Why did Twitter (X)’s valuation tank 56% in one year?

The company formerly known as Twitter, X is valuing itself at $19 billion, per internal documents obtained by Fortune. When Elon Musk bought the company one year ago this week, he paid about $44 billion for the microblogging platform, or $54.20 per share.

This internal valuation marks about a 56% decrease in X’s value over the last twelve months, which doesn’t look too good. There are certainly many explanations as to why Twitter’s value has been halved, like how the platform has spent the last year killing global brand awareness, deplatforming journalists and aiding impersonation. Still, one number rarely tells the whole story of a company, especially when company valuations can be so arbitrary. Depending on who is calculating a company’s valuation — a venture capitalist, a government auditor, or an egotistical billionaire — the resulting number can vary drastically. Fidelity, for example, has marked down its investment in X by 65%.

The company, which was taken private with Musk’s purchase, is now offering employees restricted stock units (RSUs) at a share price of $45. When private companies offer stock-like compensation options, the IRS advises companies to use a 409A valuation, an independent assessment of how much a company is worth. But these valuations tend to skew more conservative than a valuation inferred via new venture funding, for example.

Because of this, it’s not uncommon to see companies’ valuations get slashed after a new 409A appraisal. Last year, Stripe and Instacart saw their valuations cut by 28% and 38% respectively.

EquityZen, a company that expands access to private markets investing, has observed these trends consistently among private tech companies.

“At EquityZen, we’ve seen shares trading in private pre-IPO tech companies at an average discount of 49% to the last funding round,” Phil Haslett, founder and CSO of EquityZen, told TechCrunch. Haslett doesn’t see X’s valuation drop as a surprise, though he says the velocity of this drop — just one year — “does raise some concerns.”

Haslett added that a company’s common stock (or, the kind of equity compensation offered to employees) can also be priced at a discount, since the company isn’t public.

“Since there’s no active liquid market for shares, the company can make an argument that common stock is worth less than the $44 billion price tag,” Haslett told TechCrunch. “This actually benefits employees: they’ll likely get more stock (or at least, stock options with a lower strike price).”

It can be seen as a win-win for both executives and employees when their company gets a deflated 409A valuation, because it makes it less expensive to grant employees stock options. It also makes it easier to recruit talent.

“409A valuation sets the tax basis for stock options,” Alex Ross, founder and CEO of the plant care app Greg, told TechCrunch. As the head of a private startup, he solicits a new 409A valuation about once a year. “At a $19B valuation, Twitter employees pay less in taxes when exercising options than at a $40B valuation.”

But even if this may benefit employees in the short-term, the platform will still need to recoup its lost value if its “hardcore” employees will get an eventual windfall.

So, is it worrisome that X is touting a $19 billion valuation? Yeah, but it may not be that alarming to those who work there.