Should we be concerned about Twitter?

I mean, Elon Musk is been able to steer his other companies to massive success, there’s no reason, as yet, to believe he can’t achieve the same at Twitter. Right?

It’s impossible to say, of course, because Twitter’s very different to his other businesses, which focus on hardware, on actual physical products, as opposed to Twitter, which is essentially driven by engagement. But as Elon’s vision for the platform continues to take shape, it is worth noting the current state of the app, and where it needs to be to get on, and stay on the right track.

Revenue Status

Twitter’s biggest challenge is on the revenue front, with Elon estimating that the app was losing around $4 million per day when he took over at the helm.

Elon’s main additional revenue push thus far has been subscriptions, via Twitter Blue, which he’s hoping will eventually generate around half of the app’s total intake.

This is a critical peg in his ‘Twitter 2.0’ plan, for several reasons – for one, more direct income from users means less reliance on ads, and Elon is notoriously not a fan of advertising in any form.

Relying on ad dollars also means aligning with advertiser expectations around moderation, which potentially goes against Elon’s ‘free speech’ vision for the app, while getting more users to pay could also help to weed out bots, because if the majority of users are paying subscribers, that then makes it harder for bot farms to create armies of fake profiles, and have them blend in – at least, without having to pay a significant cost for such.

So how is Twitter Blue take up looking?

According to analysis by Travis Brown, as of right now, there are between 275k and 325k Twitter Blue subscribers. Taking the top-end of that estimate, we’ll assume that Twitter is generating around $2.6 million per month from Twitter Blue subscriptions as of right now (325,000x$8).

That equates to $7.8 million per quarter – which is a lot, but it’s still not close to where Twitter needs it to be to be a relevant revenue driver.

To clarify, in Q4 2021, Twitter generated $1.57 billion in revenue. Half of would be $785 million – or around 100x what Twitter Blue is currently bringing in.

Of course, Twitter Blue still has a lot of room to grow – it’s currently only available in the US, UK, Canada, Australia, New Zealand and Japan. But then again, these regions account for around 70% of overall Twitter users, and if these initial take-up figures are indicative, that doesn’t bode well for this being a viable pathway to broader revenue growth.

What’s worse, Twitter has also reportedly lost around 40% of its ad revenue, due to the broader economic downturn and Musk’s decisions, including the reinstatement of previously banned users and revising its rules around moderation. That’s an estimated $642 million hit in Q4 alone.

At the same time, Twitter has reduced its costs, with Elon culling 70% of the company’s workforce, while also shutting down offices, data centers, cutting employee benefits, etc.

We don’t know how significant these cuts will be to Twitter’s bottom line, but Twitter’s staff costs in Q2 2022 were $950 million, and its operating costs were $540 million.

As an estimate, if you assume its staff costs have been reduced by 70% (it could be more than this due to exec salaries being culled), and the operating costs have been halved, that would reduce these from a cumulative $1.49b to $555 million.

Add in owed interest on Musk’s loan to purchase the app, and Twitter’s current operational costs, at a rough estimate, are around $930 million per quarter.

So, to clarify – incoming per quarter (based on estimates):

  • Ad revenue = $942 million
  • Twitter Blue = $7.8 million
  • Data licensing = $150 million

Total Twitter intake, per quarter = $1.1 billion

Twitter outgoing per quarter:

  • Staff costs = $285 million
  • Operating costs = $270 million
  • Interest on loans = $375 million

Total outgoing = $930 million

That’s a pretty thin edge, in relative terms, but once Twitter has paid out staff costs, and settled its current rent agreements, etc., it could be on the right track to generating revenue this year.

But a lot has to go right, and anything breaking or falling apart – which is increasingly likely due to reduced oversight – could put it in a seriously dangerous predicament.

I recently noted that it’s possible that Twitter could go bankrupt within 6 months – which Musk himself has admitted. This is why, and while the company is seemingly in a more stable situation, financially, at present, it’ll be a delicate balancing act until Elon can bring in more revenue for the business.

Future Plans

So, how will he do that?

Twitter’s still working out the details of its next steps, and while it continues to roll out smaller tweaks like updates to Bookmarks and view counts, the real push is revenue drivers, and bringing in more money at the app.

On this front, Twitter’s working on several elements:

  • A higher cost Twitter Blue tier, with no ads
  • It’s coming ‘Verification for Organizations’ subscription offering, which will see businesses pay a monthly fee to get official recognition in the app
  • Longer video uploads, with a view to video monetization
  • Twitter Coins, its own in-app payment and tipping process

Each of these has potential to bring in incremental value, but a lot will depend on how many people and businesses are willing to put more reliance on Twitter – and as its decline in ad revenue has shown, many are not comfortable with the direction that Elon’s currently taking at the app, at least at this stage.

But then again, a lot of big advertisers have re-committed to Twitter spending. And while some will hold off on making investments in the app, if Elon and Co. can increase engagement, and get more people spending more time in-stream, ad spend will follow, whether those brands agree with Musk’s personal stances or not.

Which is the longer-term push, and why Twitter’s comparatively smaller UI tweaks and updates are important – if Twitter can grow its audience, and get more people tweeting, ad dollars will follow, regardless of the media narrative around Musk’s political views and their impact.

The Singular Solution?

With perspective on the challenges at hand, you can see why Musk felt the need to cut thousands of staff, and reduce the app to its bare bones across the board.

Because, really, he had to. Twitter was operating at a loss, and has been since 2019, and the only way to get it back on track is to make drastic changes, whether we like them or not.

Those come with a high level of risk. Former Twitter staff have warned that the app will break at some stage, due to reduced monitoring and oversight, and Musk’s ‘hardcore’ management style, which prioritizes rapid deployments and tweaks, could kill engagement, and sink the ship.

As usual, Elon is flying close to the sun – but then again, why wouldn’t he? It’s worked out pretty well for him so far.

In April last year, former Twitter CEO Jack Dorsey said that Elon was ‘the singular solution’ that he trusts to right the ship, and get Twitter back on the right track.

That, of course, was before Elon cut so many staff, before he started releasing troves of internal documents, which are highly critical of those that operated under Dorsey’s management, and before he relaxed the platform’s rules around what’s acceptable and what’s not, and let all manner of questionable individuals back on the app.

But maybe, despite all of this, despite everything that we’re seeing. Despite Musk’s bravado and confrontational Twitter persona, maybe, he could actually steer things in the right direction.

It would be against the odds, and again, a lot has to go right. Even small missteps will have big consequences, but if anyone can handle that pressure, Elon, and his unwavering self-assuredness, could actually be fit for the task.

Or it could be gone before the year’s out. Either outcome feels entirely possible at this stage.