Elon Musk has wasted no time in transforming Twitter since buying the company for US$44 billion on Oct 27.

He has fired most of the senior executive team, including the chief executive officer and the chief financial officer; fired about half the staff over e-mail; told people at the company he will repeal its work-from-anywhere policy, forcing employees back to the office after years of remote work; and proposed changes to try to pull in significantly more revenue from the company’s fledgling subscription service. 

There is a reason for the urgency: Twitter has big new bills to pay.

The deal was a leveraged buyout, with Musk using borrowed money that goes on Twitter’s balance sheet. Twitter’s debt load has jumped to about US$13 billion, up from a pre-deal situation where it owed US$1.7 billion on junk bonds, along with other types of debt that could be converted into stock.

The effect of this shift is that Twitter will have annual interest payments approaching US$1.2 billion, up from below US$100 million in the pre-Musk era.

The situation could get even more expensive for Twitter, because the interest rates on about half of that debt are not locked in and will rise with the market.

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The company has not been profitable for a full calendar year since 2019, and things were not looking better this year. Twitter posted a net loss of US$270 million in the second quarter and was projected to lose more than US$200 million in the third quarter. (The deal closed before earnings were reported.) 

Musk knows this, of course, which is why he suddenly appears to be offloading everything at Twitter that isn’t bolted to the floor. Slashing the head count is the easiest way to quickly eliminate major costs; stock-based compensation for Twitter employees accounted for US$630 million last year, or 12 per cent of total revenue.

Musk is also planning to close offices and has demanded that the company find US$1 billion in annual savings by cutting infrastructure costs, Reuters has reported. That would mean less money spent on things such as server space and cloud services. 

Rapid cost-cutting is not necessarily the best path to profitability, because it can hamper a company’s ability to develop better ways to earn money over time. The cuts included the almost-complete elimination of the departments for marketing, communications, human rights and celebrity partnerships, which could make it harder for Twitter to attract and retain users and advertisers. 

The chaos created by suddenly dismissing 3,700 people was also on display over the weekend, when the company began reaching out to dozens of fired workers to ask them to return. In some cases, they were fired by mistake. In other cases, management realised it needed them to help build the new features Musk wants. 

As it stands, Musk’s most notable plan to improve Twitter’s earning potential appears to be a monthly subscription service that will give users a handful of perks, including the coveted blue check verification badge, for US$8 a month.

He is also asking employees to try to revive Vine, the short-form video app the company shut down in 2016, which could provide extra advertising opportunities.

Twitter is also working on a separate product that would let users charge people to watch its videos – great for movie trailer releases or, you know, porn. But such video products would likely come with additional storage costs. 

Musk badly needs those products to work – in part because Twitter’s existing business model, advertising, suddenly looks vulnerable.

The entire digital ad industry is struggling, and advertisers seem apprehensive about Musk’s ownership of Twitter. Big brands such as Volkswagen, Pfizer and General Mills have said they will halt Twitter ad spending at least temporarily, and Musk has acknowledged a “massive drop” in revenue as a result. 

Advocacy groups are encouraging other brands to avoid Twitter if Musk pulls back on some of the company’s policies governing hate speech and misinformation, which he is likely to do. The Twitter executives with the deepest relationships with advertisers –and who may have been in charge of soothing them or wooing them back – have been fired. 

All this manoeuvring puts a lot of pressure on Musk. He has always been fond of moving fast. The debt and chaos he has brought to Twitter ensures that he will not have the luxury of operating any other way. BLOOMBERG