Twitter in 2023: Will Elon Musk Be Right?
Don't evaluate Elon Musk's handling of Twitter by the measure of all the CEOs who failed to make it work right. Evaluate what he could do with it in the future.
You’ve read the same headlines I have. Here are just three in the last few days:
Twitter’s Rivals Try to Capitalize on Musk-Induced Chaos
The headlines rush out, day after day. Oh, my god, what is Elon Musk doing to our Twitter?! It feels like “the media” is taking the idea personally that Musk bought Twitter for himself personally: it is almost as though Twitter is a public service for journalists and news junkies worldwide, and those people are pissed that he’s messing with it.
Twitter is not a public service nor a not-for-profit company. Musk paid handsomely for the company so that it is no longer even a public company. Musk can do whatever he wants with Twitter as long as it’s lawful (although that hasn’t stopped Musk in his dealings with the SEC over his public statements regarding Tesla’s stock).
We’re talking about Elon Musk! This guy started with very little and has, through force of will and personality and an incredible appetite for risk, managed to become the richest guy around solely through his ownership of the companies he owns, only one of which is publicly held.
As has been observed, if he loses >$50B on his purchase of Twitter, it won’t bankrupt him personally, since he’s worth ~$200B. So he can manage financially. But he really doesn’t seem to care what anyone else thinks about what he is doing, a hallmark of how he turned both Tesla and SpaceX into extremely valuable companies.
So the real question is: What might Twitter look like a year from now, say in September 2023, after Musk has worked his way through the issues that have perenially beset Twitter?
Personally, I think he’s going to prove everyone wrong and end up with a profitable company that provides a key service for a large group of people, something none of the previous, what?, 5 CEOs (if you don’t count @Jack twice) were unable to do.
In 2021, its last full year as a public company, TWTR recorded revenue of $5.1B with losses of $221M, nearly all of its revenue from selling advertising. In other words, it was not losing a lot of money. When Musk bought the company, it had $6B in cash.
Since taking possession of the company, he has reduced the payroll from ~7,500 employees to ~3,000. Most software or Internet service companies spend 70-80% of their money on employment-related costs, so Musk has already reduced the cost of running the company by more than 50%.
The service does not appear to have failed, people are still tweeting both news and nonsense every day as before. Wild rumors, some from Musk himself, abound about how much Twitter’s revenue has declined. Without public reporting, we’ll never know. But the math indicates that, if the company was losing some money, reducing expenses that much would mean the company could be barely profitable on half the advertising revenue it used to generate.
Musk is messing around with how to start and grow a subscription business. Not the $5/month subscription to make Twitter any color you wanted (which is the only benefit I could perceive I was paying for before Twitter canceled that product). Say he figures something out that the core group will pay for; say he gets 5% of the total daily active users, which was about 200M worldwide at the end of the second quarter of 2022, to buy a service for $5/month: That’s an additional $600M of annual revenue. With $2.5B of ad revenue and $600M of subscription revenue and expenses of $3B, that’s a (barely) profitable company. This is not a sophisticated analysis (something I’m not capable of making), but it’s directional.
The direction is: Elon Musk knows how to re-invent companies. He’s the first CEO running Twitter who doesn’t listen to the so-called experts who say what Twitter should or shouldn’t do. Literally: Remember that Twitter was a project in a failed company, Odeo. The original idea: 140 characters of whatever came to your mind. That was very popular. Popular for 10s of millions of users, not billions like Facebook, Instagram, Snap, and TikTok. But popular enough to serve as the basis for a publicly held company with billions of revenue and enormous influence.
Since its beginning, with the exception of making a tweet twice as long, nothing else has actually worked. From the very beginning, no one figured out how to run Twitter!
I think what Musk is doing with Twitter is exactly the right thing to do. Throw everything up in the air, reduce costs drastically, and seek out the core value of the service by trying out a lot of different features. The cost structure for the Twitter which tried to please everyone was unsustainable. It may never be worth $44B again, but since it doesn’t have to serve public shareholders anymore. success will be measured in whether it makes enough money to sustain itself and not drain Musk’s other resources. I’m inclined to think that, by September 2023, Twitter (and Elon Musk) will make sense, all of this agita will disappear from the media, and Musk will be even richer.
PS: My business partner thinks I should say something to really piss @elonmusk off so he will ban me from Twitter, thereby making me the only human being banned by Musk himself from two of his companies! See “Banned By Tesla”. Ironically, Musk blocked me on Twitter because he thought I was a rude Tesla customer, so I don’t have a way to piss him off directly anymore.
PPS: I have to say that Musk just announced something I’ve been wanting Twitter to do for a long time: flushing dead accounts. I’d guess that more than 50% of the >14,000 followers of my account never look at Twitter and certainly don’t engage. (By the way, the only way I can see this tweet is to look at Twitter without logging in.) I hope is more intentional than most of his ramblings! If it is and I get way fewer followers, but they actually engage with my tweets, that alone would justify $5/month.