Home / Technology / News /  5 charts decode the method to Musk’s Twitter moves

With Elon Musk taking over Twitter, the company is poised to change. Musk has imposed deep cuts in staff strength. He has announced a revamp of the account verification process, with a monthly charge for the coveted blue tick. His moves and posturing have created a furore. Part of this is political: Twitter users tend to be left-leaning, according to a survey by Pew Research, while Musk is seen to be right-leaning. Part of this is about the impact on Twitter, the company Musk was compelled to acquire for $44 billion—about 8.7 times its 2021 revenues. Here are five metrics that contextualize Musk’s first moves.

1. Ad dependence

The microblogging platform has 238 million daily active users, and earns primarily from two sources: advertisements and data services. In 2021, about 89% of Twitter’s $5.1 billion revenue was from ads. Twitter grew this revenue stream 41% in 2021. In comparison, LinkedIn, a work-oriented platform with 774 million users, earned about 30% of its $10.3 billion revenues in 2021 from ads. Similarly, YouTube, which has been predominantly an ad engine, has started making money from its premium, ad-free offerings.

Elsewhere in Mint

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Dependence on advertising is seen as a negative in some tech companies, especially after Meta felt the impact of changes in Apple's data collection policies. Its investment in the metaverse is a result of that. For Twitter, dependence on advertising could be a risk. Already, advertisers like General Motors and Audi have paused ads following Musk’s entry. A diversified stream of revenue mitigates that, and also signals that users see value in the platform, not just advertisers.

2. Beyond blue tick

One revenue stream Musk is targeting is users paying for account verification. In the US, Twitter will charge users $8 a month for a blue tick. This will be extended to other countries, including India, though probably for less. In 2021, Twitter had about 423,000 verified handles—0.17% of its registered user base. Many are public figures and influencers.

The $8 monthly fee has stirred debate. However, Musk has indicated the blue ticks would come with additional features like being able to post longer videos and greater visibility. LinkedIn has 49 million premium users, each paying anywhere upwards of $39.99 per month for access to features such as emailing even those they are not connected with. Thus, the target market is bigger than those who would pay to retain their verified status. Musk is targeting users who will pay for the utility value of being on a platform. On Twitter, increasing verified users will also appeal to advertisers concerned about bots.

3. Margin play

It has often been observed that the constant churn in its leadership, a key element of governance, has given Twitter a lower valuation compared to its peers such as Snap. A bigger factor, however, is its lower operating margins. Twitter has consistently reported positive operating margins in the last five years, but it’s still a fraction of Meta's, which was over 50% in 2018, and is above 30% even after facing a tough few quarters. (Twitter’s operating margin turned negative in 2021, but that's due to a one-off litigation settlement.)

Even after turning around operating margins, “there has been no sustained upward movement," Aswath Damodaran, a professor of corporate finance and valuation at the Stern School of Business at New York University, pointed out in April, after Musk bid for Twitter. More recently, Musk has observed that Twitter was losing $4 million a day.

4. Layoff impact

One of the levers that Musk is looking to pull to lower losses is to reduce employee cost. Jack Dorsey, who led Twitter till December 2021, recently tweeted that he takes “the responsibility for why everyone is in this situation: I grew the company size too quickly. I apologize for that." From 3,920 employees in 2018, the number increased to 7,500 by the end of 2021. Twitter’s wage bill cannot be ascertained as it reports this under multiple heads.

For each employee, Twitter earns less than half the revenue compared to its rivals Alphabet and Meta. In a recent conversation with investor Ron Baron, a backer of the Twitter deal, Musk said the layoffs would help the company save $400 million a year. However, Musk might have moved too fast for Twitter’s own good. According to news reports, Twitter is already reinstating some staff it had fired from its engineering team.

5. Productivity Issue

Many tech companies pride themselves on their engineers, which manifests itself in new products and features. Twitter has constantly evolved, with products such as Twitter Spaces, launched in response to Clubhouse, the social audio app. It has experimented in enhancing user experience with Topics, Moments and Circles, while also facing criticism for missing out on key features such as the edit option.

In 2021, Twitter’s expenses on research exceeded those on sales and marketing. Yet, it has chosen to acquire rather than build. For example, it bought Revue, in response to Substack. Interestingly, Twitter plans to shut down Revue, which some Musk supporters see as an indication of a clear product roadmap. Musk's big challenge will be to consistently launch new products and features that make its users stay, and strengthen the network effect, rather than move on to rival apps such as Mastodon.

www.howindialives.com is a database and search engine for public data.

Elsewhere in Mint

In Opinion, Kaushik Basu says popular anger reflects a basic misunderstanding of what drives inflation. David Fickling writes about bullion purchases and zombie apocalypse. Ruchi Gupta says ONDC has many questions to resolve. Long Story tells if China is exiting Zero-Covid mode soon.

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