Elon Musk’s chaotic first year at Twitter leaves X Corp. with shaky finances

 

HAPPY ANNIVERSARY, ELON —

Elon Musk’s chaotic first year at Twitter leaves X Corp. with shaky finances

 

X has fewer users and a big ad-revenue problem on Musk's first anniversary.

 

JON BRODKIN - 10/26/2023, 7:03 PM

https://arstechnica.com/tech-policy/2023/10/elon-musks-chaotic-first-year-at-twitter-leaves-x-corp-with-shaky-finances/

 

Elon Musk’s chaotic first year at Twitter leaves X Corp. with shaky finances

One year after Elon Musk's $44 billion purchase of Twitter, which he completed on October 27, 2022, after months of legal drama, the social media firm that Musk renamed "X" is on shaky financial ground.

 

Musk has expressed ambitions to transform X into an "everything app" that includes a digital payments platform and audio and video calling. He told employees that, despite massive cuts eliminating most of Twitter's pre-Musk workforce, he sees "a clear but difficult path" to a future valuation of more than $250 billion.

 

X doesn't provide detailed financial statements or user numbers because Musk took the company private when he bought Twitter. But data leaked to news media and third-party research depicts a platform in decline, which might not be exactly what Musk meant when he called the firm "an inverse startup."

 

Usage of X—which still lives at the twitter.com domain—has dropped under Musk's leadership. But by at least one measure, the number of users isn't far off from the pre-Musk era. A report in early October by The Information said that "X's daily active users have dropped 3.7 percent to 245 million" since Musk's purchase.

 

Many users were put off by highly controversial moves like reducing moderation teams and charging for blue checkmarks that used to denote that a Twitter account was notable and authentic. While other estimates suggest the drop in users and usage may be significantly higher than 3.7 percent, it seems most pre-Musk users stayed on the platform and that Musk may have attracted some new ones to partially offset those who left.

 

But the drop in users is coupled with big drops in advertising revenue, spurred largely by concerns about the risk of advertising on a platform that isn't moderated as heavily as it used to be. Through a combination of layoffs and actions that caused workers to resign, Musk reduced the social network's employee count from about 7,500 people to around 1,500.

 

Ad firms recommended that clients pause spending on Twitter shortly after Musk bought it. Many advertisers continued to stay away despite Musk's promise that the platform wouldn't become a "free-for-all hellscape." The spread of Israel/Hamas misinformation, notably amplified by users who purchased blue checkmarks under Musk's paid "verification" system, helps illustrate why brands are reluctant to advertise on X.

 

While X CEO Linda Yaccarino tried to reassure European regulators about its compliance with moderation rules, Musk publicly argued with a key European Union commissioner on the same topic. And despite promising to expand safety and election groups in late August, Musk later cut about half of the company's election integrity team and accused them of "undermining election integrity."

 

Time spent on X keeps falling

Some research indicates that the decline in time spent using X has been more severe than the decline in total users, widening the usage gap between X and other social platforms like Facebook. According to market research firm Sensor Tower, "X was the sole social media app to exhibit a material decline" as measured by total hours of usage in August 2023 compared to August 2022.

 

Sensor Tower provided the report to Ars, and a summary was posted on the firm's website. X's usage drop occurred "as it grappled with user dissatisfaction over the rebranding and flagrant content in the post-acquisition era," Sensor Tower said. Data for September 2023 was not yet available from Sensor Tower this week.

 

X's August 2023 usage was 91 million hours per day, down 13 percent year over year, according to the Sensor Tower report. X's August 2023 usage was also down 6 percent since July 2023.

 

By contrast, Sensor Tower said Facebook's August 2023 usage was 1.31 billion hours per day, up 10 percent compared to August 2023. Unlike X's performance from July to August, Facebook usage did not drop month over month, according to Sensor Tower.

