Has Musk's Purchase of Twitter has been a Resounding Success Or A Dismal Failure?
A Non-Political Product Perspective
When Elon Musk bought Twitter in late October 2022, the internet went into meltdown. đ
The left thought it was the end of days; the beginning of some sort of online fascist dystopia.
The right rejoiced, thinking they could finally make one of the social media giants their thing, free from fear of censorship:
Over the last year, the thing that has stood out to me is the lack of any attempt to provide a rational, objective answer to the question:
How is X (formerly Twitter) doing as a product business?
Unfortunately, every post or supposedly âexpertâ opinion I see on X or LinkedIn is a political one, clearly driven by that personâs opinion of Musk as a person, rather than based on analysis of X as a company:
If someone thinks Musk is evil, Twitter acqusition = the end of Twitter.
If someone loves Musk, Twitter acquisition = the rebirth of Twitter.
Which is just ignorant, simplistic & not a genuine attempt to assess what is really going on at the company.
Therefore, in the following article, I will attempt to analyse how X is performing as a product business & to assess whether, nearly a year in, Muskâs acquisition of Twitter has been a resounding success, or a dismal failure.
I will also refer to Twitter as X when referring to it in the present or future tense, as this is now the name of the product & business.
When assessing X as a product business, I will look at 3 specific key areas:
Financial Performance
Product Usage
Internal Culture
So letâs jump in & see how X is really doing.
1/3 Financial Performance
X is losing money - losing a lot of money, in fact. There are 3 key factors at play when it comes to profitability that are worth analysing:
Advertising Revenue:
Twitter pre-Musk made its money through advertising. Specifically, that meant ads placed in your Twitter feed. As Musk stated himself in July 2023, X has seen a â~50% drop in advertising revenueâ.
That doesnât look too good until you realise that most companiesâ decision to stop advertising was a political one (i.e. they wanted to send a signal to employees & customers that they were anti-Musk). In fact, after the acquisition, there was a steady return of advertisers as they returned to doing what businesses should do, which is making business decisions:
âRocked by controversies after Elon Musk took over in October, Twitter saw advertisers flee for weeks on end. New data suggests that the effect was temporary, with Twitter having managed to grow its advertiser roster to 3,700 in the fourth quarter of 2022 from 3,000 in the third quarterâŚâ
â The Wrap
Despite ad revenue still being down, the fact of the matter is that â[X] has around 528.3 million monetizable monthly active users as of 2023â (Rohit Shewale). Businesses want access to those people.Will we see a return to pre-Musk ad revenue? Maybe not. In a recent interview, Musk said that âmostâ of these advertisers have returned, but he didnât offer any specific numbers to back up his claim, and analysts remain sceptical.
Is that because of X being a less attractive proposition to advertisers? Is it because advertisers are being driven by internal politics? Is it simply because the macro-economic environment is tough & companies have less money to spend? Itâs hard to say.
The positive? Revenue has at least stabilised &, as Iâll discuss later, X are already experimenting with other revenue models to try to boost revenue.Debt Load: Where X may be in real trouble is the debt load that was taken on by Musk when acquiring the business; the $44B deal was funded by $31B in cash & external investment, but also $13B in loans. SBO Finance ran the numbers on how these loans translate to debt:
âI calculated that in the first year alone, Twitterâs interest expense is around $1.65 billion! 𤯠And it gets worse. Once you calculate the principal repayments on these loans, Twitterâs debt burden soars to a staggering $3.33 billion that needs servicing year after year.â
I.E. Not only is simply paying off the principal $13B going to be a struggle, but the interest on that loan pushes it up to $3.33B per year.
However, debt is not something that Musk seems to have mastered the art of. It wasn;t long ago that Tesla was in a similar position â a position derided by much of the media:âIn 2017, Tesla burned $1.4 billion in the last quarter of the year. A witty Bloomberg headline said it all: âTesla Doesnât Burn Fuel, It Burns Cash.ââ (Kellogg Insight)
In theory, debt is a tool to fuel growth. The aim is to outgrow the debt. Will X achieve that? Hard to say yet, but more on this later in this article.
3. Expenditure: The final key element of Xâs financial performance is its reduction in expenditure. Theyâve fired 80% of their workforce (primarily admin & management roles) in order to significantly cut costs.
