Musk Says That X is No Longer Reliant on US Ad Dollars as it Continues to Branch into New Areas | Social Media Today
Honestly, I have no idea whether Elon’s Musk’s X experiment is ever going to work out or not.
While many have rightly questioned whether it’s possible for any business to continue operating as normal after culling 80% of its staff, and I’ve been among an array of critics that have taken aim at Musk’s decisions to charge for verification and increase the price of its API access, evidently, his non-conventional approach is working, at least to some degree.
On Monday, amid an exchange about his latest controversial stance, relating to whether or not X should ban the Anti-Defamation League (ADL), Musk made this note:
Our US advertising revenue is still down 60%, primarily due to pressure on advertisers by @ADL (that’s what advertisers tell us), so they almost succeeded in killing X/Twitter!
— Elon Musk (@elonmusk)
So X’s US ad revenue is still down significantly on what it had been before Musk took over at the app, and with US ad revenue contributing some 50% of its overall revenue intake, that seems like a pretty dire situation. Right?
We no longer need to restore US advertising to prior levels for survival.
That said, it would be nice to see it return.
— Elon Musk (@elonmusk)
Of course, we have no precise insight into what X’s current revenue breakdown is, as it’s no longer required to share public performance reports as a privately owned entity.
But digging into the numbers that we do know, it’s hard to see how X might have got to the point where it doesn’t actually need US advertising revenue to survive.
Back in Q2 2022, X’s last performance update before Musk took over at the app, the company reported that it had brought in $1.18 billion for the preceding three-month period, with ad revenue contributing $1.08 billion of that total.
So ad revenue was more than 90% of X’s intake, and as noted, historically, the US has been its largest ad revenue contributor, at around 50% of all of its ad income. So that would mean that US ads contributed around $500 million of that figure, and with US ad spending now down by 60%, as noted by Musk himself, X is now generating just $200 million from the US, taking X’s income down to $700 million per quarter, right off the bat, before you factor in any other impacts.
Though at the same time, X’s costs have also reduced significantly.
In Q2 2022, X’s overall outgoings were $1.52 billion, so it was cash flow negative by a big margin. Staff costs alone contributed $950 million to this, but with Elon’s cutting 80% of roles, at a blunt estimate, that could have reduced staff expenses down to around $190 million in total. Elon’s also eliminated data centers, re-negotiated contracts, and done a bunch of other things to reduce expenses, so the benchmark for viability is now far lower than it once was.
So if we assume some ad spending reductions in other markets, at an estimate, Elon’s X is currently on track to generate between $500m-$700m per quarter in ad revenue, while its total expenses look to be at a pretty similar level, using rough math.
The unknown variance here is what X’s generating from subscriptions to X Premium and Verification for Organizations, both of which have seen limited take-up, though they could also have seen a boost of late due to X’s new ad revenue share program, while some businesses are also now paying a lot more than they used for API access.
So it’s possible, then, that X doesn’t need US ad dollars like it used to, which could give Musk and Co. more freedom to make content rulings and moderation decisions based on whatever justification they like, if they’re not being held to certain standards by ad partners.
Maybe. I don’t know, there are a lot of factors that would feed into these estimates, which may also include the company’s refusal to pay rent for its offices, failure to fund employee entitlements, etc.
Maybe, without these additional elements included, X is in a stronger position. But either way, its margins, right now, are very, very thin, and it’s going to be increasingly difficult for X to continue to invest in new projects without running the risk of dipping significantly into the red again.
Which it is doing. X is investing in AI, though the actual funding arrangement, and its linkage back to the X platform, is unclear (the project is being funded by “X Holdings”), while it’s also increasing its push on video content, which will likely require more server load to maintain operations.
Thus far, X has also been able to release a bunch of platform updates that actually weren’t new at all, with the vast majority of them being tests and experiments that had been shelved by previous Twitter management. But now, X has pretty much exhausted these projects, which means that it’s going to have to move into entirely new territory, which will also require investment into new elements and areas, as it seeks to become Elon’s “everything app”.
Which is where the real test for the app will be. I’d expect X’s updates to get a lot smaller in scale from here on out, as it looks to innovate with far fewer resources, and with Musk also keeping an eye on the bottom line, it’s going to get increasingly difficult for the platform to make any major moves, without significant financial risk.
Risk is seemingly not a huge problem for Elon himself. But essentially, X’s revenue is a lot lower than it once was, and if it wants to lure more ad dollars, subscriptions, etc., it’s going to have to speculate via new elements.
Will that work?
Again, I have no idea, because if you’d told me that Twitter would somehow be able to weather a 60% reduction in US ad revenue a year back, I’d have narrowed my eyes to the point where tears began burning out the edges. It seems very unlikely that all of these elements could ever align to the point where X becomes a financially stable, let alone thriving company. But Elon has defied the odds before, and maybe, X will be another unlikely success.
This content was originally published here.