His business skills are put to the test

Not all great business visionaries are great business leaders. Steve Jobs was certainly a great visionary, but his business skills were so lacking that he was fired from the company he founded. Years later, after spending time learning from his mistakes over those years, he returned to Apple and built a much better mousetrap.

In the coming months, we’ll see if Elon Musk, the CEO of Tesla and now owner of the influential but unprofitable social media giant Twitter, has the ability to soar to Jobsian heights.

It won’t be easy for many reasons, including the most formidable impediment to Musk’s success: Musk himself.

I know what you’re saying: hasn’t Musk already proven himself to be the next Steve Jobs? After all, he is the richest man in the world. He built Tesla into an iconic brand in the growing electric vehicle market, while also attempting a variety of other successful ventures.

Maybe, but its net worth has declined dramatically over the past six months as investors began poking holes in Tesla’s business model and Elon’s mastery of simple investing.

Investor Doug Kass calls Tesla “the most overvalued company in history”. For good reason: Based on its market cap of more than $600 billion, earnings should be a multiple of the roughly $5.5 billion it made last year.

Steve Jobs.
Steve Jobs learned from his mistakes before returning to the helm of Apple.
Bloomberg via Getty Images

Electric vehicle subsidies, environmental social governance investment trends, and plenty of free money from the Fed all contributed to Tesla’s stratospheric valuation. Increasing competition in the electric vehicle market is now pushing Tesla stock in the opposite direction, as are higher interest rates.

With a likely GOP house, ESG (and those Tesla subsidies) will come under scrutiny because Republicans believe it’s pushing left-wing politicians and oil companies to halt drilling.

“The worst buyout.”

Which brings us to Musk’s purchase of Twitter. Like Kass, analyst Dan Ives gives this Musk company a negative superlative, calling it the “worst LBO.” [leveraged buyout] in the history of technology.”

Elon Musk.
Elon Musk has borrowed around $13 billion to buy Twitter.
Bloomberg via Getty Images

The richest man in the world might not or couldn’t afford the entire $44 billion price tag on his own, so he borrowed — a lot, about $13 billion. Musk’s own Twitter — which rarely makes money and has negative cash flow — will see its annual debt costs grow exponentially to around $1 billion.

By most estimates, Musk overpaid for his new toy by between $20 billion and $40 billion, which is why he’s firing people — even the ones he needs to keep the social media site running.

How could such a great leader do that? The reason why was best explained to me by a banker who knows Musk well.

“Elon doesn’t read balance sheets and accounts,” he said. “It’s all good for him.”

“Good” told him to buy Twitter and refrained from doing due diligence on the company’s pesky bot problem as markets and its own currency (Tesla stock) began to correct. Musk wanted to own the global public space. Sounds great until the bill came due and his gut told him to try and decline.

I’m not sure what his gut feeling was when he suddenly changed course again, but I’m pretty sure his legal team told him to ignore it because he was facing a humiliating defeat in Chancery Court stood in Delaware.

Musk is still very rich — he’s worth around $200 billion. But much of that is in Tesla stock, which has fallen about 50% from its highs. His net worth has shrunk by around $100 billion in recent months.

When you add it all up, it feels like Elon still has a long way to go before he’s the next Steve Jobs.

Still ‘Ape’ for AMC

AMC Theaters is a losing movie theater chain, but it has a cult-like investor base. They call themselves the “monkeys”. They love the stock despite the company’s insane balance sheet (debt and losses) and plan to dilute their holdings with new preferred stock.

Elon Musk.
Elon Musk paid between $20 billion and $40 billion too much for Twitter.
REUTERS

Their continued loyalty to the stock deserves a Freudian analysis (which I won’t go into here) as it’s based on an easily debunked conspiracy theory that’s featured prominently on message boards and social media.

Basically, the monkeys believe that if they hold the stock long enough, the stock will eventually go up. Greedy Wall Street hedge funds intent on destroying AMC for no apparent reason are betting shares will fall from short selling. Because of the monkeys’ strategy, the hedgehogs will be forced to cover their bets and the stocks will rise to $100 or even $1,000.

Exactly the opposite has happened so far. About 90% of AMC’s value is gone since its highs last year. Persistent operating losses in the third quarter and a weak film slate mean the stock will remain under pressure. AMC shares surfaced Friday on monkey-inspired euphoria over the latest “Black Panther’s” strong box draw, but they were valued (preferred plus ordinary) at a paltry $8.81.

Perhaps that’s why company insiders, such as top executives, sold more than $100 million worth of AMC stock while the Apes held and bought it.

Take CEO Adam Aron. Between November 2021 and early January 2022, Aron sold his $43 million worth of AMC stock at prices ranging from $20 to $40, according to records.

Aron loves to tell the investing world how much he loves the support of his friends in the Ape community. It’s obvious why. Her irrational exuberance helped save the company from likely bankruptcy once it was shut down by the pandemic and dampened streaming’s impact on ticket sales. They also made him rich.

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