In recent times, Twitter’s valuation has experienced a significant shift. Elon Musk acquisition of the social media giant, which was initially valued at $44 billion, has seen a remarkable decrease in value, dropping to a mere $19 billion. This article delves into the details of this drastic change, examining the implications and the equity granted to employees at this reduced valuation.
Elon Musk’s Acquisition
Elon Musk’s takeover of Twitter garnered attention due to the eye-popping initial valuation of $44 billion. However, over the course of a year, this valuation has plunged by more than 50% to its current standing at $19 billion. This remarkable decline is supported by internal documents obtained by The Verge.
Equity Grant to Employees
The internal documents reveal that X employees were granted equity in the company at the new valuation of $19 billion, which translates to $45 per share. This new valuation represents a significant 55% reduction from Musk’s initial purchase price. The fair market value per share is determined by the Board of Directors, taking into account various factors while ensuring compliance with tax rules.
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Musk’s Role in Twitter
Elon Musk is currently the chairman of X, but it is noteworthy that a formal board of directors has not yet been established, even though a year has passed since his acquisition. Musk’s leadership and vision for Twitter have been a subject of interest, especially in terms of structuring the company’s compensation plan.
Compensation Plan
Musk has expressed his desire to model Twitter’s compensation plan after SpaceX. Despite being privately held, SpaceX allows its employees to periodically convert a portion of their shares into cash by selling them to external investors. This approach has created a sense of flexibility for SpaceX employees, and Musk intends to bring a similar structure to Twitter.
Restricted Stock Units (RSUs)
The equity granted to X employees is referred to as “restricted stock units” or RSUs. These RSUs accrue over a four-year period from their initial allocation and become subject to taxation as income upon the occurrence of a “liquidity event,” such as an IPO or the company’s sale, as outlined in internal documents. This mechanism provides employees with a vested interest in the company’s performance and future prospects.
Clarity on X’s Value
Prior to the recent disclosure of stock award details, employees at X were uncertain about the company’s value following Elon Musk’s acquisition. This revelation provides clarity on the matter, but it raises questions about the accuracy of Musk’s initial valuation.
Fidelity’s Valuation
It is worth noting that not everyone shares Musk’s optimistic valuation. One of X’s significant investors, Fidelity, maintains that the company is worth 65% less than its acquisition price, suggesting that Musk’s valuation might still be overly optimistic.
Conclusion
In summary, Twitter’s valuation has undergone a dramatic transformation, with a significant reduction from its initial $44 billion valuation to $19 billion. Elon Musk’s leadership and the equity grant to X employees have added an intriguing dimension to the company’s evolution.
