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By taking Twitter private, Musk makes daring bet

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Most companies taken private have positive cash flows, but Twitter posted losses in the first two quarters of 2022

Most companies taken private have positive cash flows, but Twitter posted losses in the first two quarters of 2022 – Copyright AFP Hector RETAMAL

Thomas URBAIN

Elon Musk’s decision to pull Twitter off the stock market allows him to make major changes quickly, but it also takes the company more heavily into debt, a risky choice for a money-losing business.

It is a long-established strategy with notable successes and failures, from computer manufacturer Dell (a success) to toy stores Toys “R” Us (a failure).

But Twitter “is very different from a traditional buyout” of a company that delists from the market, said Steven Kaplan of the University of Chicago Booth School of Business.

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Most such takeovers are of companies with positive cash flows, Kaplan said, but the social network is losing money — having posted losses in the first two quarters of 2022.

The equation is further complicated by Elon Musk’s $13 billion in loans, which will have to be repaid by the San Francisco company, not by the entrepreneur personally.

According to a calculation made by AFP, Twitter will have to disburse a little less than $1 billion from the first year as interest and principal, a high amount for a group whose turnover reached only $5 billion in 2021.

“That debt is tricky when you’re losing money. So there’ll be a lot of pressure to cut costs and increase revenue so that they can make debt payments,” said Kaplan, a finance professor. Otherwise, Musk will need to find funds to avoid bankruptcy.

The entrepreneur on Friday laid off about half of Twitter’s employees and is seeking new sources of revenue, including an optional subscription fee of $8 per month for those wanting a verified account.

Further development of Twitter may require an infusion of capital, more difficult to raise, in theory, by a unlisted company.

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“I don’t think you can raise any more debt,” said Erik Gordon, an entrepreneurship expert at the University of Michigan Ross School of Business, but in this case “there is a Musk factor… You tweet a few times and you know, bring in the money.”

– ‘Radical changes’ –

Another idiosyncratic element is that most such deals “are initiated either by a financial logic or an industrial logic,” whereas Elon Musk “didn’t have one,” he said.

“He just was unhappy with the way Twitter was treating free speech” and concluded that he could “manage it better,” Gordon said.

As a general rule, an exit from the market is followed by “radical changes” at a company, said Sreedhar Bharath, professor of finance at Arizona State University, and those changes may not be readily apparent because the company no longer has an obligation to communicate publicly.

“The company is shielded from the punishment meted out by financial markets if they do not like the changes,” he said. “Some might say the markets have an excessive focus on the next quarter results” and managers of newly privatized firms can “pursue long-term goals” without fretting about the short term.

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“But with the high public profile of Twitter, key decisions are likely to become public,” noted Jagadeesh Sivadasan of the University of Michigan’s Ross School of Business. “This was evident for the post-acquisition decisions regarding firing of key officers.”

A study published in 2019 by two researchers at California State Polytechnic University that looked at nearly 500 deals between 1980 and 2006, found that about 20 percent of large companies undergoing leveraged buyouts filed for bankruptcy within 10 years, compared with two percent for a sample of other companies.

“Most of them have done better than public companies,” said Gordon, “but they don’t get a lot of publicity… The big failures get a lot of attention and create this idea that the debt kills the company.”

“Most of the time, it works which is why people keep doing it,” Gordon added.

“Musk is one of the most creative people on the planet,” able to build three totally different companies, PayPal, Tesla and SpaceX, all of which have reached more than $100 billion in valuation, Kaplan said.

“He’s a talent magnet… He’s going to attract (to Twitter) real talent that hasn’t been there for a while… I wouldn’t bet against him.”

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Snapchat Explores New Messaging Retention Feature: A Game-Changer or Risky Move?

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Snapchat Explores New Messaging Retention Feature: A Game-Changer or Risky Move?

In a recent announcement, Snapchat revealed a groundbreaking update that challenges its traditional design ethos. The platform is experimenting with an option that allows users to defy the 24-hour auto-delete rule, a feature synonymous with Snapchat’s ephemeral messaging model.

The proposed change aims to introduce a “Never delete” option in messaging retention settings, aligning Snapchat more closely with conventional messaging apps. While this move may blur Snapchat’s distinctive selling point, Snap appears convinced of its necessity.

