Understanding Twitter's Financial Situation Under Elon Musk's Takeover
Adegoke ADEBISI
Over 10 years of navigating the financial landscape and turning numbers into narratives for multiple businesses in diverse sectors.
Twitter, a popular social media platform, has recently faced significant financial issues, with Elon Musk’s takeover of the company in October 2022 adding to its problems. Despite Musk’s optimism, the company has not booked an annual profit since 2019, with revenue falling an estimated 40% year over year in December. This article will examine the cash flow problems that Twitter has faced, its reliance on advertising revenue, and Musk’s plans to cut down on this reliance and focus on subscription services.
Twitter's Cash Flow Problems
Twitter has experienced cash flow problems long before Musk's takeover, with losses in eight out of the last ten years. The last year of reported figures was 2021, where the company booked approximately $5 billion in revenue and $5.5 billion in costs. These figures highlight that Twitter's finances were already under stress before Musk's acquisition.
Reliance on Advertising Revenue
Twitter relied heavily on advertising, with more than 90% of its revenue coming from advertising in the second quarter of 2022. However, Musk had bigger plans for Twitter, with one of his main goals being to reduce its dependence on advertising revenue and shift its focus towards subscription services.
Musk's Takeover and Debt
Musk purchased Twitter for $44 billion in October 2022, adding a significant amount of debt to the company's balance sheet. Analysts estimated that this would put Twitter on the hook for annual interest payments of over $1 billion, compared to $51 million in 2021. This debt has put significant pressure on Twitter's finances, with Musk cutting down Twitter's workforce from 8,000 employees to around 2,000 in December.
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Musk's Free Speech Push
Musk's acquisition of Twitter was marked by his push for free speech, leading to reinstatements of accounts that had been banned for violating policies and limiting content moderation. However, this led to chaos on the platform and pushed away some significant advertisers, hurting Twitter's primary source of revenue. Musk has since stated that Twitter must be a respectable platform for advertisers, and Twitter has reiterated that brand safety is a priority.
Cost Cutting Measures
Musk's main method for addressing Twitter's financial issues is through cost cutting measures. However, this has resulted in job cuts, with Twitter going from 8,000 employees to around 2,000 employees in December. These job cuts have had their own price, with unexpected unplanned outages being reported.
Twitter's Response to Financial Issues
Aside from cost-cutting measures, Twitter has attempted to grow revenue by relaunching its paid subscription service, Twitter Blue, in December. According to Travis Brown, a software developer who tracks social media platforms, the service has around 450,000 users as of March 2023, with mobile phone users paying $11 for the service.
In conclusion, Elon Musk's takeover of Twitter has added significant debt to the company's balance sheet, leading to financial issues. Musk's push for free speech has led to chaos on the platform, leading to some advertisers pulling back from the platform. However, Twitter has attempted to address its financial issues by shifting its focus towards subscription services, and cost-cutting measures have been implemented to stabilize the company's finances.