Elon Musk’s vulgar attack on advertisers who are boycotting X which was previously referred to as Twitter has puzzled experts. If they keep leaving and never come back how long will X endure?
Could X go bankrupt under Elon Musk? This past April, I met with Musk to record one of his first unpredictable interviews on his purchase of X.
He spoke of something that, looking back it was quite interesting, however, it was not my thing when I was there.
In a discussion about advertising, he stated: “If Disney feels comfortable advertising children’s movies [on Twitter], and Apple feels comfortable advertising iPhones, those are good indicators that Twitter is a good place to advertise.”
Seven months after the fact, Disney and Apple are not advertising anymore on X the X-factor. Musk is telling businesses that have departed their old advertising partners to “Go [expletive] yourself.”
In a raucous interview, on the third of this week He also used”b” as a reference to the “b” word – bankruptcy in an indication of how badly the ad boycott is hurting the bottom line of the business.
In the case of a company he bought at $44 billion (PS35bn) in the year before the idea of bankruptcy may seem unthinkable. However, it’s possible.
To fully understand the reasons you need to examine how dependent X is on advertising revenues and the reason the reason why advertisers aren’t returning.
While we don’t have most recent numbers, last year 90% of the revenue generated by X came from advertising. Advertising is the core of the company.
On Wednesday Musk has more than just hinted at this.
“If the company fails… it will fail because of an advertiser boycott. And that will be what bankrupts the company.” He added.
Mark Gay, chief client officer of the marketing consultancy firm Ebiquity which collaborates with hundreds of businesses There is no indication that anyone will return.
“The money has come out and nobody is putting a strategy in place for reinvesting there,” He states.
In addition the retail giant Walmart announced that it would not going to advertise on X.
After Musk had advised advertisers who had decided to quit X the best way to get back in his interview on Wednesday in the New York Times DealBook Summit and he made a comment that made the advertisers shiver more.
“Hi Bob”, he said, referring at the CEO at Disney, Bob Iger.
If Musk places chief executives “in his crosshairs” like that, they’ll be less likely to engage with X the company, according to Lou Paskalis, of marketing consulting firm AJL Advisory.
Jasmine Enberg, principal analyst at Insider Intelligence, adds: “It doesn’t take a social media expert to understand and to know that publicly and personally attacking advertisers and companies that pay X’s bills is not going to be good for business.”
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If the advertising industry is gone forever What do Musk have?
When I spoke with his interview in April it became evident that he was aware that subscriptions to X did not substitute for advertising funds.
“If you have a million people that are subscribed for, let’s say, $100 a year-ish, that’s $100m. That’s a fairly small revenue stream relative to advertising,” I asked him.
In 2022, Twitter’s revenue from advertising was estimated at $4 billion. Insider Intelligence estimates this year that it will fall to $1.9bn.
The company is responsible for two major expenditures. One is its personnel bill. Musk is cutting X up to bone and has laid off thousands of employees.
The third is the servicing of the loans Musk used to purchase Twitter in the amount of $13 billion. Reuters has revealed that it is required to pay $1.2bn or about $1.2bn annually in interest.
If the business is unable to pay the cost of its loans or pay its employees then sure, X may go bankrupt.
But it’s an extreme scenario, one that Musk is likely to stay clear of.
Musk has a lot of choices. The most straightforward option to do for Musk would be to invest more money into but it seems like he’s not keen on doing this.
Musk could attempt to negotiate with banks to get more affordable interest rates. He could request for, say “payment in kind” interest which is a delay in payments.
However, if renegotiation fails to succeed and banks fail to receive their funds, then bankruptcy might become the sole option and at that point, banks might be pushed to get an overhaul of management.
“It would be very messy and complex,” says Jared Ellias, a professor of law at Harvard Law School. “And it would be extremely challenging. It would create a lot of news because he would constantly get deposed and have to testify in court.”
It could do a lot of damage to Musk’s image as a businessperson. It could affect the manner in which Musk may take on loans in the future.
In the event of a bankruptcy is X simply cease to work?
“I find that to be very hard to believe,” Ellias says. Ellias. “If that happened, it’d be because Elon decided to pull the rug out. But even then, if he were to do that, the creditors would have the option of pushing the company into bankruptcy, getting a trustee appointed and turning the lights back on,” Ellias says.
What’s will be the next step what’s next Musk?
The best solution to these issues in X is to discover a new revenue source quickly. Musk certainly is working on it.
He’s launched a brand new video and audio calls service. In the last month, the streamer played video games. He hopes X will be able to compete with other apps similar to Twitch.
He would like for X to become”the “everything app”, offering all aspects of chat, from online transactions.
In The New York Times, which received the presentation deck Musk presented to investors in the past this year X would be expected to earn $15 million from a payments company in 2023. It was expected to grow to $1.3bn in 2028.
X is also a part of an enormous treasure trove of data. Its vast collection of conversations can be used to teach chatbots. Musk believes that this information is highly useful.
In the short-term the short term, none of these options will fill the void that the advertisers left.
That’s the reason Musk’s savage outburst was so confusing to many.
“I don’t have any theories that make sense,” Paskalis states. “There is a revenue model in his head that eludes me.”
