Tweet Trouble: X's, Formerly Twitter, Cash Crisis Unveiled As Platform Continues To Bleed Advertisers

Twitter Inc., once a one-of-its-kind microblogging social media platform, has had a tumultuous journey since Tesla Inc. CEO Elon Musk acquired the company for $44 billion. 

Musk, known for his radical and often controversial opinions on censorship and content moderation, undertook a series of structural changes to Twitter, including layoffs and operational modifications. 

While Musk predicted a rise in total engagement and adverting revenue through the restructuring efforts, Twitter reported a reduced number of daily active users. Every 6 out of 10 adults in the U.S. using Twitter have taken a break from the platform, according to a survey conducted by the Pew Research Center. 

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"The center's new analysis of actual behavior on the site finds that the most active users before Musk's acquisition — defined as the top 20% by tweet volume — have seen a noticeable posting decline in the months after," the survey reported. "These users' average number of tweets per month declined by around 25% following the acquisition."

Approximately 25% of the survey respondents also stated that they might not use Twitter by 2024. 

Plummeting Ad Revenues 

Many companies severed their advertising partnership with Twitter following Musk's takeover, citing his drastic operational changes — especially allowing previously banned accounts to return to the platform — as the primary reason. Musk, who touts himself as a "free speech absolutist," reinstated the Twitter accounts of influential people, including former President Donald Trump. 

During the five-week period from April 1 to the first week of May, the platform witnessed a 59% drop ($88 million) in its U.S. advertising revenue compared to the same period the previous year, according to an investigation conducted by The New York Times. In addition, Twitter forecasts a 56% year-over-year decline in its U.S. ad revenue as of May. 

Given the rising disdain, Musk conducted a poll on Twitter asking users whether he should step down as the social media platform's CEO, going as far as to state that he would "abide by the results of [this] poll." An overwhelming number of respondents (57.5%) voted for Musk to step down, causing the billionaire to appoint former NBCUniversal global advertising chief Linda Yaccarino as the new CEO. 

In April, Musk stated in a BBC interview that almost all of the advertisers had resumed advertising on Twitter, forecasting that the firm would "roughly break even" by the end of the second fiscal quarter of 2023. 

But Musk changed his tone recently, tweeting on July 15, "We're still negative cash flow, due to ~50% drop in advertising revenue plus heavy debt load. Need to reach positive cash flow before we have the luxury of anything else." 

Twitter's platform’s value has plummeted by over 66% since Musk's leveraged buyout in October 2022. Musk acquired the company through X Holdings Corp. for around $44 billion at the end of the previous year. Its value has since dropped significantly, reaching just over $14.75 billion by April. 

Twitter recently initiated a revenue-sharing program where it allocates a portion of its ad earnings to certain content creators using its platform. Musk commented on this matter when his followers inquired about the revenue-sharing program's restricted nature. Numerous popular Twitter accountholders expressed their disappointment as they were ineligible to earn income from the program at this time. The revenue-sharing opportunity is exclusively accessible to users who subscribed to Twitter Blue and became verified, with the earnings being influenced by the advertisements placed in response to tweets.

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Threads — A Strong Competitor

Meta Platforms Inc. CEO Mark Zuckerberg launched Threads, a new microblogging platform, on July 5, challenging Twitter's dominance in the space. The platform crossed 100 million users in less than five days, becoming the fastest-growing consumer application in history. This title was previously held by the generative artificial intelligence platform ChatGPT, which crossed 100 million monthly active users in the span of two months earlier this year. 

"This is as good of a start as we could have hoped for," Zuckerberg said after Threads' successful launch. "Feels like the beginning of something special."

However, Musk reacted poorly to Threads' overnight success, accusing Zuckerberg of using confidential trade secrets to create a "copycat" app. "Competition is fine, cheating is not," Musk tweeted.

Twitter's attorney Alex Spiro wrote a letter to Meta accusing Zuckerberg of using Twitter's trade secrets and intellectual property to expedite its development. The action is deemed as a breach of both state and federal laws as well as the ongoing duties owed to Twitter by its employees.

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