By Matthew Mahoney
Since Elon Musk’s $44 billion acquisition of Twitter, there has been plenty of discourse surrounding the company’s status amid concerns it could creep into bankruptcy. Musk brings plenty of controversy along with him, and advertisers and investors alike are weary of associating themselves with the company. Twitter has been operating at a massive loss for years, failing to book an annual profit since 2019 (Mauer, 2022). For eight out of the last ten years, the company has posted a loss. While losses are trending downwards, the company saw a net loss of a staggering $1.14 billion in 2020. Musk finds himself in the midst of a volatile situation with his new purchase, and he’s making drastic changes to improve the state of the company.
Earlier in October, Musk stated that Twitter was operating at a $4 million loss per day, despite still ranking as one of the world’s most popular social media platforms (Needleman, Corse, 2022). After taking over, Musk has wasted no time in tackling the biggest issues within the company, despite the uproar caused by some pretty drastic changes. In response to the debts taken on by Musk, he has cut Twitter’s staff in half, with a priority on keeping software engineers over other positions within the company (Isaac, Mac, 2022). This is a layoff of nearly 3,700 people, and it could save the company roughly $860 million a year. 2021 saw Twitter face $5.57 billion worth of costs and expenses, and the money saved from the payroll deductions represents 15% of those expenditures (Isaac, May, 2022).
While it appears Musk has found ways to reduce expenses, the issue of generating revenue is still very much present. Similar to most social media platforms, 90% of Twitter’s revenue is generated from advertising sales (Mauer, 2022). After the polarizing figure took control of the company, several of Twitter’s most prominent advertisers have paused their Twitter ad spending, including Chipotle, General Mills, and United Airlines. Additionally, included in the massive layoffs and voluntary departures were several top executives from Twitter’s advertising department. As part of the massive advertising department, there are long-term contracts that typically start at the beginning of each calendar year, comprising more than 30% of Twitter’s U.S. ad revenue (Vranica, Haggin, 2022). With the turnover in personnel and general uncertainty surrounding the company, these deals have yet to even be negotiated or have been put on hold. This presented sour relationships between advertisers and new leadership following the departure of the executives, and Musk is looking to turn to other sources of revenue to make up for lost advertising sales and improve the revenue generation of the company.
To take the company in a different direction, Musk wants the priority to turn away from digital advertising. If 90% of the revenue comes from advertising, and the company has been operating at massive losses for over a decade, changes should be made. Less than two weeks after the takeover was complete, Musk announced the company’s new Twitter Blue program, an opt-in, paid monthly subscription that adds a verified checkmark to subscribers’ accounts and provides early access to new features (Twitter). The service will cost $7.99 a month and provide a new source of revenue that Twitter has yet to explore. Additionally, Musk has also proposed paid direct messages, a service that would allow users to send private messages to high-profile users (Isaac, Mac, 2022) Other ideas like paywalled videos have been discussed, and the Twitter team is searching for all sorts of new sources of revenue amidst its journey out of debt.
The fate of Twitter is uncertain, and Musk himself is even unaware of what the future holds. He has mentioned the possibility of filing for bankruptcy, but amidst a plethora of cost-cutting actions and a search for innovative sources of revenue, Musk is doing all he can to avoid that outcome. Twitter is in a volatile state of unpredictability, but there are clear steps that are being taken to bring Twitter back to a more stable financial state.
References
“About Twitter Blue.” Twitter, Twitter, https://help.twitter.com/en/using-twitter/twitter-blue.
Isaac, Mike, and Ryan Mac. “Elon Musk, under Financial Pressure, Pushes to Make Money from Twitter.” The New York Times, The New York Times, 3 Nov. 2022, https://www.nytimes.com/2022/11/03/technology/elon-musk-twitter-money-finances.html.
Maurer, Mark. “How Elon Musk’s Twitter Faces Mountain of Debt, Falling Revenue and Surging Costs.” The Wall Street Journal, Dow Jones & Company, 21 Nov. 2022, https://www.wsj.com/articles/how-elon-musks-twitter-faces-mountain-of-debt-falling-revenue-and-surging-costs-11669042132.
Needleman, Sarah E, and Alexa Corse. “Elon Musk Says Twitter Has Had Massive Revenue Drop as Layoffs Begin.” The Wall Street Journal, Dow Jones & Company, 5 Nov. 2022, https://www.wsj.com/articles/elon-musk-says-twitter-has-had-massive-revenue-drop-11667573127?mod=article_inline.
Vranica, Suzanne, and Patience Haggin. “Twitter’s Advertising Exodus Accelerates, Despite Outreach from Elon Musk.” The Wall Street Journal, Dow Jones & Company, 14 Nov. 2022, https://www.wsj.com/articles/twitters-advertising-exodus-accelerates-despite-outreach-from-elon-musk-11668262920?mod=article_inline.