Twitter: the hen is free however can’t fly financially

Elon Musk formally moved Twitter into his personal cage final week. The world’s richest man has wasted no time making modifications on the social media firm, firing prime executives and dissolving the board of administrators. Extra bloodletting is coming. As a lot as half of Twitter’s 7,500-strong workforce could possibly be laid off. There are plans to cost Twitter customers $8 a month for a verified account, which seems odd.

Musk will want all the price financial savings and revenues he can get. His $44bn acquisition of the world’s “digital city sq.” is likely one of the largest leveraged buyouts in historical past. To fund the deal, Musk loaded Twitter — lossmaking for 10 of the previous 12 years — with $12.7bn of debt.

Analysts say internet curiosity expense will climb from $51mn final yr to over $1bn a yr because of this. Having vastly overpaid to free “the hen”, Musk will face an uphill battle to maintain Twitter within the air financially.

For starters, his plans to supply a premium subscription service for $8 a month dangers backfiring. Assume that the variety of its personal (blue verify) verified customers followed by Twitter, roughly 424,000, is right. Even when each verified consumer pays the charge to maintain their blue verify, that can simply generate $41mn a yr in income. That may not even cowl 5 per cent of Twitter’s estimated annual curiosity funds.

Worse, asking customers to pay for a beforehand free verified account might trigger them to depart the platform altogether. The verified blue verify is supposed to guard content material creators from imposters and customers from scams and misinformation. Permitting anybody to pay for it defeats the aim.

Something that decreases consumer engagement, or offers rise to extra inappropriate content material, would make advertisers suppose twice about spending cash on the platform. Promoting accounted for practically 90 per cent of the $5.1bn in income Twitter pulled in final yr.

Some cost-cutting is smart. Prices and bills (together with litigation) totalled practically $5.6bn final yr. Nearly half of this went to gross sales and advertising and analysis and improvement. The latter practically doubled within the two years to 2021. However a heavy cull of employees in a brief interval would possibly unnerve advertisers by no means thoughts different staff.

Musk said he didn’t purchase Twitter to make more cash however “to attempt to assist humanity, whom I really like.” Simply in addition to it seems extra of a flutter than a correct funding.