Twitter Isn’t Making Money. Here’s Why Musk Thinks It Could Soon. | WSJ
This is why Twitter has $13 billion in new debt that it took on at the end of 2022. Elon Musk didn't start Twitter's problems. It hadn't booked an annual profit since 2019. But in the months after that tweet, its finances have drained. Revenue fell an estimated 40% year over year in December. Still, Musk is projecting optimism. I think we've got a shot at being cashflow positive next quarter.
But just how possible is that? Let's look at Twitter's cashflow before and after Musk's takeover to see how its revenue has changed and why he insists Twitter will take flight again soon. Twitter's cashflow problems started before Musk's takeover of the company. It had posted a loss in eight of the last 10 years. The last full year that we have figures for is 2021. They booked about $5 billion in revenue and also booked about $5.5 billion in costs, which goes to show that the company's finances, even before the takeover, were a little stressed. But for the money it was making, it relied heavily on advertising.
Take a look at the second quarter of 2022. Advertising accounted for more than 90% of Twitter's revenue. Fast forward to October, when Elon Musk purchased Twitter for $44 billion. That buy saddled the company with that $13 billion in debt. Analysts estimated at the time that this would put Twitter on the hook for annual interest payments of more than $1 billion, compared to $51 million in 2021. The debt is going to drain the company's resources. He added a huge burden to the company's Musk came in with big ideas for Twitter, including cutting down its reliance on advertising revenue and focusing on subscription services.
But one idea that he focused heavily on was promoting what he refers to as free speech. Musk began reinstating accounts that had been banned for tweets that violated policies and limiting content moderation. Twitter has become a little bit more of a chaotic platform and place since Elon took over. Last year saw a slowdown in online marketing that affected many platforms, due to people spending less time online and broader economic concerns. But Twitter had additional issues because some of Musk's changes didn't sit well with some big advertisers. Within weeks of the takeover, companies including Chipotle and United Airlines had pulled back or paused their ad spending on the platform, hurting Twitter's primary source of revenue. Advertisers are really focused on brand safety so that when their ads appear online or anywhere for that matter, they want to know that the content that it's surrounding is not offensive or not inflammatory.
Musk has said Twitter must be a respectable platform for advertisers, and Twitter says brand safety is a priority. While advertisers fled, Musk was taking stock of his new company. He said in early November, that Twitter was losing $4 million a day. Because I'm just thinking about like, how do we. I just, you know, just get Twitter to be in a financially healthy place. The main way that's being addressed, we're told, is through cost cutting. Twitter went from about 8,000 employees before the sale to around 2,000 in December.
But these job cuts have come with their own price. When you use fire, whole teams, and take them off the site, suddenly there are people who had expertise in running a very complicated machine that are not around anymore. And it's not a surprise that there have been unexpected unplanned outages. Twitter hasn't said much about recent outages, but the company responded to a request for comment with this. Aside from cost cutting, Twitter has made moves to grow revenue. Please subscribe to Twitter, verify at $8. And actually, it's technically at $7.
99. So, uh, slightly less. In December, it relaunched its paid subscription service, Twitter Blue. As of March, it's estimated that the subscription service has about 450,000 users, according to Travis Brown, a software developer who tracks social media platforms. Now, Twitter Blue is $11 for mobile phone users. We haven't seen a big uptake of Twitter Blue yet. There aren't enough incentives yet or reasons to join Twitter Blue to cause a mass signup.
So Musk is also appealing to advertisers to come back to the platform. What I'd say to advertisers and brands is, you know, use Twitter yourself and believe what you see on Twitter not what you read in the newspapers. Because what you see on Twitter is the real thing and what you read in newspapers is not. Currently, Musk says the company earns five to six cents an hour spent by its users on the platform. An amount Musk isn't satisfied with. Still, he sees potential, saying. There will be a massive increase in revenue because it is not useful.
He sincerely believes that through targeted advertising, more specific forms of content instead of just general ads for the public writ large, advertisers will spend more because they feel like they're reaching their target audience on Twitter. But are these efforts enough to actually make that happen? One analyst says the company could at least break even in nine months. Based on estimates of recent cost cuts and stabilizing ad revenue. Twitter could also negotiate down its interest payments and Musk could contribute more of his personal wealth. But whether the company books a profit depends on what direction Musk takes. He wants to turn it into like an everything platform where you can essentially integrate commercial activity with reading the news, with talking to friends. And I think that's the long-term vision.
But first, he's got to be sure that the company can pay its bills, and that is still a bit in question.
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