{"id":25446,"date":"2022-12-22T21:15:16","date_gmt":"2022-12-22T21:15:16","guid":{"rendered":"https:\/\/mailinvest.blog\/index.php\/2022\/12\/22\/elon-appears-to-admit-that-hes-driven-away-40-of-twitters-advertisers\/"},"modified":"2022-12-22T21:15:16","modified_gmt":"2022-12-22T21:15:16","slug":"elon-appears-to-admit-that-hes-driven-away-40-of-twitters-advertisers","status":"publish","type":"post","link":"https:\/\/mailinvest.blog\/index.php\/2022\/12\/22\/elon-appears-to-admit-that-hes-driven-away-40-of-twitters-advertisers\/","title":{"rendered":"Elon Appears To Admit That He\u2019s Driven Away 40% Of Twitter\u2019s Advertisers"},"content":{"rendered":"

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from the how-not-to-run-a-business<\/i> dept<\/h3>\n

Elon Musk keeps trying to tell people that he\u2019s saving Twitter. But, he may have just accidentally admitted how much he\u2019s screwed it up. In yet another Twitter Spaces where he spoke about things happening at the site, he actually provided some numerical details<\/a>, as covered by the Financial Times.<\/p>\n

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He said that the platform had been on course to spend about $5bn in 2023.\u00a0Overall costs at\u00a0Twitter\u00a0in 2021, the last annual period that the company reported before being taken private, were $5.6bn, during which time it made a pre-tax loss of $221,409.<\/em><\/p>\n

Musk\u00a0predicted that Twitter\u2019s net cash outflow, \u201cif you didn\u2019t make any changes\u201d, would be about $6bn to $6.5bn next year. This is partly because the company has been loaded with $12.5bn of debt to help to fund his acquisition, requiring about $1.5bn a year in annual debt servicing payments amid rising interest rates, he said.\u00a0<\/em><\/p>\n

\u201cNot good since Twitter has $1bn in cash,\u201d he said. \u201cSo that\u2019s why I spent the last five weeks cutting costs like crazy.\u201d\u00a0<\/em><\/p>\n

His remarks suggested the company was on track to make about $3bn in annual revenues next year. That would suggest Twitter was on course for revenues as much as $2bn lower in 2023 than the $5bn it achieved in 2021 \u2013 which mainly came from advertising. Many marketers have pulled out of the platform since Musk\u2019s takeover over moderation concerns.<\/em><\/p>\n<\/blockquote>\n

So, if we break that down\u2026 the company had been at around breakeven before he took it over, bringing in around $5 billion in revenue, while spending a similar amount. Elon, by leveraging the takeover with high interest loans added another $1.5 billion to the annual costs. That was obviously problematic if he wanted to make money (we\u2019ll ignore the fact that when he first announced the takeover he insisted he wasn\u2019t doing it for the money). So it was no surprise that he\u2019d cut costs.<\/p>\n

Still, the normal<\/em> way one does this (especially if you end up taking over a company that you desperately spent months trying not to takeover, effectively giving you just a couple days to learn about how the actual business works before being in charge) would be to try to understand the overall business, how things work, and then draw up a plan to cut the actual fat in a manner that doesn\u2019t disturb the inbound cash flow. Maybe you take a short term hit by dealing with a few months of extra burn, but you avoid doing overall damage to the site.<\/p>\n

Instead, as everyone has seen, Musk did the full slash and burn, while somewhat chaotically making a bunch of decisions that were seen as quite questionable for advertiser brand safety. Which is an issue since 90% of the revenue is from advertising. Even if Musk\u2019s eventual goal is to cut advertising significantly, maybe don\u2019t piss off advertisers right from the start.<\/p>\n

Now, there had been speculation about just how many advertisers had bailed, and what that meant for the bottom line. And here, Musk seems to reveal the details: revenue is going to drop from $5 billion a year to $3 billion a year \u2014 suggesting approximately 40% of the ad spend is just gone. Poof.<\/p>\n

He seems okay with it because he\u2019s cut costs to an even greater degree, but it sure raises serious questions about the overall sustainability of the business. Advertisers tend to go where the hot new thing is, not the old thing. And scaring away that much advertising is a big deal. It\u2019s hard to see how you bring that back. <\/p>\n

And, yes, Musk has said he wants to move more to subscription revenue, but the early numbers on that looked absolutely pitiful<\/a>, and likely are not doing much to replace departing ad revenue.<\/p>\n

So, yes, in theory you could argue that the company could survive just at a much lower revenue tier, but again that leaves out the factor of time and trajectory (and the wildcard of their unpredictable CEO). Killing the momentum of a social media network seems like a good way to drive it into a downward spiral. And that seems to be how Musk has done things.<\/p>\n

He had other options. He could have figured out how to make cuts more strategically. He could have chosen not to leverage the deal so much. But he went in the other direction instead and scared off tons of advertisers. A corporate disaster that will be spoken about for years.<\/p>\n

\nFiled Under: ads<\/a>, cost cutting<\/a>, elon musk<\/a>, revenue<\/a>
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Companies: twitter<\/a>\n<\/p>\n<\/div>\n