The Value of X
X, formerly Twitter, is now valued at $19 billion, according to the company’s employee equity compensation plan. This is a significant drop from the $44 billion that Elon Musk paid to acquire the company in October 2022.
Several factors may have contributed to the valuation drop.
- The overall economic slowdown: The tech sector has been particularly hard hit by the recent economic downturn, and X is no exception. The company’s revenue growth has slowed in recent quarters, and it has struggled to keep up with its competitors.
- Musk’s erratic leadership style: Musk is known for his impulsive decision-making and his habit of publicly criticizing his employees. This has led to uncertainty and instability at X, and it has made it difficult for the company to attract and retain top talent.
- Musk’s plans for the company: Musk has said that he wants to make X a more open and freer platform for speech. However, this has raised concerns among some users and advertisers, who worry that the platform will become more toxic and less welcoming.
- The dropping of the Twitter brand name In October 2023, Musk announced that X was dropping the Twitter brand name. This decision was met with mixed reactions, with some users and analysts arguing that it was a mistake to abandon a well-known and established brand.
X may need to take a lesson from its peer group of Fortune 500 companies. In the past, companies have faced repercussions for similar actions like Musk’s recent leadership decisions.
Blackberry, the once dominant player in the smartphone market, failed to adapt to the evolution of touchscreen technology and app ecosystem in favor of physical keyboards and its web browser. BB ignored consumer interest in cameras and social media integration and convenience. The company once controlled about 20% of the smartphone market in 2010 with a market capitalization of $40 billion. Three years later, the market share dropped to 0.6%, and the market cap fell to $4 billion. In 2016, the company stopped making phones and discontinued tech support on its classic smartphones in January 2022.
The Coca-Cola Company introduced a new recipe in April 1985 and immediately created a consumer backlash that caused the company to restore the original formula as Coca-Coca Classic in July 1985. 20th Century Fox convinced George Lucas to take a $20,000 pay cut on the original Star Wars in exchange for all merchandising rights to film and all its sequels: the deal cost Fox billions. Blockbuster declined an offer in 2000 from Netflix co-founder Reed Hastings to publicize Netflix in their stores. Ten years later, Blockbuster filed for Chapter 11 bankruptcy, and Netflix is now worth nearly $180 billion. Ross Perot and his company, Electronic Data Systems, passed on an offer to purchase Microsoft for $40-60 million in 1979. Currently, Microsoft is worth $2.5 trillion. Quaker Oats purchased the Snapple fruit drink brand for $1.7 billion in 1993, which was widely considered overvalued. Just over two years later, Snapple was sold for only $300 million, resulting in a loss of $1.4 billion.
The dropping of the Twitter brand name is likely to have had a negative impact on the company’s valuation. A brand name is a valuable asset, and it represents the company’s reputation and goodwill. By dropping the Twitter brand name, Musk is essentially starting over from scratch, and he will need to invest heavily in building brand awareness for X. Additionally, the dropping of the Twitter brand name may have alienated some users and advertisers. Twitter is a well-known and established platform, and many users and advertisers are familiar with the brand. By dropping the Twitter brand name, Musk is taking a risk that he will lose some of this valuable customer base.
Overall, the valuation drop of X is a sign of the challenges that the company is facing. Musk has a lot of work to do to turn the company around, and it remains to be seen whether he will be successful.
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