Elon Musk’s Twitter is on its way to nowhere

In 2021, Twitter lost $221 million on $5 billion in revenue. Last year, revenue fell 11 percent to $4.4 billion, and Musk said he expects it to drop to about $3 billion this year. His cost cutting, he said, would allow the company to roughly break even on cash flow this year.

The latest update on those sales and earnings — down 40 percent year over year — suggests that the sales and earnings losses are significantly larger than Musk expected. Annualized, the additional lost revenue would be $400 million compared to Musk’s $3 billion.

He has attempted to diversify Twitter’s revenue base by charging $8 a month for a “Twitter Blue” subscription, which offers subscribers some additional features. There are thought to be around 225,000 of these paying subscribers, but that would only bring in just over $20 million a year.

Musk will need far, far more than that if he is to bring the company anywhere near breakeven and the $13 billion of his own money, the $7 billion in equity from other investors, and the $13 billion in debt wants to save that he is invited into the shop.

He made his first quarterly interest payment of more than $300 million last month amid suggestions he’s trying again to restructure the debt, perhaps by selling more of his Tesla stock. He sold those shares for about $23 billion last year, eroding the share price and unsettling Tesla investors.

Tesla’s performance, helped by a decision to cut the price of its cars (another price cut was announced this week), pushed its stock price off last year’s lows. It’s rallied from $110 a share to $193 a share, but that’s still a long way off — about $600 billion in market cap missing — from the $381 a share that Tesla is at acted before Musk expressed interest in acquiring Twitter.

Given that Twitter wasn’t profitable before being saddled with acquisition debt and an additional $1.5 billion in interest costs, it’s hard to see how the business can be built, no matter how smart Musk might be stable basis if this debt burden is not reduced.

His Tesla holding is the obvious source of funding, although it would throw good money after bad with little prospect of a return.

Musk’s own commitment to being a “free speech absolutionist” has not only resulted in significant revenue losses, but also a (more modest, mid-single-digit) drop in traffic on the platform. These, along with increasing breakdowns and breakdowns, have contributed to the financial constraints the company is facing.

Some of these issues are within Musk’s control and could be reversed, although he shows no inclination to do so.

In an unfavorable environment for digital advertising of rising interest rates and flagging economies, the prospects for Twitter’s already declining revenues are not encouraging and the scope to respond by cutting costs further is, by definition, limited by how small the remaining headcount is.

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Musk, who has yet to step down from his role as CEO (while remaining Tesla’s CEO), told employees last year that Twitter wouldn’t survive an economic downturn without cost-cutting and significant subscription revenue.

He might have saved Twitter from bankruptcy for now by shedding nearly three-quarters of its workforce, but barring a dramatic balance sheet restructuring and revenue turnaround, that could prove to be a temporary respite.

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