In terms of financial performance, Xâs finances donât look good even when aggressively cutting costs. However, we canât really draw a conclusion yet, because of one final factor:
4. Business Model Experimentation: X is experimenting with new business models to break away from a dependency on ad revenue (for example, users can pay $8/month for a verified account & influencers can directly generate revenue from their followers, of which Twitter takes a 10% cut). Therefore, we would expect to see a drop in ad revenue - in fact, a significant drop in ad revenue - as X shifts to a new business model.
The verdict?
A lot of debt to service, but it all depends on whether Xâs new financial model will work out. Weâll need to wait & see how this pans out (SBO Finance does a great job of analysing possible financial positions X could find itself in here).
2/3 Product Usage
Ultimately a productâs financial performance is driven by the value users get from the product itself.
I.E. If you have highly active, engaged users, you can usually work out how to make money from them.
Xâs revenue model, as discussed above, is currently made up of 3 approaches:
Ad revenue
Monthly subscriptions for verified users
Commission from creators selling their own products & services
Which metrics are important to analyse, therefore, in order to drive these revenue models?
Ad revenue: Users who are consuming content on the app often
Monthly subscriptions for verified users: Primarily content creators who want greater reach & legitimacy in the eyes of other users by having a visibly verified account. That in turn stems from engagement (views, likes, etc.) from the general user base
Commission from creators selling their own products & services: If there are many consumers of your content, then there is a greater incentive to try to sell something to them. Therefore, the more users on the app at any one time, the more products likely sold &, in turn, more commission for X. Tucker Carlson, for example, recently received over 12m video views for his first live stream on X, which is 4x his peak viewership on Fox News, the most watched news channel on US television. Regardless of whether you like the guy or not, that hints at a significant trend towards higher engagement with significant creators on the platform
Which metric that ultimately come down to? Daily Active Users (DAU). Lots of consumers and creators using the platform every day to engage with each other.
On that count, X has a lower user count in 2023 than it did in 2021 & 2022:
Is that because of the removal of bots (remember that during Muskâs due diligence they discovered tens of millions of bot accounts)? More verified accounts? Many on the left leaving Twitter as an anti-Musk protest? Hard to say conclusively.
HOWEVER, what is really interesting is when we look at Monetisable Daily Active Users (i.e. those users you can actually make money off):
Although we only have official data only up to Q2 2022, in media interviews, Musk insists that Twitter is now enjoying ârecord high usageâ.
Does that mean lots of new users? Not necessarily. It seems to point, instead, to more active existing users and accounts (for example, he mentions a ânew recordâ of 8 billion âuser minutesâ that he revealed in a tweet on March 19th.)
More active accounts = more engagement on the app = more opportunity to monetise those users. Again, too early to draw a conclusion, but this may drive revenue growth across Xâs different revenue models.
3/3 Internal Culture
A product is nothing without a great team.
But what makes a great team? A clear mission, people who buy into that mission, high-level of expertise, commitment, a high level of agency, primarily.
On this, Musk seems to have delivered.
From firing 80% of the staff - largely middle management & admin roles that constrained product teams from doing product work - to rebranding X & its mission in order to provide a new North Star for those in the organisation, there has been a big shake up.
Was that a good or bad thing? Letâs look at one key piece of data:
Employee engagement & retention. Specifically, looking at the department of engineering. Why? Because these are the roles that will ultimately drive innovation & performance for a company that depends on a highly technical product.
On that, engineers seem very engaged:
They think their co-workers are high-performing, they are excited about going to work every day & they feel challenged.
Musk's leadership and the promise of innovation seems to have made Twitter a more attractive workplace, backed up by claims that there has even been an increase in job application rates post-acquisition.
On the flip side, 47% do not approve of the job the executive team is doing. Is that a results of inherent uncertainty & chaos during such a big transition in culture AND business model? Is it just down to poor management? Or is it more autocratic than it appears, as this employee suggests? Again, too early to conclude.
Finally, itâs worth pointing out that an indicator that the internal culture is stronger is the number of new, innovative features X is churning out. From testing new revenue models to features like âCommunity Notesâ to fact-check posts, if I were working at X as a product person, Iâd certainly feel like my work was interesting & impactful. I imagine many of Xâs engineers & product people feel the same. Just my opinion, I know, but the science on the role of autonomy & agency in motivation backs this up.
Conclusion
SoâŚ
How is X really doing?
It is losing money - losing a lot of money from reduced ad revenue & a large debt burden.
As a product, however, the rate of innovation & growth of a seemingly more monetisable, more active user base provides a ray of light for the business.
Couple that with a strong, engineering-first team?
Itâs still early days, but I wouldnât write X - or Musk for that matter - off yet.