The vulgar attack that Elon Musk made on advertisers who were boycotting X, which was formerly known as Twitter, has left analysts bewildered. Is it possible for X to continue existing if advertising continue to leave and not return? The first of Musk’s numerous hectic interviews around his acquisition of X took place in April, and I had the opportunity to sit down with him.
In retrospect, he made a statement that I found to be rather illuminating, but at the time, I was unable to recognize its significance.
When asked about advertising, he commented: “If Disney feels comfortable advertising children’s movies [on Twitter], and Apple feels comfortable advertising iPhones, those are good indicators that Twitter is a good place to advertise.” Seven months later, Disney and Apple have decided to stop advertising on X, and Musk is now warning other corporations that have left to “Go [expletive] yourself.”
During a heated interview that took place on Wednesday, he also invoked the “b” word, which stands for bankruptcy. This is a clear indication of how much the advertising boycott is affecting the bottom line of the company.
A bankruptcy filing might appear inconceivable for a corporation that he purchased for $44 billion (£35 billion) the previous year. To be sure, that is feasible.
You need to take a look at how dependent X is on advertising revenue, as well as the reasons why advertisers are not coming back, in order to comprehend the reason.
Although we do not have the most recent numbers, around ninety percent of X’s revenue came from advertising in the previous year. It is the core of the company’s operations.
On Wednesday, Musk made a number of allusions to this reality.
If the company is unsuccessful, it will be unsuccessful as a result of a boycott by advertisers. “And that will be the factor that brings the company to its knees,” he stated. According to Mark Gay, chief client officer of Ebiquity, a marketing firm that works with hundreds of organizations, there is no indication that anyone is going to come back.
“The money has come out and nobody is putting a strategy in place for reinvesting there,” adds the economist.
To make matters even more disastrous, the retail behemoth Walmart made the announcement on Friday that it will no longer be advertising on X.
During the conversation that took place on Wednesday at the New York Times DealBook Summit, Musk made a statement that caused advertisers to feel even more uneasy. This came after Musk had previously advised advertisers who had left X where they should go.
The phrase “Hi Bob” was a reference to Bob Iger, who is the chief executive officer of Disney.
According to Lou Paskalis, who works for the marketing firm AJL Advisory, when Musk puts chief executives “in his crosshairs” like way, they will be even more reluctant to be engaged with X.
“It does not take a social media expert to understand and to know that publicly and personally attacking advertisers and companies that pay X’s bills is not going to be good for business,” says Jasmine Enberg, a principal analyst at Insider Intelligence. “It is not going to be good for business.”
Is it possible that X may actually declare bankruptcy?
In the event if sponsors ceased to exist, what options does Musk have?
During my encounter with him in April, it was quite evident that he was aware of the fact that subscriptions on X were not going to be able to replace spending on advertising.
“If you have one million people who are subscribing for, let’s say, one hundred dollars a year, that is one hundred million dollars. I was informed by him that this revenue stream is quite insignificant in comparison to advertising.
Twitter’s advertising income was over $4 billion in the year 2022. It is anticipated by Insider Intelligence that it will decrease to $1.9 billion this year.
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The business has two significant expenditures. The first issue is the cost of its staffing. Musk is already laying off thousands of employees and has cut X to the bone.
Serving the loans that Musk took out to purchase Twitter, which totaled almost $13 billion, is the second concern. According to a report by Reuters, the corporation is now required to make annual interest payments of over $1.2 billion.
In the event that the company is unable to pay the interest on its loans or pay its employees, then it is possible that X will have to declare bankruptcy.
On the other hand, that is an extreme set of circumstances that Musk would most certainly want to avoid. He is able to choose. Putting in more of his own money would be by far the easiest thing for Musk to do, but it seems as though he does not want to do that.
Musk might attempt to bargain with the banks in order to obtain interest payments that are less burdensome. It is possible for him to request, for instance, “payment in kind” interest, which accounts for payments that are delayed.
However, in the event that renegotiation is unsuccessful and the banks do not receive their money, the only alternative may be to file for bankruptcy. At that point, the banks may attempt to advocate for a transformation in the management of the company.
“It would be very messy and complex,” says Jared Ellias, a professor of law at Harvard Law School. It would be a very complicated situation. “And that would be a really difficult task to accomplish. Because of this, he would be required to testify in court and be deposed on a regular basis, which would generate a great deal of news coverage.
Not only would it have a negative influence on Musk’s commercial reputation, but it would also have an effect on Musk’s ability to borrow money in the future.
And in the event that X filed for bankruptcy, would it simply cease to function?
“That is something that I find to be very difficult to believe,” Ellias says. “If that were to occur, it would be due to Elon’s decision to pull the rug out from under us. But even then, if he were to do so, the creditors would have the option of forcing the corporation into bankruptcy, getting a trustee appointed and putting the lights back on,” he argues.