"The
Goose that Laid the Golden Eggs" is one of Aesop's
Fables, numbered 87 in the Perry Index, a story that also
has a number of Eastern analogues. Many other stories contain geese that lay
golden eggs, though certain versions change them for hens or other birds that
lay golden eggs. The tale has given rise to the idiom 'killing the goose that
lays the golden eggs', which refers to the short-sighted destruction of a
valuable resource, or to an unprofitable action motivated by greed.
Avianus (a Latin fable writer) and Caxton (an English merchant
and writer) tell
different stories of a goose that lays a golden egg, where other versions have
a hen, as in Townsend: "A cottager
and his wife had a Hen that laid a golden egg every day. They supposed that the
Hen must contain a great lump of gold in its inside, and in order to get the
gold they killed [her]. Having done so, they found to their surprise that the
Hen differed in no respect from their other hens. The foolish pair, thus hoping
to become rich all at once, deprived themselves of the gain of which they were
assured day by day."
The example is Twitter.
Wall Street has long viewed Twitter as a company that moved too slowly to push out products that would convert its viral popularity into revenue. And while Musk has been scrambling to cut costs and find alternative forms of revenue, Twitter is still heavily reliant on advertising. Last year, nearly 90 percent of the company’s $5 billion in revenue came from advertising, while the rest was derived from data licensing and other services, according to regulatory filings.
Meanwhile, Twitter recently laid off
some employees in its sales division, continuing the mass exodus of employees
at the company, the Wall Street Journal reported this
week.
Was Twitter worth the $44 billion that Musk paid for it?
Nobody really knows, but here’s my opinion:
A year from now, Twitter will be worth a fraction of that $44
billion – if is still in business at all.
If you think that the company is too big to fail, consider the
fate of another large company that was “too large to fail”.
Enron.
Enron scandal, a series of events that resulted in the bankruptcy of
the U.S. energy, commodities, and services company Enron Corporation and
the dissolution of Arthur Andersen LLP, which had been one of the largest auditing and accounting companies
in the world. The collapse of Enron, which held more than $60 billion in
assets, involved one of the biggest bankruptcy filings
in the history of the United States,
and it generated much debate as well as legislation designed to improve
accounting standards and practices, with long-lasting repercussions in the financial world.
The bull market of
the 1990s helped to fuel Enron’s ambitions and contributed to its rapid growth.
There were deals to be made everywhere, and the company was ready to create a
market for anything that anyone was willing to trade. It thus traded derivative
contracts for a wide variety of commodities—including electricity, coal, paper,
and steel—and even for the weather. An online trading division, Enron Online,
was launched during the dot-com boom, and by 2001 it was executing online
trades worth about $2.5 billion a day. Enron also invested in building a broadband telecommunications network to facilitate high-speed
trading.
As the boom years came to an
end and as Enron faced increased competition in the energy-trading business,
the company’s profits shrank rapidly. Under pressure from shareholders, company
executives began to rely on dubious accounting practices, including a technique
known as “mark-to-market accounting,” to hide the troubles. Mark-to-market
accounting allowed the company to write unrealized future gains from some
trading contracts into current income statements, thus giving the illusion of higher current profits. Furthermore, the troubled operations
of the company were transferred to so-called special purpose entities (SPEs), which are essentially
limited partnerships created with outside parties. Although many companies
distributed assets to SPEs, Enron abused the practice by using SPEs as dump
sites for its troubled assets. Transferring those assets to SPEs meant that
they were kept off Enron’s books, making its losses look less severe than they
really were. Ironically, some of those SPEs were run by Fastow himself.
Throughout these years, Arthur Andersen served
not only as Enron’s auditor but also as a consultant for the company.
The severity of the situation
began to become apparent in mid-2001 as a number of analysts began to dig into
the details of Enron’s publicly released financial statements. In October Enron
shocked investors when it announced that it was going to post a $638 million
loss for the third quarter and take a $1.2 billion reduction in
shareholder equity owing in part to Fastow’s partnerships. Shortly
thereafter the Securities and Exchange Commission (SEC) began investigating the
transactions between Enron and Fastow’s SPEs. Some officials at Arthur Andersen
then began shredding documents related to Enron audits.
As the details of the
accounting frauds emerged, Enron went into free fall. Fastow was fired, and the
company’s stock price plummeted from a high of $90 per share in mid-2000 to
less than $12 by the beginning of November 2001. That month Enron attempted to
avoid disaster by agreeing to be acquired by Dynegy. However, weeks later
Dynegy backed out of the deal. The news caused Enron’s stock to drop to under
$1 per share, taking with it the value of Enron employees’ 401(k) pensions, which were mainly tied
to the company stock. On December 2, 2001, Enron filed for Chapter 11 bankruptcy protection.
https://www.britannica.com/event/Enron-scandal
The downfall of Twitter will come for two reasons:
1)
Twitter recently reopened some questionable accounts,
most prominently the ones of Donald J. Trump and Marjorie Taylor Greene.
https://www.washingtonpost.com/technology/2022/11/24/twitter-musk-reverses-suspensions/
2)
These moves made advertisers nervous, so they
paused there advertising. Since advertising is 90% of Twitter’s revenue, that
is not a good thing.
