In April, I sat down with Musk for the first of many turbulent interviews regarding his acquisition of X.
He remarked something that, in retrospect, was pretty illuminating, but which I missed at the time.
He went on to say: “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 later, Disney and Apple are no longer advertising on X, and Musk is warning corporations that have left to “Go [expletive] yourself.”
After a Media Matters for America study revealed ads appearing next to pro-Nazi posts, the corporations suspended advertising.
X vigorously contested the report, calling its research methods into question, and filed a lawsuit against the organization.
Also read: Elon Musk’s $44 Billion Twitter Takeover Case Study
Musk invoked the “b” word – bankruptcy – in a furious interview on Wednesday, indicating how much the ad boycott is hurting the company’s bottom line.
Elon Musk visits Israel following an anti-Semitism controversy.
Bankruptcy may seem impossible for a corporation he purchased for $44 billion (£35 billion) last year. However, it is conceivable.
To understand why, consider how dependant X is on advertising revenue – and why sponsors aren’t returning.
Although we don’t have the most recent data, advertising accounted for roughly 90% of X’s revenue last year. It is the company’s beating heart.
Musk more than hinted at this on Wednesday.
“If the company fails… it will fail due to a boycott of advertisers.” And it is what will bankrupt the corporation,” he said.
Elon Musk issued a direct message to advertisers during an on-stage interview in New York.
Mark Gay, chief client officer at Ebiquity, a marketing agency that works with hundreds of clients, says there is no evidence of anyone returning.
“The money has come out and nobody is putting a strategy in place for reinvesting there,” he said.
Walmart said on Friday that it will no longer be advertising on X.
Musk revealed something that made marketers wince even worse after telling advertisers who left X where to go in Wednesday’s interview at the New York Times DealBook Summit.
“Good morning, Bob,” he responded, referring to Disney CEO Bob Iger.
When Musk puts CEOs “in his crosshairs” like way, they will be even more hesitant to work with X, according to Lou Paskalis of marketing consultant AJL Advisory.
Insider Intelligence’s Jasmine Enberg adds, “It doesn’t take a social media expert to understand and know that publicly and personally attacking advertisers and companies that pay X’s bills is not going to be good for business.”
So, is it possible that X will declare bankruptcy?
What does Musk have if advertisers leave for good?
When I interviewed him in April, it was clear that he realized that subscriptions to X would not replace advertising revenue.
“If a million people subscribe for, say, $100 per year, that’s $100 million.” “That’s a relatively small revenue stream in comparison to advertising,” he explained.
Also read: Elon Musk sues Media Matters for saying X put ads next to pro-Nazi posts
Twitter’s advertising income is expected to be around $4 billion in 2022. According to Insider Intelligence, it will fall to $1.9 billion this year.
Elon Musk unleashes a vulgar attack against X advertising.
Elon Musk visits Israel following an anti-Semitism controversy.
The corporation is making two significant investments. The first is its payroll. Musk has already trimmed X to the bone, laying off thousands.
The second is servicing the $13 billion in loans Musk put out to buy Twitter. According to Reuters, the corporation now has to pay almost $1.2 billion in interest payments each year.
Yes, X could go bankrupt if it is unable to repay the interest on its loans or pay its employees.
However, that is an extreme case that Musk would undoubtedly prefer to avoid.
In downtown San Francisco, a worker uses a smartphone while demolishing a Twitter sign at Twitter’s corporate headquarters building, as Elon Musk rebranded Twitter X and introduced a new logo.
Elon Musk’s rebranding of Twitter as “X” began toward the end of July 2023.
Also read: X Lose Up to $75 Million in Revenue as more brands pull out
He has choices. The simplest thing for Musk to do would be to invest more of his money, but it appears that he does not want to do so.
Musk could try to renegotiate lower interest payments with the banks. He may, for example, request “payment in kind” interest if payments are delayed.
However, if renegotiation fails and the banks do not receive their money, bankruptcy may be the only alternative, at which point the banks may try to force a change in management.
“It would be very messy and complex,” says Harvard Law School professor Jared Ellias. “And it would be extremely difficult.” It would make a lot of news because he would be deposed frequently and would have to testify in court.”
It might be disastrous for Musk’s company reputation, as well as how Musk can borrow money in the future.
And, in the event of bankruptcy, would X simply stop working?
“I find that very hard to believe,” Ellias says. “If that happened, it would be because Elon decided to pull the rug out from under him.” Even if he did, the creditors would have the option of forcing the company into bankruptcy, appointing a trustee, and transferring the company over to them.
The apparent solution to all of X’s issues is to quickly locate another cash stream. Musk is obviously making an effort.
He has developed a new service for audio and video chats. He streamed himself playing video games last month and expects that X can compete with apps like Twitch.
He wants X to be the “everything app,” with features ranging from conversation to online payments.
According to the New York Times, which obtained a copy of Musk’s pitch deck last year, X was expected to generate $15 million from a payments business in 2023, climbing to $1.3 billion by 2028.
X also has a massive data cache, and its extensive history of chats can be utilized to teach chatbots. Musk believes this information is extremely useful.
However, none of these possibilities will fill the void created by advertisements in the short run.
That’s why many people were perplexed by Musk’s angry reaction.
“I don’t have any theories that make sense,” adds Paskalis. “There is a revenue model in his head that eludes me.”
