Last Updated on: 10th July 2023, 11:45 am
Can Twitter become more profitable with Elon Musk?
Since its IPO in 2013, Twitter has made only occasional profits despite being a prominent figure in politics and culture around the world.
The company’s announcement on Monday that it would agree to an outright purchase of Tesla CEO Elon Musk raises questions as to whether this will result in a brighter financial future for Twitter.
Musk downplayed financial considerations as a motivation for his purchase, saying at the TED2022 talk earlier this month that “it’s not a way to make money.”
Musk continued, “It’s just my strong, intuitive feeling that having a public platform that is very trustworthy and inclusive is extremely important to the future of civilization.”
Twitter has been listed on the New York Stock Exchange for almost nine years and has posted a net loss every year except for 2018 and 2019 when it posted a profit of just over $1 billion.
Musk is paying more than $44 billion for the company, an amount dwarfed by Facebook’s more than $500 billion valuations.
Twitter’s revenue comes primarily from advertising and not from its user base, which isn’t large enough to support its finances.
At the end of last year, there were 217 million so-called ‘monetizable’ users who were exposed to ads on the platform. That’s a far cry from Facebook’s 1.93 billion subscribers.
Twitter is expected to release its first-quarter results on Thursday. Wall Street forecast earnings of 3 cents a share and revenue of $1.2 billion.
Profitability is not the priority
While Twitter’s business prospects aren’t his primary concern, the world’s richest man will at least try not to lose money, especially since part of the acquisition could be funded from his own resources.
In a securities presentation released last week, Musk pointed to a $13 billion credit facility.
Musk is yet to say how he plans to grow Twitter’s revenue
But in a tweet, he suggested lowering the price of Twitter Blue, the network’s paid version, which costs $2.99 a month, giving paying subscribers a certified account, and removing ads for those customers. He then deleted the message.
Another option in Musk’s hands would be to reduce the size, which could suit his desire to make content moderation easier on the platform.
Headquartered in San Francisco, Twitter employed 7,500 people worldwide at the end of 2021. According to a study by the New York University School of Business, it had about 1,500 moderators worldwide in 2020.
Musk could also look to accelerate user growth and thus ad revenue, or add new paid features to the platform.
“He has his own plan in the works. If you can keep a model with a subscription offering along with free options, that could work,” said Angelo Zino, an analyst at CFRA.
Also Read: Twitter is starting talks with Elon Musk under pressure from shareholders
Debt Worries
By funding a significant portion of the acquisition with bank loans, Musk will increase Twitter’s influence, and on Monday S&P Global Ratings warned it was considering downgrading Twitter’s rating from BB+.
Zino noted that Musk could ultimately work with other investors so he doesn’t invest his fortune alone.
“If you bring other great minds to the stock side, the chances of success on your side could be higher,” he said.