CBS News is one
of first major media entities to flee Twitter in the wake of threats from many
Musk critics to leave the platform once the billionaire Tesla CEO took over the
company.
The major news network confirmed the
move during Friday’s episode of “CBS Evening News with Norah O’Donnell.”
Coverage began with the network
reporting on the mass resignations of employees offended by Musk’s “ultimatum”
from earlier this week. In his quest to streamline the company, the world’s
richest man emailed all employees asking them to commit to an “extremely
hardcore” workload or leave the company.
The “ultimatum,” as many disgruntled folks called it, prompted backlash from onlookers who trashed the company under Musk, some calling it a “hellscape.”
Another company that was “too big to fail” was GE. Under Jack
Welsh, the company’s market capitalization grew to $600 billion. After he turned
over control of the company to Jeff
Immelt, the company’s fortunes turn for the worst. Today, it’s market capitalization
has shrunk to $95 billion.
Elon Musk quickly trimmed the number of Twitter employees
dramatically shortly after taking ownership. In response to his draconian new
operating procedures, hundreds of more submitted their resignations.
As I mentioned recently in the article below, Warren Buffett’s
Berkshire Hathaway is the largest public company in the world. As of August 2020,
Berkshire's Class B stock is the seventh-largest component of the S&P 500 Index (which is based on free-float market capitalization) and the
company is famous for having the most expensive share price in history
with Class A shares costing around $500,000 each. This is because there has
never been a stock split in its Class A shares and Buffett
stated in a 1984 letter to shareholders that he does not intend to split the
stock. On 16 March 2022, Berkshire Hathaway Class A shares closed above record $500,000 a share, resulting in
company's market cap above $730 billion.
https://tohell-andback.blogspot.com/2022/11/that-why-they-pay-you-big-bucks.html
Buffett’s company did not grow as large as it did because of
massive staff cuts. It did so because it treated its employees as assets, rather
than costs.
Advertising plays a very important role in our society.
There was a time when Henry Ford was one of the richest men in
America, and he once said, “50% of the money I spend on advertising is wasted –
but I don’t know which half.
Although Buick sales peaked at 737,879 in 1955,
a series of errors on the part of the ad agency, largely tied to television,
caused it to lose the ad
account at the end of 1957. Those errors caused Buick sales to
slide, and by 1957, Buick sales were down to 332,102, well behind Plymouth.
https://tohell-andback.blogspot.com/2009/11/when-better-cars-are-built.html
Philip
Morris & Company used the Marlboro Man in ads from 1954 until 1999.
Although a number of different people portrayed the Marlboro Man during that
time period, an ex-rancher named Darrell Winfield had the longest run, at 20
years. He was originally selected by the creative director of the Leo Burnett
advertising agency because “he scared the hell out of him.”
In
view of the tough image of the Marlboro Man, you would probably be surprised at
the fact that Marlboro was originally introduced (in 1926) as a woman’s
cigarette. The advertising theme for the cigarette was the less than
inspiring “mild as May”campaign, and the
brand faltered repeatedly for the next 30 years.
What saved the brand, ironically enough, was
lung cancer.
During the early 1950’s, the first studies
linking cigarette smoking to lung cancer were released. As a result, smokers
started to switch from the favored brands of Camels, Lucky Strikes, and
Chesterfields to the “safer” filtered cigarettes, like Marlboro.
Logic would tell you that an advertising agency
would focus on these new-found health concerns, but the Leo Burnett agency took
an entirely different approach, focusing instead on the Masculine Image of the New Marlboro.
When the campaign started, Marlboro sales were
$5 billion a year. Two years later, Marlboro sales were an astonishing $20
billion a year, an increase of 300%. As a result, the Marlboro Man advertising
campaign is considered to be one of the most brilliant advertising campaigns of
all time.
https://tohell-andback.blogspot.com/2011/10/marlboro-man.html
Print ads have long sustained America’s newspapers, but with
the advent of online advertising, newspapers are struggling to survive.
Newspapers make
most of their money from advertising. The peak year for advertising revenue was
2006, when it reached $49,000,000. After that, it took a very steep dive, and
by 2017, it had dropped to $16,000,000. Newspapers have made up for some of
that lost revenue with digital advertising, since the percentage of advertising
revenue from digital sources has risen from 15% in 2011 to 30% in 2017.
https://tohell-andback.blogspot.com/2019/01/are-newspapers-dead.html
If the exodus of advertisers from Twitter continues, there is
only one thing I can say to the richest
man in the world.
Your goose is cooked.
