Twitter may be worth half of what Elon Musk paid for it, a sign that the social platform's legal struggles could be taking a toll.
- Elon Musk has said Twitter can be profitable as early as the second quarter.
- In a leaked memo, Musk said the company was worth $20 billion.
- The company is facing costly legal battles as former employees, vendors, and regulators.
- Regulators in the U.S. and European Union are also unhappy with the social media firm's practices.
Musk claims Twitter can be profitable by the second quarter after he made sweeping changes to the company after he purchased it last year for $44 billion. However, the Tesla (TSLA) founder said the company is likely worth half that figure, in a memo reviewed by the Wall Street Journal Sunday.
Twitter is facing headwinds from advertisers as they pull back in an uncertain economy, dragging down the company's valuation. Changes made under Musk's guidance have also shaken the confidence of users across the platform, causing some to defect to other social media sites. The company is also bogged down by costly legal battles across multiple countries on topics ranging from unpaid rent to labor disputes.
But the larger fight looming on the horizon for the platform comes from regulators. Both U.S. and European Union officials are looking to regulate what the platform is doing.
Twitter Slashes Costs but Faces Legal Wrangles
Elon Musk has taken the axe to Twitter in order to save a company he said was heading for bankruptcy. However, in a leaked memo from the company at the weekend, Musk was said to be paying bonuses at a valuation of $20 billion, for the company he acquired for $44 billion last year.
Musk said reportedly at a Morgan Stanley conference in San Francisco that the social media company would have gone bankrupt in four months if it wasn’t for his interventions. He added that the company would’ve had $6 billion in costs against $3 billion in revenue.
Musk slashed more than 3,500 of Twitter's 7,500 employees and cut $3 billion in the company's operating expenses.
However, Musk's aggressive efforts to turn the company have led to a series of legal problems. The Financial Times cited a former senior employee at the social media firm saying that Elon Musk repeatedly said "let them sue," as disgruntled vendors sought payment for services.
Here are some of the legal challenges facing Musk and Twitter in court:
- The company is being sued in Germany, with two groups claiming the social media site did not remove antisemitic tweets.
- Musk has found himself in trouble with the British Monarchy after The Crown Estate began court proceedings against Twitter over its failure to pay rent for its London offices.
- The owner of Twitter's San Francisco headquarters is also suing for unpaid rent it alleges the social media platform owes. There's another suit for similar claims in an additional San Francisco office as well.
- Innisfree M&A Incorporated, an advisory firm that had worked with the social platform, sued Twitter in February for nonpayment.
- Start-up Writer, Inc. also sued Twitter for pay it claims is owed to the company.
- Imply Data Inc. claims Twitter owes the software company $4.4 million and is suing to recover the funds.
- Twitter was sued by former employers in November 2022, who claimed that they were not given enough notice in accordance with U.S. federal law.
Larger Risks Come from U.S. and EU Regulators
Twitter is facing larger legal risks as the Federal Trade Commission (FTC) continues its probes against the firm, after a $150 million fine for the deceptive use of security data for its ads, ahead of Musk's acquisition.
The FTC has since said it is conducting a sweeping investigation into the company's privacy practices. The statement came after a House subcommittee disclosed a collection of letters from the agency to the company seeking further details of its operations.
The investigation by the regulator could eventually lead to billions of dollars in fines for Twitter. The FTC has reportedly requested "thousands of Slack messages related to Musk, details of its Twitter Blue subscription program, and information about the office equipment it was reportedly selling," according to CNN.
Another headwind facing Twitter on its road to profitability could come from government intervention. According to the Financial Times, European Union regulators have asked Musk to hire more human moderators and fact-checkers. Regulators are concerned about his plans to rely on volunteers and artificial intelligence.
Twitter said it would “comply fully” with the Digital Services Act (DSA) and “continue to utilize a mixture of technology and expert staff to proactively detect and remove illegal content." The DSA came into force in November 2022 and seeks to provide a European framework for search engines, social media apps, and other technologies such as cloud hosting. Lowering the cost of monitoring tweets was one of Musk’s goals to improve operating margins.
Meanwhile, a consumer watchdog told Business Insider that Twitter's blue subscription plan breaks European consumer rules.