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Comment by xutopia | Hacker News Reader

What does this mean in layman's terms?

They have no way of making money or controlling costs.

Twitter gets $1.3B in cash for a promise to pay interest in either cash or Twitter stock and eventually pay off the loan likely in the form of Twitter stock.

They'd rather take on debt than issue equity. Convertible debt turns into equity in the future unless it's paid off on some defined schedule.

twitter would like to borrow money from you. they will pay a reduced interest rate on the loan. in exchange, you will get the option to convert your loan into shares of twitter at a designated, unchanging price--likely near the current stock price.

this is a great deal for twitter, as long as their stock price does not go up. in other words, twitter is calling the top of the market for its own shares -- to the tune of 1.3B.

bezos did this to great effect with amazon in the late 90s. he did in fact correctly predict a prolonged stagnation in share price.

Of course, the share price stagnation is a bit of a self-fulfilling prophecy. If the share price rises too much, bond holders will convert and cash out early. Even the understanding that this is possible puts a damper on peoples' assessment of the stock's upside potential.

Loan Twitter money now. They'll pay back in 2019 or 2021, with interest.

Assuming they don't go under before then. Twitter has yet to turn a profit.

i.e. when people start realizing that frivolous social media start-ups provide way less value then their inordinate valuations and the bubble bursts.

IMHO, Twitter provides exceptional value... but their ability to monetize that value is still catching up.

It's such a shame... I like twitter so much. They just took so much money, they don't really have a choice right now, but to ride the train.

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