Tuesday, June 6, 2023

Twitter's U.S. Ad Sales Plunge 59% as Woes Continue; The Worst Housing Affordability Ever?; SEC Says Binance Misused Customer Funds, Ran Illegal Crypto Exchange in U.S.; Cyber scammers target parents, grandparents for digital theft

By Whitney Tilson

1) I confidently predict that Elon Musk's takeover of Twitter will be a case study taught in business schools for decades to come...

The question is, a case study of what?

About how a company became so bloated that new management could cut 75% of its employees without a noticeable degradation of its service? And how, if Musk's plans are successful, one of the largest social networks could become much bigger and more integrated in our lives?

Or about how, against all odds, an engineering and entrepreneurial genius who built two of the most amazing companies ever – Tesla (TSLA) and SpaceX – had an enormous brain fart, vastly overpaid for a company? And to make matters worse, he made a series of decisions that resulted in one of the fastest destructions of value the world has ever seen?

Which of these outcomes will come to pass? The verdict is still out. Maybe Musk will be able to pull another rabbit out of his hat... But I think the latter scenario is the far more likely outcome.

I knew that Musk's antics at Twitter, including slashing the workforce by 75% almost overnight, had spooked advertisers, whose spending accounts for 90% of Twitter's revenue.

But I thought the situation had turned around, or at least stabilized, based on this interview Musk did with BBC in mid-April, in which he said:

We could be profitable, or to be more precise, cash flow positive this quarter if things keep going well. I think almost all advertisers have come back or said they are going to come back.

Well, it appears that for the umpteenth time, Musk's statement was disconnected from reality. (That's a polite way of saying "he lied his sorry a** off.") Because, according to this New York Times article...

Twitter's U.S. advertising revenue for the five weeks from April 1 to the first week of May was $88 million, down 59% from a year earlier.

That's just a staggering number. Twitter had $5.3 billion in revenue in the year before Musk took it private (the quarter ending June 30, 2022), and under Musk's leadership it's down to an annual run-rate of only $915 million, an 83% decline!

Setting aside the pandemic and highly cyclical businesses, it's hard for me to think of any company that has suffered such a rapid collapse in revenue.

This excerpt from the Times article explains why this is happening:

Twitter feels increasingly "unpredictable and chaotic," said Jason Kint, chief executive of Digital Content Next, an association for premium publishers. "Advertisers want to run in an environment where they are comfortable and can send a signal about their brand," he added.

Some of Twitter's biggest advertisers – including Apple, Amazon and Disney – have been spending less on the platform than last year, three former and current Twitter employees said. Large specialized "banner" ads on Twitter's trends page, which can cost $500,000 for 24 hours and are almost always bought by large brands to promote events, shows or movies, are often going unfilled, they said.

Twitter has also run into public relations snafus with big advertisers like Disney. In April, Twitter mistakenly gave a gold check mark – a badge meant to signify a paying advertiser – to the @DisneyJuniorUK account, which Disney doesn't own. The account posted racial slurs, leading Disney officials to demand from Twitter an explanation and assurances that it wouldn't happen again, two people with knowledge of the situation said.

Disney, Apple and Amazon declined to comment.

The article notes that six advertising execs who have worked with Twitter noted that their clients continue to limit ad spend, adding...

They cited confusion over Mr. Musk's changes to the service, inconsistent support from Twitter and concerns about the persistent presence of misleading and toxic content on the platform.

Last month, for instance, a picture that appeared to show an explosion near the Pentagon – which artificial intelligence experts identified as a synthetically generated image – was shared by dozens of Twitter accounts and briefly caused the stock market to tumble.

Some advertisers also continue to worry about Mr. Musk's tweets. Last month, he posted several times comparing the billionaire financier George Soros, a frequent target for conspiracy theorists, to the "X-Men" comic book villain Magneto. Ted Deutch, the chief executive of the American Jewish Committee, noted that both Mr. Soros and Magneto are Holocaust survivors, and that "the lie Jews want to destroy civilization has led to the persecution of Jewish people for centuries."

"Musk should know better," he said.

Last week, Ella Irwin, Twitter's head of trust and safety, the division that oversees content moderation, and AJ Brown, the head of brand safety and ad quality, resigned, three current and former employees said.

2) This post by Ben Carlson on his A Wealth of Common Sense blog, The Worst Housing Affordability Ever?, has some interesting (and sobering) charts.

The first one shows that the inflation-adjusted monthly mortgage payment (for the median single-family home with a 30-year fixed-rate mortgage and a 20% down payment) is close to a 34-year high:

And this chart shows the dramatic spike in the past three years:

Even adjusting for the rise in household income over time, affordability has still worsened significantly:

In light of all of this, you might think that housing prices would fall sharply – perhaps 10% to 20% – to bring affordability back to historical levels.

However, as I've written many times before, this isn't happening because the decline in affordability is being met with a decline in supply, mainly because roughly half of homeowners with a mortgage have locked in a rate of 3% or lower, and nobody wants to give that up!

So, as this final chart shows, the number of buyers still far exceeds the number of sellers:

3) Regarding the lawsuit the SEC filed against crypto exchange Binance yesterday (see: SEC Says Binance Misused Customer Funds, Ran Illegal Crypto Exchange in U.S.), this tweet made me laugh out loud:

4) This 60 Minutes story made me so angry!

My 81-year-old father got scammed recently, though fortunately only for $100. Be careful! Cyber scammers target parents, grandparents for digital theft (video here). Excerpt:

More Americans than ever rely on alarm systems, gates or doorbell cameras to help protect their families. But statistically, you are now more likely to be the victim of theft online than a physical break in at home.

A new report from the FBI reveals that Americans lost more than $10 billion last year to online scams and digital fraud.

People in their 30s - who are among the most connected online - filed the most complaints. But we were surprised to learn the group that loses the most money to scammers... is seniors.

Tonight, we will show you how cyber con artists are using artificial intelligence, widely-available apps and social engineering to target our parents and grandparents.

Best regards,


P.S. I welcome your feedback at [email protected].