands from banks for repayment.

 

Gary Black, managing partner and cofounder of the Future Fund, shares the concern that the risks of a share sale are increasing. “The bleeding of X will continue and at some point Elon will have to sell more Tesla shares to plug the $1–2 billion per year hole at X,” the longtime Tesla bull stated in a social media post.

 

As the financial woes at X intensify, Tesla investors are left in a precarious position. The possibility of Musk selling more Tesla shares to rescue his social media venture looms large, potentially leading to further declines in Tesla’s stock price. For those who hold Tesla shares, the coming months could prove to be a period of significant uncertainty and volatility.

 

 

Credit: Fortune  2024-08-20

 

 

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[Cryingdick]

What a horrible problem Musk has. He can sell shares he rightfully owns for billions of dollars. If you own shares in TSLA you already knew this. If you own shares in TSLA and didn't know this well you have learned something. Let me guess next Bezos will sell some AMZN to fund something he wants to do. The horror.

[spidermike007]

I think there's no question the Musk is a brilliant man, but he does not seem to be a particularly great businessman, and he reminds me of someone else in that his statements always seem to be the equivalent of shooting himself in the foot.

 

His outbursts about sponsors and advertising on X was the height of stupidity, hubris, arrogance and ignorance. And it definitely seems to be coming back and biting him on the butt. Not that you're looking for advice Elon, but I would suggest in the future that you don't antagonize, insult and piss off the people that support you monetarily. 

Edited August 20 by spidermike007

[roquefort]

1 hour ago, spidermike007 said:

His outbursts about sponsors and advertising on X was the height of stupidity, hubris, arrogance and ignorance. And it definitely seems to be coming back and biting him on the butt. Not that you're looking for advice Elon, but I would suggest in the future that you don't antagonize, insult and piss off the people that support you monetarily. 

I think he was talking about sponsors who put political correctness ahead of profit by withdrawing advertising from X at the demand of woke 'activists'.

He should be congratulated for not kowtowing to the baying mob and defending free speech at great personal cost.

[stevenl]

3 hours ago, roquefort said:

I think he was talking about sponsors who put political correctness ahead of profit by withdrawing advertising from X at the demand of woke 'activists'.

He should be congratulated for not kowtowing to the baying mob and defending free speech at great personal cost.

So why do you think 'sponsors' are listening to 'woke activists'?

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17 hours ago, Cryingdick said:

What a horrible problem Musk has. He can sell shares he rightfully owns for billions of dollars. If you own shares in TSLA you already knew this. If you own shares in TSLA and didn't know this well you have learned something. Let me guess next Bezos will sell some AMZN to fund something he wants to do. The horror.

Except, of course, that must would be selling those shares because of a disaster that he himself created. Said disaster started with his crazy purchase of Twitter. If the consequences of the self-inflicted wound only affected him that would be one thing. But given how badly it's already affecting Tesla and how much worse it can get, it doesn't bear much resemblance to a hypothetical venture by another multi-billionaire.