Musk needs a third of America to pay for Twitter

Elon Musk’s drive to increase Twitter’s follower count isn’t a nice-to-have – it’s a must-have. The social media company’s new boss says it’s losing over $4 million a day — but that’s before accounting for revenue that has evaporated from recent advertiser pullback. Squeezed by sky-high interest payments, even steep cost-cuts leave a big hole to fill if Twitter doesn’t grow into its debt.

Twitter generated $5.2 billion in revenue in the four quarters before Musk bought it, but all of that – and then some – was spent on things like engineering salaries and infrastructure. Another $1.2 billion will start to go to interest payments annually, according to U.S. Securities and Exchange Commission filings. Chalk that up, and Musk’s estimates for daily losses are spot on.

It gets worse. Advertising revenue across the industry has fallen since Twitter last reported public results. And changes to the platform have driven away advertisers, delivering a “massive” hit. Musk is axing costs to stay afloat, firing half of Twitter’s workforce and seeking $1 billion in other savings. Assume Musk finds those, research and development falls by half, and other expenses decrease a fifth. If revenue has dropped 30%, Twitter would still need $11 billion in new revenue to break even.

Put in context, Musk has a daunting task. Twitter would need to get around 6% of the U.S. digital advertising market, per IAB, or 115 million people paying $8 a month for a Twitter Blue subscription — a third of the U.S. population – assuming margins stay the same.

A Twitter Blue subscription isn’t like Spotify Technology (SPOT.N) or Netflix (NFLX.O), perhaps. Those platforms bear the cost of licensing content whereas Musk is trying to get Twitter users to pay for the privilege of providing content. If the cost of providing each extra subscription is zero, Musk needs only about a tenth as many subscribers to sign up. Still, that limited value proposition is perhaps why his blue-check experiment isn’t working.

And even the pessimistic scenario assumes a lot of things cut Musk’s way: He gets his cost cuts, the website doesn’t break from neglect, and the bottom doesn’t fall out of advertising entirely. With so many uncertainties, it’s unsurprising he’s already talking about bankruptcy.

Twitter Chief Executive Elon Musk said in an all-hands staff meeting on Nov. 10 that the company faces the possibility of bankruptcy, the Wall Street Journal reported.

Musk, who also runs automaker Tesla and satellite company SpaceX, has said that Twitter faces “massive” revenue losses from advertisers pulling back spending on the platform. Musk closed his $44 billion acquisition of Twitter on Oct. 27. Reuters