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Elon Musk has given us all quite a week on social media. Whether it was the purchase of Twitter shares making him the largest single shareholder, his decision to take and then not to take a seat on the board (or the fact that one was offered in the first place), his tweets looking for feedback on potential new features, asking whether Twitter is dying, or his assertion that “Truth is the first casualty,” the new lawsuit for his failure to promptly disclose his shares, or speculation about what Musk is likely to do with Twitter next, it’s likely you’ve seen or heard his name (more than usual) over the past ten days.
What can we make of all of this? Sometimes it’s best to work backwards, so let’s start with the lawsuit. The class action, filed in federal court in Manhattan, alleges that Musk made “materially false and misleading statements and omissions,” allowing him to buy more shares at a lower price while defrauding shareholders into selling at artificially deflated prices. The issue is that Musk initially bought 5%, which ought to have been disclosed, under U.S. law, on 24 March, and then bought additional shares (amounting to just over 9% total) before the initial purchase was disclosed, which allowed him to buy these additional shares at a lower price. It’s part of a phenomenon that’s long dogged larger investors: if it becomes clear that you’re buying shares, the prices will spike, and you’re supposed to wait to buy more new shares until the first purchase is announced. It’s a case of the ultimate insider trading: because you know what you’re going to do, the rules exist to make sure you don’t manipulate prices.
Well, that’s what they’re supposed to do. Musk may have done things somewhat more creatively, so to speak. We haven’t done the maths ourselves, but according to NPR Musk's move saved him $143 million and we have no reason to doubt them. Still, most people are more interested in the 27% increase in share value since the purchase.
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Why is Musk taking such a large position in a social network right now? Commentators have used varied and colourful vocabulary to describe Musk and his motivations over the past few weeks, but we’ll simply say he’s been outspoken about Twitter’s current state of affairs. He’s not the first to wonder whether Twitter is dying, and although we haven’t gone quite so far ourselves, we’ve had supporters and investors wonder the very same thing. Nevertheless, whether it’s his outspoken nature or his work at Tesla, the increase in share price indicates a massive amount of faith in his ability to build value. Or, you know -- not.
If shareholders initially believed Musk’s purchase would put an end to the Twitter scramble after all of the drama in the wake of Jack Dorsey's departure, that hope was certainly short lived for staff members, who were reportedly “super stressed” over the “will-he-or-won’t-he” board seat situation (he won’t) as well as the will-he-or-won’t-he buy more shares dispute (who knows). None of this can be terribly surprising to anyone who’s followed Musk on social media over the years.
What does it all mean? It’s largely too soon to say, but it’s unlikely to be smooth sailing.
What does it all mean? It’s largely too soon to say, but it’s unlikely to be smooth sailing. Shareholders who just saw the value of their Twitter holdings hugely increase are thrilled, but there’s now an activist (somewhat anarchist) minority shareholder who is asking a huge audience to weigh in on product decisions. There are also a number of employees who have endured more than their fair share of turbulence and a marketplace in the midst of a transition. And as always, there’s always the looming thought that this is yet another stalking horse for a bigger Musk project or enterprise, like this morning's announcement that he is willing to buy Twitter outright for cash or he'll sell off all his shares entirely. It’s all a guessing game, or maybe it’s just a game.
One thing is for certain: Musk sees social media as a space ripe for disruption. We agree. Musk seems to think that disruption should come in the form of (yet another) social network in the hands of a single person. We think it comes in the form of a social media company with a different approach to content, moderation, and community. We’ve already seen what the first option looks like -- it’s time for everyone to have a chance for something new.
We’ve already seen what the first option looks like -- it’s time for everyone to have a chance for something new.
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