Elon Musk, the billionaire owner of Twitter, has justified his extensive cost-cutting initiatives at the social media platform and said that the company is now on course to reach “cash flow break-even” sometime next year.
Before the cost-cutting measures, Twitter was heading for a “negative cash flow position of $3 billion per year,” Musk claimed on Wednesday in a Twitter Spaces audio discussion.
Since taking over Twitter on October 27, Musk has laid off over 50 percent of the company’s employees and demanded that the remaining staff commit to long hours and a “hardcore” culture, which has been dubbed “Twitter 2.0.” This prompted more employees to leave, some of whom were critical to the management and content moderation on the platform.
Musk’s controversial moves, including the saga of Twitter Blue and how he has engaged with over half of Twitter’s user base, have rattled advertisers. For years now, advertisers have contributed about 90 percent to Twitter’s revenue, year after year.
We are in the middle of an emergency fire exercise, Musk remarked. “That’s why I’m acting the way I am.” According to Musk, Twitter presently employs a little over 2,000 people.
Twitter had initially planned to invest $5 billion in 2019. Twitter was anticipating a net cash outflow of $6.5 billion with revenue of roughly $3 billion next year and a debt load of $12.5 billion due to the transaction. According to Musk, that equated to a $3 billion negative cash flow. He also mentioned that Twitter had $1 billion in cash.
Following the departure of more than half of Twitter’s 7,500 workers and Musk’s alienation of some users with his swiftly changing moderation policy choices, Twitter has been losing advertisers like water. The social network platform has reportedly been “in the fast lane to bankruptcy since May,” according to a tweet from Musk earlier this week.
Twitter’s yearly revenue in 2021 was $5 billion, and the firm predicted in February that payment would increase by between low and mid 20 percent in 2022.
However, because Twitter has been hemorrhaging users and advertisers, combined with the fact that Twitter Blue hasn’t had the response Musk had hoped for, analysts are projecting that Twitter may not reach its projected numbers for the fiscal year 2022 and may fall short. Analysts project making under $5 billion in revenue this year.
Moreover, Musk and Twitter have a lot of other obligations as well. For example, the interest payment due in the first year alone will be around $1 billion on a loan of approximately $13 billion.
Given this information, it is a bit odd that the private equity firms that Musk got to invest in, along with him when he bought Twitter, would be getting a handsome return, about 4-5 times their original investment, in just a few years.
Aliya Capital Partners LLC, one of the most prominent investors that joined Elon Musk’s $44-billion acquisition of Twitter Inc, said on Tuesday it expects to make up to five times its money despite the social media company’s problems.
Musk stated during the Spaces session that increasing subscription income was his “number one objective” to contribute significantly to Twitter’s bottom line. Due to the poor economy, businesses are already slashing their advertising expenses. The Tesla CEO also claimed that of all social media channels, Twitter advertisements had the lowest return on investment, per his discussions with several of the platform’s advertisers.