 

On the plus side for X, the Threads app launched in July by Facebook owner Meta doesn't seem ready to surpass X any time soon, if ever. Threads' August 2023 usage was 500,000 hours per day, down 62 percent month over month, according to Sensor Tower.

 

X's daily active users were down 9 percent in August 2023 when compared to August 2022, according to Sensor Tower. It was the ninth consecutive month of year-over-year declines in that statistic.

 

“Down by every measure”

Similarweb, another research firm, reported last week that usage is "down by every measure" in the year since Musk bought Twitter.

 

"In September, global web traffic to twitter.com was down 14 percent year-over-year, and traffic to the ads.twitter.com portal for advertisers was down 16.5 percent," Similarweb wrote. "In the US, where about a quarter of twitter.com's web traffic originates, September traffic was down 19 percent. The trend was similar, if not quite as pronounced in other countries: -11.6 percent in the UK, -13.4 percent in France, -17.9 percent in Germany, and -17.5 percent in Australia."

 

As for mobile use, X was "down 17.8 percent year-over-year based on combined monthly active users for iOS and Android in the US. Worldwide, Android usage was down 14.8 percent," according to Similarweb. As Similarweb's Senior Insights Manager David Carr wrote, "nothing Musk has done seems to have translated into lasting improvements to compete better against the social networks that are continuing to grow strongly, such as TikTok, for which global web traffic was up 22.8 percent in September."

 

One positive bit of news for X's owner is that "traffic to Elon Musk's profile and posts was up 96 percent year-over-year in September."

 

X did not respond to a request for comment.

 

The drops in daily users and usage seem to have been dwarfed by declines in advertising, the company's primary source of cash despite Musk's attempts to boost subscription revenue. Advertising problems have likely helped lower X's overall value, which Fidelity estimated in April at $15 billion—a third of what Musk paid.

 

Musk has repeatedly complained about advocacy groups convincing companies to stop advertising on X. Last month, Musk stated that X's "US advertising revenue is still down 60 percent, primarily due to pressure on advertisers" from the Anti-Defamation League, which he threatened to sue.

 

Yaccarino said in late September that "90 percent of the top 100 advertisers have returned to the platform in the last 12 weeks alone" and that X is on track to make a profit in early 2024. She also reportedly told bank lenders this month that revenue grew by a "high-single digit percentage" from the second quarter to the third quarter. Given X's advertising problems, it's likely that revenue declined year over year.

 

Numerous reports give indications of the scope of X's advertising problems:

 

Business Insider reported this week that an "overwhelming majority of the world's biggest-spending advertisers have stopped advertising on X following Elon Musk's acquisition of the company." The report cited data from Ebiquity, a marketing consulting firm that works with 70 of the top 100 top-spending advertisers. Ebiquity "said that just two of its clients had purchased ads on X last month," down from 31 brands in September 2022.

X's US monthly ad revenue was down at least 55 percent year over year every month since Musk took over, according to data from analytics firm Guideline that was cited in a Reuters article. The biggest drop was 78 percent in December 2022. The year-over-year decline was 60 percent in August 2023, the last month data was available.

The firm's US ad revenue "for the five weeks from April 1 to the first week of May was $88 million, down 59 percent from a year earlier," according to an internal presentation leaked to The New York Times in June. The company regularly fell short of its weekly sales projections, "sometimes by as much as 30 percent."

 

X's struggle to attract advertisers may be reflected in the types of ads users now see on the platform. Users recently began encountering "clickbait ads" that cannot be liked or retweeted and do not even "disclose who is behind the ad or that it is even an advertisement at all," Mashable reported.

 

In these ads, "There is no X post to open nor is there a user profile attached to the ad to visit," Mashable wrote. Clicking anywhere on the ad resulted in users being taken to third-party websites, including a "content mill website" that was "overloaded with ads of its own." The ads on the X mobile apps had text such as "This Seems Unbelievable, But Happens in Dubai Everyday," "These Incredibly Cool Gadgets That Are Going To Sell Out This Year. Action Now!" and "If you suffer from ringing ears (Tinnitus) you're going to love this recent breakthrough."

