Twitter will have to 'figure out how to add subscription services' under Musk: Analyst

Constellation Research Founder and Analyst Ray Wang joins Yahoo Finance Live to discuss the future of Twitter under Elon Musk's new leadership.

Video Transcript

DAVE BRIGGS: All right, let's get you up to speed now on Elon and that little bluebird. Twitter is officially his problem and his company, closing the $44 billion deal. Shares are now suspended. Musk promptly cleaning house, firing CEO Parag Agrawal, who reportedly exits with a $42 million pay package. CFO Ned Segal also let go with Twitter's policy head and general counsel. Musk later tweeting, the bird is freed. The SEC confirming the deal and that Twitter is now part of X Holdings, Inc.

Banks, including Morgan Stanley and Bank of America, agreed to provide the $13 billion in debt financing. Elon also secured 7 billion from private equity investors, including Larry Ellison, as well as the Saudi Prince. Former president Trump, who some expect to return to the platform, celebrating the return of Elon, saying, it's now in sane hands.

Moments ago, Elon posting another tweet and an interesting one, addressing concerns about moderation. Twitter will be forming a content moderation council with widely diverse viewpoints. No major content decisions nor account reinstatements will happen before that council convenes. Let your imaginations run with what Elon will do with Twitter.

But let's talk about it with Ray Wang, Constellation Research principal analyst and founder. Ray, good to see you, as always. Happy Friday, sir. Big picture-- just your reaction to the last couple of hours, Elon closing this deal and promptly cleaning house in the C-suite.

RAY WANG: Happy Friday. Elon had to take some bold actions. And some of those actions was to fire some of the rot that he felt was really happening at Twitter. It's a sign of things to come. But I think the bigger picture is really what's he going to do. What are the next steps? And I think a lot of people have been waiting for that. We've seen the reinstatement of Ye, Kanye West. We've seen the move towards that content moderation board.

And I think that's a very important first step. But there's a whole bunch of innovations that he's going to have to unlock really to get investors to come back, and more importantly, that people have faith, especially given the macro conditions of what's happening with digital advertising in social networks.

SEANA SMITH: Well, Ray, digging into that a little bit deeper because I think that is a huge question here. What is going to make this a more compelling investor story? You laid out some of the plans in terms of content moderation, also welcoming some people like Kanye West supposedly back to the platform here. What else do you think Elon Musk should do to make Twitter more appealing to investors?

RAY WANG: Yeah, one of the things that they're going to have to actually figure out is how to actually add subscription services, add new service lines. They've got to bolster digital ads with memberships. They also have to take a look at their role in terms of content and content creation, including more creators, more influencers, getting them back onto the Twitter platform. They've lost a lot of them over the last period, as people go to Insta and TikTok. What can they do to jump in? I think that's going to be one of his first challenges.

Then the second challenge is really, how do we actually get to maybe the super app that he's talking about? There's probably a lot more regulatory barriers than he probably realizes at this moment that might stop him from be able to do commerce or finance or be able to be like the ultimate, like, WeChat app. But there are opportunities as well to actually build out additional services and capabilities. Commerce or payments might be too hard. But they will enable commerce, enable identification to be used in other areas for transactions. I think that's going to be one area that he could look at.

DAVE BRIGGS: Just some clarity on this Kanye issue because, again, that statement said no account reinstatements will happen before that council convenes. Kanye's account is now visible again on Twitter. He is not tweeting, so there's a little confusion there. It did reappear today. Is that a coincidence? We're just going to have to wait and see for comment from Elon.

But let's talk about two things, Ray. One, you talk about the subscription model. I'm just curious, what would you pay for a subscription model on Twitter? And if-- big if-- voices like Kanye, Donald Trump, even Steve Bannon return to that platform, is that one advertisers will return to?

RAY WANG: Well, that's going to be the big question-- what is being done to actually bring back advertisers, and what might offend advertisers? We're in a culture at this moment where a lot of people are upset. They get offended by other people being on there. And I think what Elon is trying to say is, it's a bigger tent. It's got to be a bigger tent. People might have to tolerate some voices that they might not like. And if advertisers like that or not, we'll have to see what happens.

