Elon Musk took over a struggling business with Twitter and has quickly made it worse
The Twitter profile page belonging to Elon Musk is seen on an Apple iPhone mobile phone.
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When Elon Musk said last week that Twitter has experienced a “massive drop in revenue” under his recent tutelage, he blamed the decline on “activist groups pressuring advertisers.”
There was some merit to his claim. A group of civil rights leaders had sent a letter to the CEOs of major companies, including Anheuser-Busch, Apple, Coca-Cola and Disney, urging them to relay their concerns about brand safety on the site to Musk. Later, the group would call for those businesses to halt ad spending on Twitter following what its leaders saw as a rise of racist posts and hate speech.
While Musk may be right to attribute some of the revenue drop to activist pressure, at least part of the responsibility falls on him. Twitter’s new owner, the world’s richest person, recently tweeted a conspiracy theory related to the attack on Paul Pelosi, husband of House Speaker Nandy Pelosi, and has made a series of crude and sophomoric jokes, some of which he’s quickly deleted.
Businesses don’t want to link their brands with that sort of behavior and content, said Rachel Tipograph, CEO of advertising technology firm MikMak.
“There’s concerns with advertisers around brand safety, and that’s really what this is all about,” Tipograph said. “Advertisers right now are not looking to be associated with the events that are currently happening at Twitter.”
Companies like General Motors and Volkswagen have paused their spending on Twitter following Musk’s arrival, while advertising titan Interpublic Group recommended that its clients do the same. The boycott poses a significant problem for the social media service, which derives 90% of sales from advertising.
Compared to larger rivals Facebook and Google, Twitter never managed to develop an online ad business that matched the scale of its influence in popular culture and society at large. Twitter has lost money in six of the eight years since its IPO. Its revenue in 2021 reached $5 billion, while Facebook generated sales of $118 billion and Google parent Alphabet recorded $257 billion in revenue.
Twitter’s revenue in the second quarter declined from a year earlier.
“In my humble opinion, to use a very technical term, their business sucks, and they need a radical transformation,” said Len Sherman, an adjunct professor of business at Columbia Business School.
It’s a business that Musk shelled out $44 billion to purchase. As part of the deal, he borrowed $13 billion, which he has to pay back.
For that investment, he got a company with “very poor targeting capabilities in an ad-based business where that’s essential,” Sherman said. “I kind of laugh because I keep getting Twitter promoted ads in my stream for companies that would be better directed to 13-year-old girls.”
On Wednesday, Musk is holding an audio meeting with advertisers on “Twitter Spaces.”
Twitter didn’t respond to requests for comment.
The YouTube approach
Musk did himself no favors after the acquisition, which closed in late October. In addition to his own questionable tweets and retweets, he’s been inconsistent in laying out what he means by free speech and acceptable content on the platform, and he abruptly fired roughly 50% of Twitter’s staff almost immediately, raising further questions about content moderation.
Companies typically halt their advertising campaigns if they feel they may suffer reputational damage. For example, businesses boycotted Alphabet’s YouTube in 2017 over concerns their ads would be played alongside extremists’ videos.
YouTube executives responded quickly at the time, allowing third-party verification of content, and hired more people to remove the offensive videos. Advertisers came back and the business rebounded promptly.
Musk would rather take a combative approach to advertisers. In response to a tweet recommending that he name the brands that are boycotting Twitter so that his followers can turn around and boycott them, Musk said “a thermonuclear name & shame is exactly what will happen if this continues.”
Meanwhile, Musk is taking a convoluted approach to banning users. Comedian Kathy Griffin was booted for impersonating Musk on the site, while Sarah Silverman had her account locked temporarily for a similar offense.
Jeff Seibert, Twitter’s former head of consumer product, called it “a mistake for Elon to be the face of content moderation.” In the past, Twitter has taken a team approach to policy violations.
“If you put one person in charge of it, I think you start seeing random decisions like this that then [cause people to] lose trust,” Seibert said.
