Twitter is “roughly breaking even”, according to Elon Musk, after what the billionaire entrepreneur called a “painful” period since he took over the social media platform last year.
Musk said the financial turnaround was due to the return of “most” of Twitter’s advertisers. He has also implemented rounds of mass lay-offs, cutting Twitter’s workforce from just under 8,000 to about 1,500 employees.
“We could be profitable,” said Musk in a wide-ranging interview with the BBC, “or to be more precise, cash-flow positive this quarter if things keep going well.”
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What is Twitter worth?
“Twitter is and was a popular tool for politicians, celebrities and journalists,” said The Wall Street Journal after Musk took over late last year. “But as a business, it was stagnating.” The last time it reported an annual profit was in 2019 and it posted a loss in eight of the past ten years. “The company’s net loss narrowed in 2021, to $221.4 million from $1.14 billion the previous year,” said the paper.
Musk, the second richest man in the world according to Forbes, bought Twitter for $44bn in October, after acquiring a stake in the company at the start of the year. He had tried to back out of the deal, but Twitter and its shareholders sued him for violating their agreement.
Advertising accounted for most of Twitter’s income, but after Musk’s takeover multiple top agencies said their brands had paused spending on the platform, citing the new CEO’s inconsistent content moderation. In January, The Information claimed that 500 top advertisers had left Twitter in what it called a “crisis facing its core ads business”.
In the BBC interview last week, Musk compared Twitter to “a non-profit”, saying in a “normal year” it would raise around $4.5bn in revenue and lose around $4.5bn in costs. However, debt servicing and the drop in revenue from advertising created a $3bn negative cash flow at the time he took over. “That’s four months to live,” said Musk. “So unless drastic action was taken immediately, this company was going to die. It would be owned by the banks.”
In a bid to increase non-advertising revenue, Musk “leaned into a subscription model” called Twitter Blue, said The Washington Post, and began to remove legacy verified checkmarks.
Twitter Blue offers the platform’s signature verified blue tick to “anyone willing to pay $8” a month, and Musk has “eliminated many long-standing safeguards aimed at spotting impersonators and muting accounts that traffic in misinformation”, said the paper. It has been widely criticised and plagued with technical issues.
By March, a leaked memo from Musk to his staff suggested that Twitter was worth about $20bn, less than half of what he had paid for it, reported The New York Times. “Twitter is being reshaped rapidly,” he wrote in the email and likened the company to “an inverse start-up”.
Speaking to Fox News host Tucker Carlson yesterday, Musk confirmed: “We just revalued the company at less than half of the acquisition price.”
What next for Twitter?
Musk told a Morgan Stanley investor conference in March that the company could become cash-flow positive in the second quarter of 2023.
He added that Twitter’s projected costs were down to about $3bn a year, from the $4.5bn he said he inherited. The costs include $1.5bn in interest payments on the $13bn of debt he used for the purchase, partly funded by Morgan Stanley. However, Musk acknowledged a “massive decline in advertising” at the time.
The banks who loaned Musk the money for the takeover face “potentially large losses” as they have been unable to sell the debt to investors, said the Financial Times. This is due to “uncertainty around Musk’s strategy to make Twitter profitable”, as well as rising interest rates.
Musk says advertisers are returning, but “statements from several companies and data from research firms suggest a bounce-back is not happening so fast”, said Reuters last week. Analysts at the market research company Insider Intelligence slashed Twitter’s ad revenue estimate by more than a third, to $2.98bn, for 2023.
The subscription service Twitter Blue “won’t make up for the lost ad revenue”, the company said. “The biggest problem with Twitter’s ad business,” said Insider Intelligence’s principle analyst, Jasmine Enberg, “is that advertisers don't trust Musk.”
