Twitter: The bird is free but financially unable to fly

Elon Musk officially moved Twitter to his own cage last week. The richest man in the world wasted no time in making changes to the social media company, firing top executives and dissolving the board of directors. More bloodshed to come. Up to half of Twitter’s 7,500 employees could be laid off. There are plans to charge Twitter users $8 a month for a verified account, which looks odd.

Musk will need all the cost savings and revenue he can get. His $44 billion takeover of the world’s “Digital Town Square” is one of the largest leveraged buyouts in history. To fund the deal, Musk piled up $12.7 billion in debt on Twitter – which has made losses in 10 of the last 12 years.

Analysts expect net interest expense to increase to over $1 billion a year from $51 million last year. After paying way too much to free “the bird,” Musk faces an uphill battle to keep Twitter financially afloat.

For starters, its plans to offer a premium subscription service for $8 a month risk backfiring. Assume the number of own (blue tick) is verified users followed by Twitter, around 424,000, is correct. Even if each verified user paid the fee to hold their blue check, that would only generate $41 million in revenue per year. That wouldn’t even cover 5 percent of Twitter’s estimated annual interest payments.

Worse still, asking users to pay for a previously free verified account could result in them abandoning the platform altogether. The verified blue tick is designed to protect content creators from scammers and users from fraud and misinformation. Allowing anyone to pay for it defeats the purpose.

Anything that decreases user engagement or leads to more inappropriate content would make advertisers think twice about spending money on the platform. Advertising accounted for nearly 90 percent of the $5.1 billion in revenue generated by Twitter last year.

Some cost reduction makes sense. Costs and expenses (including litigation) totaled nearly $5.6 billion last year. Almost half of this was accounted for by sales and marketing as well as research and development. The latter has almost doubled in the two years to 2021. But a massive downsizing in a short period of time could unsettle advertisers, let alone other employees.

said Musk He didn’t buy Twitter to make more money, but “to try and help the people I love.” Just as it looks more like a flutter than a proper investment.

https://www.ft.com/content/8e2d0070-051f-45ba-a676-994b76644220 Twitter: The bird is free but financially unable to fly

Adam Bradshaw

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