Twitter’s Value Drops 56% in One Year: Unpacking the Slide from $44 Billion to $19 Billion
In a surprising turn of events, Twitter, now operating under the enigmatic name “X,” has witnessed a significant value drop in the span of just one year. Internal documents obtained by Fortune reveal that X currently values itself at $19 billion. To put this into perspective, when Elon Musk acquired the platform approximately a year ago, he paid a hefty $44 billion, equating to $54.20 per share.
This steep 56% value drop might raise eyebrows, and naturally, questions arise. What could have caused such a significant decrease in Twitter’s worth in just 12 months? To comprehend this shift, we need to consider the multifaceted nature of company valuations and the intricate factors influencing them.
Twitter’s path to value drop is paved with several contributing factors. Over the past year, it has faced criticism for its handling of global brand awareness, controversial de-platforming decisions impacting journalists, and aiding impersonation. These issues, among others, have undoubtedly played a role in eroding the platform’s perceived value drop.
However, in the world of business, one number rarely tells the whole story. Company valuations can be remarkably subjective, depending on who is calculating them. Venture capitalists, government auditors, or even billionaire stakeholders can generate substantially different figures. To illustrate this, Fidelity marked down its investment in X by a staggering 65%.
As part of a strategy to retain employees, X is now offering restricted stock units (RSUs) at a share price of $45. When private companies adopt stock-like compensation options, the IRS advises using a 409A valuation, an independent assessment of a company’s worth. However, these valuations often tend to be more conservative than valuations inferred through venture funding, leading to potential value drop.
It’s not uncommon to observe companies’ valuations taking a hit following a new 409A appraisal. For instance, Stripe and Instacart both experienced reductions of 28% and 38% in their valuations last year. EquityZen, a platform specializing in private market investing, has consistently noticed these trends among private tech firms. Phil Haslett, founder and CSO of EquityZen, acknowledges the downward trajectory in X’s valuation as unsurprising but expresses concerns about the rapidity of this decline.
Importantly, a lower valuation can benefit both executives and employees. The reduced valuation lowers the cost of granting employees stock options, making it more affordable and appealing to recruit new talent.
Alex Ross, founder and CEO of the plant care app Greg, emphasizes the significance of 409A valuations in setting the tax basis for stock options. A lower valuation, as seen with X’s $19 billion figure, translates to less tax liability for employees when exercising options.
While a lower valuation may offer short-term advantages, Twitter, now X, will need to recover its lost value to ensure that its dedicated employees reap the rewards they deserve in the long run. The story of X’s valuation underscores the intricate dynamics at play in the world of business and finance, where numbers can tell a story, but the full narrative is far more complex.