 

Meanwhile, Musk has repeatedly expressed disdain for traditional news media outlets. X started stripping headlines out of news links in early October, making it harder to tell what clicking on a link will actually lead to.

 

"Musk's ongoing feud with the media could cause further deterioration in the utility of X as a news source," Carr wrote in the Similarweb post on X's usage declines. "Certainly, it has reduced the significance of Twitter as a traffic source for publishers. For example, three years ago, the New York Times website nytimes.com was getting 3 percent to 4 percent or more of its total traffic from twitter.com referrals, but that's dropped to less than 1 percent in recent months."

 

NPR stopped posting on its main account in April, but the effect on NPR's traffic has reportedly been negligible.

 

Subscriptions produce modest revenue

During his first month in charge, Musk told workers that "[w]ithout significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn. We need roughly half of our revenue to be subscription."

 

X Premium (formerly Twitter Blue), which comes with a blue checkmark and other features, costs $8 a month. Musk said last week that two new tiers will launch soon: "One is lower cost with all features, but no reduction in ads, and the other is more expensive, but has no ads," he wrote. X has also been testing a $1 annual fee that new users would have to pay to access basic features.

 

So far, subscription revenue doesn't seem to be meeting Musk's lofty goals. As Bloomberg wrote this week, an "analysis from independent researcher Travis Brown estimates that 950,000 to 1.2 million people now pay for X's $8 monthly premium service." That amounts to less than 1 percent of users and no more than $120 million in annual revenue, not including app store fees from people who subscribe through Apple or Google.

 

"This is hardly a replacement for the ad revenue that Twitter relied on in the pre-Musk era—about $4.5 billion in its last full year as a public company," Bloomberg wrote. "Meanwhile, many of X's top advertisers, such as Mondelez International, Coca-Cola, IBM, and HBO, are spending less than they were before Musk took over, largely because of policies he's implemented that have made the service more chaotic and unpredictable."

 

Bloomberg quoted Sensor Tower research indicating that "X's top five advertisers are [collectively] spending 67 percent less on ads than they did before the acquisition," adding that "some large ad agencies have said they don't plan to spend money on X at all."

 

A chaotic first year

X's finances are further complicated by an estimated $1.5 billion in annual interest payments stemming from the $13 billion in debt Musk used to fund the takeover. That debt hasn't worked out for the seven banks that lent Musk $13 billion, which "currently expect to take a hit of at least 15 percent, or roughly $2 billion, when they sell the debt," a Wall Street Journal report said.

 

"Bankers close to the deal say that Musk's capricious management and a weakening advertising market could point to a junk-bond rating, a designation reserved for companies at higher risk of defaulting," the report said.

 

Musk has apparently tried to save money by stiffing vendors and landlords, causing dozens of companies to sue X for unpaid bills. Given the costs of litigation and settlements, it's not clear whether this strategy will save Musk money in the long run.

 

Some large Tesla shareholders regret that Musk bought Twitter and complained that Musk seems too distracted to properly run the electric carmaker—not to mention his other big firm, the private company SpaceX.

 

Musk himself regretted the Twitter purchase. He made an unsolicited offer to buy the company, struck a deal on April 25, 2022, after exerting public pressure on the Twitter board, and then attempted to terminate the merger deal about 10 weeks later. Twitter sued Musk to force him to honor the contract, and he finally did so after it became clear he was likely to lose in court.

 

Whether or not he still regrets the purchase, Musk's first year as owner was just as tumultuous as the litigious months before the acquisition. As Carr of Similarweb wrote, "Musk's decision to acquire Twitter, as it was then known, appears to have been one of history's biggest impulse purchases."

 

Jon has been a reporter for Ars Technica since 2011 and covers a wide array of telecom and tech policy topics. Jon graduated from Boston University with a degree in journalism and has been a full-time journalist for over 20 years.