Elon Musk’s recent response to advertisers boycotting X has raised concerns about the platform’s future. This of course happened after he bluntly expressed his feelings, saying, “Don’t advertise.” and went further to say “Go fuck yourself.”
Although he had initially pointed to the credibility of advertising on X by citing Apple and Disney’s presence, his recent comments have made major advertisers pull out their support and resources from X, prompting Musk’s fiery response and warnings about potential bankruptcy.
Last year, approximately 90% of X’s revenue came from advertising, making it the lifeblood of the platform. Musk acknowledged this vulnerability, stating that if the company were to fail, it would be due to an advertiser boycott.
Can X really face bankruptcy?
Musk acknowledges the challenge, understanding that subscriptions alone cannot replace advertising revenue. With Twitter’s advertising revenue projected to drop to $1.9 billion in 2023, down from $4 billion in 2022, the financial strain on X is evident.
The company grapples with substantial expenses, including staffing and servicing loans of around $13 billion. The interest payments alone stand at approximately $1.2 billion annually, posing a significant financial burden.
Mark Gay, Chief Client Officer at marketing consultancy Ebiquity, notes the absence of a clear strategy for reinvestment, indicating the severity of the crisis. The situation worsened with Walmart joining the list of companies discontinuing advertising on X.
Musk’s confrontational approach, particularly targeting industry leaders like Disney’s CEO Bob Iger, raises concerns about future collaborations. Lou Paskalis of AJL Advisory warns that such public attacks on advertisers could significantly harm X’s business prospects.
What Musk may want to do
While bankruptcy is an extreme scenario, Musk has options. Injecting more capital remains the simplest solution, although Musk appears reluctant. Potential avenues include negotiating with banks for more favorable terms or exploring alternative payment structures.
However, a failure to reach an agreement with creditors could lead to bankruptcy, prompting potential management changes. Harvard Law School professor Jared Ellias highlights the complexity of such a scenario, emphasizing its negative impact on Musk’s business reputation and borrowing capabilities.
Despite the challenges, X has potential avenues for diversification. Musk plans to transform X into the “everything app,” expanding beyond its current features. Recently X added audio and video call service features to the platform.
You also get Spaces, a streaming service that allows you to have live audio conversations on X. Anyone can join, listen, and speak in a Space on X, and it’s available on iOS, Android, and X web versions. Musk wants to go beyond what it can do now to add an online payments service that will potentially make X a versatile platform where you can literally do anything.
While these efforts show promise for the future, they do not immediately fill the void left by departing advertisers. Musk’s unconventional outburst has left many puzzled, with industry experts struggling to decipher his underlying revenue model.
Right now the fate of X hangs in the balance as it grapples with advertisers pulling out from the platform and financial crisis. Whether X can weather the storm and emerge as a diversified, resilient platform remains a question only time can answer.
