The microblogging platform formerly known as Twitter, now referred to as X, has recently undergone a significant decrease in its valuation. Internal documents obtained by Fortune reveal that X currently values itself at $19 billion, which is a sharp decline from the $44 billion that Elon Musk paid to acquire the company just one year ago. This marks a 56% decrease in X’s value over the past 12 months, raising concerns about the platform’s performance and future prospects.
Key Takeaway
Twitter’s valuation has experienced a significant decrease of 56% over the past year, valuing the company at
9 billion. The decline can be attributed to factors such as declining global brand awareness, controversial content handling, and portrayal of journalists. A 409A valuation, a conservative assessment of a company’s worth, has played a role in the reduction of Twitter’s value. While a lower valuation may have short-term benefits for employees, the platform needs to regain its lost value to ensure long-term success and reward its dedicated workforce.
The Factors Contributing to Twitter’s Decline
The decrease in X’s valuation can be attributed to various factors. One major reason is the platform’s deteriorating global brand awareness. Over the past year, Twitter has faced criticism for its handling of controversial content, deplatforming journalists, and enabling impersonation. These actions have not only damaged its reputation but have also driven away users and potentially affected advertisers’ confidence in the platform.
Furthermore, the arbitrary nature of company valuations can significantly impact the perception of a company’s worth. Depending on who calculates the valuation, whether it’s a venture capitalist, a government auditor, or an individual like Elon Musk with a vested interest, the resulting figure can vary greatly. Fidelity, for instance, has marked down its investment in X by a staggering 65%, further undermining the company’s value.
The Influence of a 409A Valuation
As a private company, X is now offering its employees restricted stock units (RSUs) at a share price of $45. When determining the value of these stock options, the Internal Revenue Service (IRS) advises companies to use a 409A valuation, which provides an independent assessment of a company’s worth. However, 409A valuations are generally more conservative than valuations derived from new venture funding. This often results in a reduction of a company’s valuation after a 409A appraisal.
Similar situations have occurred with other private tech companies like Stripe and Instacart, which experienced valuation cuts of 28% and 38% respectively. EquityZen, a company in the private markets investing sector, has observed this trend consistently in the tech industry. According to Phil Haslett, founder and CSO of EquityZen, shares in private pre-IPO tech companies typically trade at an average discount of 49% compared to the previous funding round.
The Benefits and Implications
While X’s valuation drop may raise concerns, it has some potential benefits. The deflated 409A valuation allows the company to offer common stock or equity compensation to employees at a lower price. This benefits both executives and employees, as it reduces the cost of granting stock options, attracts talent, and can lead to tax advantages for employees when exercising options.