Kathy Griffin attends the premiere of ‘A Hell of a Story’ during the 2019 SXSW Conference and Festival at the Zach Theatre on March 11, 2019 in Austin, Texas.
Tim Mosenfelder | Getty Images Entertainment | Getty Images
Twitter’s advertising business has already started deteriorating under Musk.
Data from MikMak, whose clients include Colgate, Unilever and General Mills, show a broad pullback in ad spending on Twitter. From Oct. 1 through Nov. 7, Twitter suffered a 68% drop in media traffic, which refers to the number of times people click on an ad, according to MikMak.
Before that, the numbers had been going up. Twitter’s media traffic increased 56.3% from July 1 to Sept. 30, and 326% from April 1 through June 30.
“We were actually seeing an uptick in Twitter traffic,” Tipograph said. “As soon as Elon Musk’s potential ownership was becoming more imminent, we significantly saw a change in traffic.”
Whatever tech and business improvements were taking place will be difficult to sustain, as the mass layoffs ate into Twitter’s global marketing team, whose responsibilities include reporting and metrics around ad performance, CNBC reported.
‘Now pay $8’
Musk has turned his focus to subscriptions as the key to reviving Twitter’s financials. He’s pitched an $8-a-month offering that allows people to be “verified” and gain premium features. The critics have been so vociferous that Musk on Monday tweeted an image of a t-shirt, reading “Your feedback is appreciated. Now pay $8.”
Musk has previously hinted that he wants to convert Twitter into a so-called super app, similar to China’s WeChat, that people can use to talk to friends, watch movies and buy goods.
Still, he’ll need partners that want to work with him. And his aggressive stance towards companies that have paused ads on the site isn’t a good look as he pursues other partnerships, said Jeanine Turner, a professor in Georgetown University’s Communication, Culture and Technology program.
The “big issue for him I would think would be trust,” Turner said. “I don’t see people trusting him with all of that information.”
As for advertisers, many brands don’t consider Twitter an essential avenue for distribution considering its less sophisticated ad-tracking technology and targeting capabilities. Other opportunities are emerging, such as connected TVs and streaming services as well as Amazon’s growing online ad business for retail-oriented companies, Tipograph said.
Jessica González, the co-CEO of nonprofit group Free Press, has been unimpressed with Musk’s antics. Gonzalez was one of the civil rights leaders who spoke to Musk last week, expressing concern about the rise of hate speech against Black and Jewish groups on Twitter. It’s the same group that was urging advertisers to halt their campaigns.
González said she was willing to give Musk “the benefit of the doubt” when he told the group that Twitter was aligned with them. But between his rhetoric that followed and his slashing of half the staff, she has serious doubts about whether it’s worth trying to work with him.
When asked whether she would take another meeting with Musk to discuss Twitter’s approach to offensive content, she said, “I don’t know.”
“Only because he made some promises in that meeting, and then went back on them like two days later,” González said.
Alex Karp, CEO of Palantir Technologies speaks during the Digital X event on September 07, 2021 in Cologne, Germany.
Andreas Rentz | Getty Images
Palantir shares continued their torrid run on Friday, soaring as much as 9% to a record, after the developer of software for the military announced plans to transfer its listing to the Nasdaq from the New York Stock Exchange.
The stock jumped past $64.50 in afternoon trading, lifting the company’s market cap to $147 billion. The shares are now up more than 50% since Palantir’s better-than-expected earnings report last week and have almost quadrupled in value this year.
Palantir said late Thursday that it expects to begin trading on the Nasdaq on Nov. 26, under its existing ticker symbol “PLTR.” While changing listing sites does nothing to alter a company’s fundamentals, board member Alexander Moore, a partner at venture firm 8VC, suggested in a post on X that the move could be a win for retail investors because “it will force” billions of dollars in purchases by exchange-traded funds.
