Challenges Continue at Twitter, with Revenue Down 40% Year-Over-Year

Imagine the chaos if we lost both TikTok AND Twitter within the next six months.

That seems pretty crazy – and maybe it is. But with TikTok facing a potential ban in the US, due to lingering concerns about its potential connection to the Chinese government, and Twitter still losing money, it could well be that both end up disappearing, taking all of your Likes, followers and social clout with them.

The latest on Twitter, according to various reports, is that its revenue is down 40% year-over-year, in part due to the broader downturn in digital advertising, and in part due to ongoing concerns about new Twitter chief Elon Musk’s updates at the app.

If that’s correct, that would put Twitter in an increasingly difficult operating position, because while Twitter is likely no longer losing $4 million per day, as it was when Musk took over at the app (according to Elon himself), it is still bleeding funds, due to also taking on a significantly higher debt burden in the Musk deal.

To clarify, in Q4 ‘21, Twitter brought in $1.57 billion in revenue for the period. If Twitter’s now down 40% on that result, that would mean that Twitter’s set to reach around $942 million in Q4 2022.

Now, we don’t know if that includes Twitter Blue revenue, or if it’s just ad intake. But let’s assume that it doesn’t – current estimates suggest that around 225,000 users have signed up to the new $8 per month verification program. That would mean that Twitter’s bringing in around $1.8 million per month from subscriptions. The updated program hasn’t been in operation for three months, but let’s also assume it has – so, in total, based on these estimates, Twitter would be looking at around $948 million in revenue for Q4 22.

Twitter’s staff costs in Q2 ‘22, its last full report before Elon took over, were $950 million. But Elon’s since cut that significantly. We don’t know exactly how much Elon has reduced this, as a cost impact, but let’s say Elon’s cuts have reduced Twitter’s staff costs by 80%, factoring in the removal of execs on higher salaries, etc. That would bring that down to around $190 million. As with Blue, not all of these costs would have been reduced in this period, but as a back-of-the-envelope estimate, this is what we’re looking at.

Twitter’s operating costs in Q2 2022, outside of staff, totaled $540m. Elon has also sought to reduce this, by shutting down data centers and international offices, so this will be lower in future. But in this period, you’re looking at $540m. Add the remaining staff costs and you come to $730m in total expenses.

Versus revenue of $948m, so we’re looking good – but there is the question of loan debt, which Elon has loaded into his Twitter acquisition.

In order to make up the $44 billion cost to purchase the app, Elon took out $13 billion in loans, which the company – not Elon himself – will now have to repay at a rate of around $1.5 billion per year. Divide that by four and Twitter’s been saddled with an extra $375m per quarter that it also has to add to its expenses.

That brings Twitter’s outgoings to around $1.1 billion, leading to an estimated operating loss of $152m. Which, divided by 90 days, comes out to a $1.7m daily loss at the app.

That’s far better than the $4m per day is was losing, but it’s still not great, and Musk has already warned that the platform could go bankrupt, if it can’t work out alternative revenue streams.

The big early hope in this sense is Twitter’s $8 per month verification scheme, but as noted, research suggests that only a small percentage of users have actually signed up as yet. That’ll increase as Twitter rolls it out to more regions, and eventually takes the ‘legacy’ blue ticks away from currently verified accounts. But even then, it’s unlikely to become a significant revenue driver, and while Twitter is also looking at video monetization, and a new subscription program for businesses, these would have to see unprecedented take-up to replace a 40% loss in ad income.

This is why Twitter’s still cutting costs, by shutting down more offices, sacking more staff, slashing employee benefits, and more. If it can bring costs down by another $152m per quarter, it’s potentially moving closer to even footing once again – which would also mean that Musk would be able to continue in his efforts to ‘free’ the app by easing its moderation rules, without having to worry about ad partner unease with such decisions.

But each of these cuts also has impacts, and it could be that Twitter’s reduced oversight, and loss of local market connection, will also see ad spend continue to decline, increasing the challenge before it.

If that happens, and its alternative revenue streams stall at lower than expected rates, that could see the app on increasingly shaky ground – and it could be that by Q2, around August this year, Twitter is back to losing some $4 million a day, putting the pressure back on Elon to come up with another way to right the ship, and cover his massive debt.

This will change over time. Musk’s cost-cutting efforts will be further realized as past commitments are filtered out of the data, which could bring things further in balance. But again, how much extra pressure do those cuts put on the app – and will that reach a critical inflection point?

In the end, it could well be that we lose both TikTok and Twitter in the next six months. On balance, I would bet against either going away, but given the context, it’s not impossible.

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