How does Twitter earn money, or rather how does it not earn money? Elon Musk enters the Augean stables

Elon Musk got his way. On Monday, Reuters reported . Musk announced its plan to acquire Twitter in early April, shortly after becoming the company’s largest shareholder.

As soon as the deal is complete, Twitter will cease to be a publicly listed company. So Musk writes history in his own way, because it will be the first time in history to privatize a large social networking platform.

How does Twitter make money, or rather how does it not make money?

Even before the announcement of the takeover, Elon Musk announced that he did not intend to make money on Twitter and wanted the website to become “a bastion of freedom of speech on the Internet.” The problem is that even if the owner of Tesla ultimately wants to turn the new business into a money-making machine, he may still have a huge problem with it. Recent years have shown that Twitter is a rather poor investment.

Although one of the largest social networking sites consistently increases its revenues, costs and expenses are also rising. Effect? According to the company’s financial reports, Twitter recorded only two quarters since 2014. With profits at this level, it could take years for Musk to get back at least some of his investment.

And it’s worth noting that the purchase of Twitter will be largely financed not by private assets, Elon Musk, but by loans from large banks.

Twitter Profit (2014 – 2021) Macrotrends.net

Take a look at the last financial report, for example. Throughout 2021, Twitter generated $ 5.1 billion in revenue, an increase by 36.6 percent y / y The problem is that even such a large improvement in revenues still has not filled the financial hole in which the company is stuck. At the same time, the company recorded $ 221 million in net loss. And this is better than the year before, when the loss amounted to as much as USD 1.1 billion. But even today, Twitter is hardly a healthy business.

Okay, but what exactly does Twitter make money on? Today, the company’s revenues can be divided into two segments. The first are advertising services, and the second – data licensing. In 2021, advertising was responsible for as much as 89 percent. generated revenues (USD 4.5 billion).

You can advertise on Twitter in many ways. The company offers, among others promoting accounts by recommending them to platform users. We can also promote individual entries and the so-called trends, or “hot topics”, which are displayed on the right bar of the website.

In turn, over 11 percent. Twitter’s revenue in 2021 came from licensing data and other sources. Twitter sells its customers data about users and trends on the platform, which they can then use, e.g. to conduct your own advertising activities.

Twitter revenues Investopedia

Elon Musk is unlikely to improve the situation

It’s worth noting that Musk has in the past had reservations about precisely those segments on which Twitter’s entire financial model is based. Musk criticized Twitter’s advertising algorithm as well as the moderation of the site.

Moreover, in one of the tweets he published, Musk even suggested that Twitter should be ad-free. “The corporate power to dictate policy is much greater when Twitter depends on ad money to survive,” he said. Interestingly, the entry was deleted a few days ago.

According to Musk, Twitter’s policy is too restrictive today and limits freedom of speech on the platform. The plan to “heal” Twitter by the richest man in the world includes, inter alia, making the website something like an “internet agora” – a place where everyone will be able to freely express their views, including those for which until now it was possible to get a ban.

Freedom of expression is a cornerstone of a functioning democracy, and Twitter is a digital city market where key issues for the future of mankind are debated

Musk wrote on Monday in a short Twitter statement.

Elon Musk’s idea will certainly win him many supporters (we can already hear shouts of joy from the Polish right), but not among potential advertisers. Along with the freedom of speech (in the Musk edition), even more polarizing content and hate speech may appear on the platform, which Twitter has had a huge problem with for years.

This, in turn, can lead to a reduction in ad revenue. The fact that the largest advertisers do not like to show themselves in such company, was recently discovered, among others Facebook. In 2020, a number of companies announced a total advertising boycott of the platform because of the spreading hate speech on Facebook, which the website administration was completely unable to cope with.

Brands such as Verizon, Boeing, Microsoft, Reebok, Pfizer, HP, Patagonia, Adidas and Levi Strauss joined the Facebook boycott. In total, around 1100 companies withdrew their ads from Facebook.

Could a similar boycott happen to Twitter? “Major advertisers are naturally concerned about the Musk-Twitter project today,” said Carter Murray, investor and CEO of the FCB advertising agency, quoted by Yahoo Finance.

Twitter follows the same business model – free and supported by advertisers – as Google and Facebook. But it has much, much smaller reach than these companies, so advertisers will not be giving it that kind of support.

– convinces Peter Kafka, journalist of the Recode website.

If not advertising, then?

There are a few ideas Musk could use to increase potential business Twitter. The first is to cut costs. Musk has proven in the past that there are no problems with firing employees. The problem is that the Twitter team is not very large anymore. The company employs approximately 7,500 people, that’s just 10 percent of the workforce that Facebook has.

Perhaps Musk is hoping that the new “freedom of speech” policy will bring more users to the platform. Of course, this cannot be ruled out, but the data from recent years show that the dynamics of the increase in the number of new accounts is clearly flattening, which applies not only to Twitter. Social networking sites cannot grow forever. Both Facebook, Instagram and Twitter have already reached their peak.

Elon Musk may also introduce a fee for using Twitter. This decision, however, could prove disastrous and would contradict the “internet agora” project.

So far, the new owner of Twitter does not seem to bother with the business future of the platform. Now it focuses on key issues – for example, whether the “Edit” button should appear under the entries. Musk is a supporter of this change. It is not surprising, because if he had the opportunity to edit his posts in the past, he might have avoided a few high-profile scandals related to his tweets.