Twitter’s decision to sell a high-yield bond is unusual for a tech company that does not need the money and has no clear plan for it. The company’s spending proposals are about as concrete as boss Jack Dorsey’s recently stated intention to live somewhere in “Africa” next year.
The online platform loved by trolls, newshounds and the US president has only just attained profitability. But with just under $6bn in cash and positive free cash flow it is self-sufficient. Compare that to notorious cash-burning companies like Netflix and Tesla which must turn to capital markets to keep operations on track.
Yet Twitter’s eight year, $700m bond comes at a time when low interest rates mean low borrowing rates. The bond was marketed with a yield of 4.5 per cent but priced at 3.875 per cent. This is about two percentage points below the average junk bond yield. With rates this good why not issue a bond as a financial cushion and show off your ability to raise money with ease?
The success is particularly heartening after a morale-sapping few months. Third-quarter earnings showed a serious slowdown in revenue growth, efforts to rid the site of bots have led to a dip in user numbers and a technical problem is being blamed for lower advert pricing. Twitter has lost a third of its market value from a high point in September. Longer-term growth is not guaranteed. Users can be fickle. Facebook’s revenue is expected to be 20 times the size of Twitter’s $3.5bn this year. TikTok is more popular with young users.
A successful bond sale should put a little more spring in the company’s step. But it would be good to see Twitter come up with a more interesting plan than rainy day funds. In troubled times there was speculation that Twitter would end up in the hands of a buyer like Microsoft or Disney. Now Twitter is the one making acquisitions. The focus has been on machine learning companies, including Fabula AI, a start-up that can detect the spread of misinformation. That will improve the experience for users. Acquisitions that improve advertising sales would be equally welcome.