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The big picture: For Tesla investors, Elon Musk's $44 billion acquisition of Twitter is starting to look like a costly endeavor that just won't go away. As the social media platform's financial woes deepen, there are growing concerns that Musk may have to unload more of his Tesla shares to keep X afloat.
The signs aren't promising, according to a Fortune report, as X's advertising revenue, its primary income source, has plummeted since Musk's takeover amid a boycott from major brands. Recent reports indicate that Q2 2024 US ad revenue crashed 84% from a year ago when accounting for inflation. X isn't even reporting financials anymore, so outsiders can only speculate about the depth of its money pit.
Musk himself warned of potential bankruptcy last November if the ad situation didn't improve, and any talk of profitability has gone silent, which the report pointed out is uncharacteristic for the executive known for making outlandish financial projections. Making matters worse is the fact that Musk's recent lawsuit against a group of ad companies could've further alienated them.
For the world's richest person, simply tapping his $236 billion personal fortune isn't a viable option. That's because the vast majority of it is tied up across his private companies like SpaceX, Neuralink, and xAI. His 12% Tesla stake represents one of the few liquid assets available to raise emergency funds.
"I would be expecting something between $1 and $2 billion in stock," stated Bradford Ferguson of Halter Ferguson Financial in a recent YouTube video. He estimates this could knock 5-10% off Tesla's share price as the market absorbs more supply.
It's a situation reminiscent of late 2022 when Musk sold over $20 billion of his holdings to partially finance the Twitter deal, sending Tesla's stock tumbling to two-year lows. At that time, Musk vowed not to sell more shares until at least 2025 to reassure investors.
However, with over a year until that self-imposed deadline, X's cash crunch might force Musk's hand sooner than expected, according to Ferguson. He theorizes a near-term stock sale could be needed to shore up X's $13 billion debt load and remain compliant with loan covenants.
While Musk was "probably a little more optimistic" about X's outlook back in 2022, said Ferguson, the social platform's accelerating ad revenue declines appear to have dashed those hopes. Tapping his golden goose at Tesla may be an unfortunate necessity.
For Tesla bulls, having their company's CEO perpetually distracted by the X money pit is unnerving enough. But watching a sustained exodus of Musk's stake as X's financials deteriorate could be a worst-case scenario. Whether he holds firm to his 2025 promise or stages an earlier stock sale remains to be seen.
Masthead: Wikimedia Commons