“Everything we do is to reward and support our retail diamondhands following,” Moore wrote, referring to a term popularized in the crypto community for long-term believers.
Moore appears to have subsequently deleted his X account. His firm, 8VC, didn’t immediately respond to a request for comment.
Last Monday after market close, Palantir reported third-quarter earnings and revenue that topped estimates and issued a fourth-quarter forecast that was also ahead of Wall Street’s expectations. CEO Alex Karp wrote in the earnings release that the company “absolutely eviscerated this quarter,” driven by demand for artificial intelligence technologies.
U.S. government revenue increased 40% from a year earlier to $320 million, while U.S. commercial revenue rose 54% to $179 million. On the earnings call, the company highlighted a five-year contract to expand its Maven technology across the U.S. military. Palantir established Maven in 2017 to provide AI tools to the Department of Defense.
The post-earnings rally coincides with the period following last week’s presidential election. Palantir is seen as a potential beneficiary given the company’s ties to the Trump camp. Co-founder and Chairman Peter Thiel was a major booster of Donald Trump’s first victorious campaign, though he had a public falling out with Trump in the ensuing years.
When asked in June about his position on the 2024 election, Thiel said, “If you hold a gun to my head I’ll vote for Trump.”
Thiel’s Palantir holdings have increased in value by about $3.2 billion since the earnings report and $2 billion since the election.
In September, S&P Global announced Palantir would join the S&P 500 stock index.
Analysts at Argus Research say the rally has pushed the stock too high given the current financials and growth projections. The analysts still have a long-term buy rating on the stock and said in a report last week that the company had a “stellar” quarter, but they downgraded their 12-month recommendation to a hold.
The stock “may be getting ahead of what the company fundamentals can support,” the analysts wrote.
Charles Liang, chief executive officer of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.
Annabelle Chih | Bloomberg | Getty Images
Super Micro Computer could be headed down a path to getting kicked off the Nasdaq as soon as Monday.
That’s the potential fate for the server company if it fails to file a viable plan for becoming compliant with Nasdaq regulations. Super Micro is late in filing its 2024 year-end report with the SEC, and has yet to replace its accounting firm. Many investors were expecting clarity from Super Micro when the company reported preliminary quarterly results last week. But they didn’t get it.
The primary component of that plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission, and why it was late. That report is something many expected would be filed alongside the company’s June fourth-quarter earnings but was not.
The Nasdaq delisting process represents a crossroads for Super Micro, which has been one of the primary beneficiaries of the artificial intelligence boom due to its longstanding relationship with Nvidia and surging demand for the chipmaker’s graphics processing units.
The one-time AI darling is reeling after a stretch of bad news. After Super Micro failed to file its annual report over the summer, activist short seller Hindenburg Research targeted the company in August, alleging accounting fraud and export control issues. The company’s auditor, Ernst & Young, stepped down in October, and Super Micro said last week that it was still trying to find a new one.
The stock is getting hammered. After the shares soared more than 14-fold from the end of 2022 to their peak in March of this year, they’ve since plummeted by 85%. Super Micro’s stock is now equal to where it was trading in May 2022, after falling another 11% on Thursday.
Getting delisted from the Nasdaq could be next if Super Micro doesn’t file a compliance plan by the Monday deadline or if the exchange rejects the company’s submission. Super Micro could also get an extension from the Nasdaq, giving it months to come into compliance. The company said Thursday that it would provide a plan to the Nasdaq in time.
A spokesperson told CNBC the company “intends to take all necessary steps to achieve compliance with the Nasdaq continued listing requirements as soon as possible.”
While the delisting issue mainly affects the stock, it could also hurt Super Micro’s reputation and standing with its customers, who may prefer to simply avoid the drama and buy AI servers from rivals such as Dell or HPE.
“Given that Super Micro’s accounting concerns have become more acute since Super Micro’s quarter ended, its weakness could ultimately benefit Dell more in the coming quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.
