High-tech, Tesla, Netflix: Warren’s twins

Posted Apr 21, 2022, 7:49 PMUpdated on Apr 21, 2022 at 10:47 PM

As it is when the tide recedes that we see those who bathed naked, we imagine that the author of the aphorism, the billionaire Warren Buffett, no longer knows where to give binoculars. He may have been surprised to see the rather shrewd financier Bill Ackman absorbing a 36% loss in value in a few months on his $ 1.1 billion investment in Netflix, released at the same time. time that this knife fell with the first loss of subscribers in a decade (-64% for the title since January).

Central banks have barely begun to pour liquidity under the keels of portfolios that the stock market rout in the technology sector, which occurred well before (-60% in 14 months for the Goldman Sachs index of non-commodity stocks), is amplified by the accelerated maturity of certain business models.

After Meta, which has lost 40% of its value since February due to the decline in the number of Facebook users, Netflix is ​​violently hitting a hitherto invisible glass ceiling.

Tesla’s quarterly records in net profit (3.3 billion), free cash flow (2.2 billion) and operating margin (18% even without CO credits2) spare him this sorting. But if the dream wears off, going back to Ferrari’s valuation multiples would mean a 50% to 55% drop. Not sure that, in this failure, a takeover on Twitter would leave Elon Musk a swimsuit…

To note

In the $46.5 billion financing plan for a possible Twitter offer that he presented on Thursday, Elon Musk plans to inject a total of $33.5 billion out of his own pocket, including $21 billion in ” equity” and 12.5 billion loans by a consortium of banks, by gaining 20% ​​of the value of its securities.

Based on this and Tesla’s price on Thursday, that would imply that he was pledged about 35% of the value of the Tesla shares he owned (excluding stock options).

The contract, concluded with 12 banks including BNP Paribas and Société Générale, stipulates that the value of the loan must never exceed 35% of that of the shares (loan-to-value). If this proportion is exceeded, the first billionaire on the planet will have to repay part of the loan or pledge new shares to bring the ratio down to 25%.

In the event of a 50% drop in Tesla on the stock market, its boss would have to repay around 40% of the loan to return to the regulatory ratio, except to face monstrous margin calls (around 19 billion, more than the amount of the loan).

This three-year loan would cost him in interest and amortization around a billion dollars a year.

The $21 billion in equity will come either from Musk’s personal fortune or from new debt. If he were to finance them by selling Tesla shares, he would then have to part with around 12% of his shares (or 2% of the capital of the car manufacturer).

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