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In the News

Musk buys Twitter - will he suffer the winners' curse?

Geoff Riley

28th October 2022

Elon Musk has closed the deal to secure Twitter for a reported $44 billion.

Musk buys Twitter - will he suffer the winners' curse?

In 2022, Social networking sites are estimated to reach 3.96 billion users globally, but Twitter lags a long way behind major rivals such as WhatsApp, TikTok and Facebook.

Relying heavily on advertising income, Twitter saw their revenues climb sharply in 2021. But they made a loss of $220 million in the same year – they are losing $4 million a week. How can Musk make twitter profitable?

So has Elon Musk over-paid for Twitter and is he at risk of suffering from the winners’ curse.

Have a look at this data which looks at some of the prices paid to acquire companies

Google’s purchase of YouTube for $1.6 billion now looks a complete steal!

Price paid to buy these companies:

  • Twitter: $44 billion (Elon Musk)
  • LinkedIn: $26 billion (Microsoft)
  • YouTube: $1.65 billion (Google)
  • Tumblr: $1.1 billion (Yahoo)
  • Instagram: $1 billion (Facebook)
  • MySpace: $580 million (NewsCorp)

Graham's comments

Larry Elliott worries here that Elon Musk's takeover of Twitter might be a particularly significant moment, not least because the common perception is that he's overpaid for it.

However, it came in a week when Meta, owners of Facebook, announced a 50% reduction in third quarter profits, and a commensurate decline in its share price. However, he wonders whether the unwinding of QE and falling share prices foretell something about the wider global economy.

To be fair, his conclusion isn't quite as radical - his view is that whilst there might be a recession, it is likely to be the case that global inflation is back under control within 2 years.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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