But the content moderation council is there to create those policies. And those policies are going to be able to dictate, hey, here's why you might get a different voice, you might get a different opinion in order to actually create a bigger tent. So I think that's the first part. Services I would actually pay for? Well, you know, I think you being able to create broadcast services are going to be important. Accounts that actually give influencers a bigger voice, I think they'll be important.

Places I might play is like analytics and information insight. I want to know trends, right? I remember back in the day, the Yahoo Buzz Index, right? If you want to see the trends of what's hot, what's not, you wanna aggregate that, and, you know, I might even want to participate in surveys and other areas where my feedback is actually being paid for and actually being used to improve other products, services, and consumer goods.

SEANA SMITH: And Ray, Twitter is just one of the big stories playing out in tech this week. We also heard from a number of the larger cap names. Let's with Meta, Alphabet, and what we heard at the beginning of the earnings season when it comes to Snap. And the theme there is this pullback that we're seeing in advertising spend. We've seen the reaction play, out in the names, Meta falling over 20%. We saw the reaction in Alphabet off just around 7%, following their disappointing earnings. Anything in there surprise you? And why do you think we saw such a severe reaction play out in the market?

RAY WANG: Yeah, we're seeing a big reaction, and it's really because we have five macro crises that have come together that have not been resolved-- infection, which is the virus, inventory, which has been supply chain, inflation, as we've seen, interest rates, and of course, this invasion. None of those have been resolved, and what that's doing is creating a lot of concern in marketing budgets. And what people are doing in every organization is they're trimming down their budgets. And this has hit digital advertising more quickly than any other area.

And so in the case of Meta, you know, you look at their market cap. I mean, they're below $99 or $100 for the stock, which is pretty indicative of what's going on. And of course, that spilled over at Google especially on the YouTube ads, and of course, it spilled over to some of the areas around where Microsoft is playing. And of course, you're going to see some spillover in Amazon's digital advertising.

DAVE BRIGGS: Been a fascinating week in big tech. You've got Amazon trading at its lowest level since 2020, Apple having its best day since 2020. Is there anything to learn thematically from Apple's earnings? Or are they just a safe harbor? Is Tim Cook just a master escape artist?

RAY WANG: Apple is the only MATANA stock doing well, and they've been a good job in terms of creating a moat. It works this way. You've got 1.2 billion devices. You've managed to build services on top of the devices. You've managed to retain customers. They're spending more with you consistently. They're buying new devices across the ecosystem. They've got it down. They're probably the smartest digital giant that's out there.

Now, overall, in the market, it's been crazy. I mean, big tech stocks have lost $550 billion this week. I mean, we've lost $3.5 trillion since November. We're down $3.5 trillion since 2022, but we're down $10 trillion in market cap since November 2021, when valuations were set up in a different very different light. And so this is having a lot of spillover.

But there is something to learn. I think it's really important. We just did a customer business confidence survey. And what people are investing in are analytics, automation, and AI. And there's a series of enterprise tech stocks that have been doing well from ServiceNow to Oracle because they're playing in those areas.

SEANA SMITH: Right, you quickly mentioned MATANA there, and you said Apple was the only one holding up. Also in that group is Microsoft, Tesla, Alphabet, Nvidia, and Amazon. Are you still-- I guess, does that investment thesis still stay intact then? Is that still holding up in terms of names that you like? Or how has that changed because of these results?

RAY WANG: It hasn't changed for a long-term investor. You can see, like, the pullback that's been going at Microsoft and Alphabet today. It's because the cloud services businesses is amazing. And if you're in it for the midterm to the long-term, this is probably a great buying opportunity. We might be at the bottom. We never know where we can predict that. But it sure looks at it this way, especially giving some indications of where the Fed is with interest rates.

As a really good friend of mine calls it, this has been the world's biggest margin call. And, you know, I think we're done with the margin call. Now we got to figure out where we are with earnings. Since valuations have been hit, can we sustain earnings? If we can sustain earnings, we will avoid the credit crunch, and of course, the unemployment, and of course, the hit on the housing market going forward, which is typically how recessions fall in terms of the domino effects that happen.

SEANA SMITH: Well, for the broader market, it looks like, at least for now, they're able to shake off some of those underwhelming results that we have gotten in the tech space this week. Ray Wang, always great to have you. Thanks so much.

RAY WANG: Hey, thanks a lot. Happy Friday.