Nowadays all the social media platforms are loud of Elon Musk buying Twitter, one of the largest media among the social platforms. Whether it is a good thing or a bad thing that the famous industrialist, a visionary and open advocate of free speech is becoming the sole owner of Twitter and thus taking the company private, people have opposing views. And this is really not the topic of my blog post.
What I wish to elaborate on is how the strategic selection of the location of Twitter HQ can benefit the shareholders and how fast the investment of 44 billion USD will return as a result of the well-planned location of the business.
Our below analysis will also discard the obvious misleading and trickery of investors by the board of directors, due to which horrendous amounts have been channelled out of the company, leaving the ordinary shareholder without dividends. (Honestly, the ordinary shareholders should praise Elon Musk for granting them $54 per share price.)
Twitter Financials and their Validity
So, Twitter’s revenue was 5.4 billion USD in 2021 and 1.2 billion in the first quarter of 2022. The revenue is generated from ads and advertising income. Since the monetizable daily usage (mDAU) of Twitter was in the range of 217 million (exact data has not yet been issued for Q1 2022), the company has approximately 24.8 USD per mDAU revenue. This is a premier league income per user as Facebook is generating 10 USD per mDAU.
It is therefore pretty obvious that Twitter can easily increase its revenue by simply increasing the daily usage of the platform. (As a comparison Meta – aka Facebook – has 2.8 billion mDAU, more than ten times that of Twitter.) Therefore, the potential of Twitter is enormous.
Since the operating costs of the company have some obvious falsities, we are trying to see what the net operating profit should be if the company was managed professionally. Based on the industry ratios for the various operating expenses types, we have calculated that the acceptable level of income before tax should be around 1.8 billion USD.
How much tax Twitter (should) pay?
Since the company is located in San Francisco, California which has the highest corporate tax in the country, 8.84%, the above earning would generate a 163.8 million USD tax obligation. This is the figure we shall be using.
If the HQ was located in Texas, the tax rate (gross receivable tax) would be 1%. In this case, the company would be paying approximately 54 thousand USD.
How about Dubai?
Dubai is a global hub for tech companies and financial entities. It is also the greatest and the probably best place for registering intellectual property. But what makes Dubai such an excellent place? Dubai has decided to become the new financial and business center of the world. In order to attract businesses, Dubai has decided to not impose any tax on businesses but rather to establish a servicing government, where the business entities pay for the various services rendered by the government. This method allows the companies to grow instead of contracting as they will use as many services as needed and justified by their revenue. As opposed to the Western World where higher profits are immediately punished by higher rates of taxes, encouraging businesses to not strive for higher levels of revenue but rather find methods and loopholes of tax reductions.
The zero-rate corporate tax on the other hand encourages businesses to be more profitable, produce more, invest more, and grow their services.
Twitter in Dubai
As explained above Dubai is an ideal location for running a business, which has been proven correct by Microsoft, IBM, Oracle, and many others.
Therefore, in case Elon Musk was to decide on relocating the HQ of Twitter to Dubai where the corporate tax is 0%, the company was to generate a revenue tax-free and could drastically increase the net earnings per share. The fact that the company’s potential to generate high levels of earnings by strategically planning the right location and by reviewing the cost structure of the company, which is obviously mismanaged, makes Twitter a very good investment, and thus, Elon Musk made a very smart business move by purchasing Twitter. And could very well have a return of investment of fewer than 5 years.