A representative for the Nasdaq said the exchange doesn’t comment on the delisting process for individual companies, but the rules suggest the process could take about a year before a final decision.
A plan of compliance
The Nasdaq warned Super Micro on Sept. 17 that it was at risk of being delisted. That gave the company 60 days to submit a plan of compliance to the exchange, and because the deadline falls on a Sunday, the effective date for the submission is Monday.
If Super Micro’s plan is acceptable to Nasdaq staff, the company is eligible for an extension of up to 180 days to file its year-end report. The Nasdaq wants to see if Super Micro’s board of directors has investigated the company’s accounting problem, what the exact reason for the late filing was and a timeline of actions taken by the board.
The Nasdaq says it looks at several factors when evaluating a plan of compliance, including the reasons for the late filing, upcoming corporate events, the overall financial status of the company and the likelihood of a company filing an audited report within 180 days. The review can also look at information provided by outside auditors, the SEC or other regulators.
Last week, Super Micro said it was doing everything it could to remain listed on the Nasdaq, and said a special committee of its board had investigated and found no wrongdoing. Super Micro CEO Charles Liang said the company would receive the board committee’s report as soon as last week. A company spokesperson didn’t respond when asked by CNBC if that report had been received.
If the Nasdaq rejects Super Micro’s compliance plan, the company can request a hearing from the exchange’s Hearings Panel to review the decision. Super Micro won’t be immediately kicked off the exchange – the hearing panel request starts a 15-day stay for delisting, and the panel can decide to extend the deadline for up to 180 days.
If the panel rejects that request or if Super Micro gets an extension and fails to file the updated financials, the company can still appeal the decision to another Nasdaq body called the Listing Council, which can grant an exception.
Ultimately, the Nasdaq says the extensions have a limit: 360 days from when the company’s first late filing was due.
A poor track record
There’s one factor at play that could hurt Super Micro’s chances of an extension. The exchange considers whether the company has any history of being out of compliance with SEC regulations.
Between 2015 and 2017, Super Micro misstated financials and published key filings late, according to the SEC. It was delisted from the Nasdaq in 2017 and was relisted two years later.
Super Micro “might have a more difficult time obtaining extensions as the Nasdaq’s literature indicates it will in part ‘consider the company’s specific circumstances, including the company’s past compliance history’ when determining whether an extension is warranted,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He has a neutral rating on the stock.
History also reveals just how long the delisting process can take.
Charles Liang, chief executive officer of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.
Annabelle Chih | Bloomberg | Getty Images
Super Micro missed an annual report filing deadline in June 2017, got an extension to December and finally got a hearing in May 2018, which gave it another extension to August of that year. It was only when it missed that deadline that the stock was delisted.
In the short term, the bigger worry for Super Micro is whether customers and suppliers start to bail.
Aside from the compliance problems, Super Micro is a fast-growing company making one of the most in-demand products in the technology industry. Sales more than doubled last year to nearly $15 billion, according to unaudited financial reports, and the company has ample cash on its balance sheet, analysts say. Wall Street is expecting even more growth to about $25 billion in sales in its fiscal 2025, according to FactSet.
Super Micro said last week that the filing delay has “had a bit of an impact to orders.” In its unaudited September quarter results reported last week, the company showed growth that was slower than Wall Street expected. It also provided light guidance.
The company said one reason for its weak results was that it hadn’t yet obtained enough supply of Nvidia’s next-generation chip, called Blackwell, raising questions about Super Micro’s relationship with its most important supplier.
“We don’t believe that Super Micro’s issues are a big deal for Nvidia, although it could move some sales around in the near term from one quarter to the next as customers direct orders toward Dell and others,” wrote Melius Research analyst Ben Reitzes in a note this week.
Super Micro’s head of corporate development, Michael Staiger, told investors on a call last week that “we’ve spoken to Nvidia and they’ve confirmed they’ve made no changes to allocations. We maintain a strong relationship with them.”
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