While X’s owner and CEO continues to claim the app’s growing popularity and “highest ever” usage, it seems the transition to X is not in the platform’s financial interest and could mean the end of Elon Musk’s social media experiment.
Over the weekend, The New York Times published a new profile of X CEO Linda Yaccarino’s daunting task of luring advertisers back to the app. Among other assertions about the difficulty of balancing Musk’s free speech approach with assuaging advertiser concerns, the paper included the following:
“According to internal documents obtained by The New York Times, X earned $114 million in U.S. revenue in the second quarter of this year, down 25 percent from the first quarter and 53 percent from a year ago. The company is targeting $190 million in U.S. revenue in the third quarter from ads related to the Olympics, soccer and political campaigns, the documents said, but even that target would still result in the company’s quarterly revenue being 25 percent lower than last year.“
To put this in context, in 2022, the last year before Elon took over the app, Twitter generated $4.4 billion in revenue, primarily through advertising. In 2023, Musk’s first year at the company, that dropped to about $3.4 billion, with advertising revenue dropping substantially.
Of course, Company X has significantly reduced expenses by cutting about 80% of its workforce, which has resulted in a much higher profit margin. But at the same time, Musk has taken out a $44 billion loan to buy the app, which has put Company X in huge debt. So while Company X has reduced employee costs, it has also added about $1.2 billion a year in debt service costs.
So, at the end of the day, X is still in pretty shaky territory in terms of profitability.
So what do these new figures on US revenue mean?
Historically, Twitter/X has relied on U.S. users for revenue, with revenue from the U.S. accounting for roughly 50% of its total revenue. It’s not clear if this is true for X, but if it is, that would mean X generated roughly $230 million in total revenue in the second quarter of this year.
As the NYT points out, this is a 25% decrease from Q1, so let’s say X made $287 million in total revenue in Q1, which would amount to $517 million in the first half of 2024.
Now, this may just be advertising revenue, not taking into account subscriptions, data sales, etc. But those are minor factors. X Premium still only has around 1 million subscribers, and at an average of $8 per profile/month, that equates to an additional $48 million in revenue in the first 6 months of the year.
So, cumulatively, X is on track to make around $600 million in revenue in the first half. And if that holds up, X could be looking at around $1.2 billion in revenue for the full year.
X is hoping to boost revenue with Olympic-related campaigns and opportunities, as The New York Times points out, but even with a big push, X is likely to struggle to reach even 50% of its 2023 revenue ($3.4 billion). That would be a big drop, barely enough to cover X’s debt service costs, let alone anything else.
Elon Musk has been an ardent advocate of free speech and is willing to lose money for his beliefs, but if he doesn’t get advertiser support or subscriber growth, he could lose his entire business.
The other element, of course, is xAI and the need to drive that project with X-data: xAI recently closed a $6 billion funding round, but Musk has also suggested Tesla could invest up to $5 billion to strengthen xAI’s capabilities.
Could Elon and co justify a mutual investment in X as part of a broader xAI project? If so, they could potentially invest another $11B in X/xAI, though it’s unclear if and how xAI funds could be used to directly underpin the X platform.
And it’s a short-term solution, not a path to app sustainability.
But maybe Elon is so confident that X will eventually become a money-making machine somehow that he can justify a short-term investment to keep both projects going.
xAI requires X input to improve its models and offerings, and perhaps this is another way to funnel money into X.
There’s probably a way around this, and if the richest man in the world really wants X to keep going he could find one, but unless Musk and co. can convince advertisers to come back, this is going to be an increasingly losing battle that will continue to suck costs up.
Or everyone would have to pay for the app.
Is Elon considering locking X to all non-paying users? Would that work? Could Grok become so good that more people will pay to use it?
It’s unclear what the path to profitability is, but at least based on these figures, it’s safe to say that X is still a long way from being profitable at this point.