According to Snap, the decision stems from user feedback and a commitment to innovation based on user needs. The company aims to provide greater flexibility and control over conversations, catering to the preferences of its community.

Currently undergoing trials in select markets, the new feature empowers users to adjust retention settings on a conversation-by-conversation basis. Flexibility remains paramount, with participants able to modify settings within chats and receive in-chat notifications to ensure transparency.

Snapchat underscores that the default auto-delete feature will persist, reinforcing its design philosophy centered on ephemerality. However, with the app gaining traction as a primary messaging platform, the option offers users a means to preserve longer chat histories.

The update marks a pivotal moment for Snapchat, renowned for its disappearing message premise, especially popular among younger demographics. Retaining this focus has been pivotal to Snapchat’s identity, but the shift suggests a broader strategy aimed at diversifying its user base.

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This strategy may appeal particularly to older demographics, potentially extending Snapchat’s relevance as users age. By emulating features of conventional messaging platforms, Snapchat seeks to enhance its appeal and broaden its reach.

Yet, the introduction of message retention poses questions about Snapchat’s uniqueness. While addressing user demands, the risk of diluting Snapchat’s distinctiveness looms large.

As Snapchat ventures into uncharted territory, the outcome of this experiment remains uncertain. Will message retention propel Snapchat to new heights, or will it compromise the platform’s uniqueness?

Only time will tell.

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Catering to specific audience boosts your business, says accountant turned coach

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Catering to specific audience boosts your business, says accountant turned coach

While it is tempting to try to appeal to a broad audience, the founder of alcohol-free coaching service Just the Tonic, Sandra Parker, believes the best thing you can do for your business is focus on your niche. Here’s how she did just that.

When running a business, reaching out to as many clients as possible can be tempting. But it also risks making your marketing “too generic,” warns Sandra Parker, the founder of Just The Tonic Coaching.

“From the very start of my business, I knew exactly who I could help and who I couldn’t,” Parker told My Biggest Lessons.

Parker struggled with alcohol dependence as a young professional. Today, her business targets high-achieving individuals who face challenges similar to those she had early in her career.

“I understand their frustrations, I understand their fears, and I understand their coping mechanisms and the stories they’re telling themselves,” Parker said. “Because of that, I’m able to market very effectively, to speak in a language that they understand, and am able to reach them.” 

“I believe that it’s really important that you know exactly who your customer or your client is, and you target them, and you resist the temptation to make your marketing too generic to try and reach everyone,” she explained.

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“If you speak specifically to your target clients, you will reach them, and I believe that’s the way that you’re going to be more successful.

Watch the video for more of Sandra Parker’s biggest lessons.

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Instagram Tests Live-Stream Games to Enhance Engagement

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Instagram Tests Live-Stream Games to Enhance Engagement

Instagram’s testing out some new options to help spice up your live-streams in the app, with some live broadcasters now able to select a game that they can play with viewers in-stream.

As you can see in these example screens, posted by Ahmed Ghanem, some creators now have the option to play either “This or That”, a question and answer prompt that you can share with your viewers, or “Trivia”, to generate more engagement within your IG live-streams.

That could be a simple way to spark more conversation and interaction, which could then lead into further engagement opportunities from your live audience.

Meta’s been exploring more ways to make live-streaming a bigger consideration for IG creators, with a view to live-streams potentially catching on with more users.

That includes the gradual expansion of its “Stars” live-stream donation program, giving more creators in more regions a means to accept donations from live-stream viewers, while back in December, Instagram also added some new options to make it easier to go live using third-party tools via desktop PCs.

Live streaming has been a major shift in China, where shopping live-streams, in particular, have led to massive opportunities for streaming platforms. They haven’t caught on in the same way in Western regions, but as TikTok and YouTube look to push live-stream adoption, there is still a chance that they will become a much bigger element in future.

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Which is why IG is also trying to stay in touch, and add more ways for its creators to engage via streams. Live-stream games is another element within this, which could make this a better community-building, and potentially sales-driving option.

We’ve asked Instagram for more information on this test, and we’ll update this post if/when we hear back.

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