Could OX go bankrupt under Elon Musk’s command?

[ad_1]

For a company that Musk bought for $44 billion last year, bankruptcy may seem unthinkable. But it is possible. Elon Musk during The New York Times’ annual DealBook conference. GETTY IMAGES via BBC Elon Musk’s scathing attack on advertisers who boycott X (the old Twitter) confused experts. If advertisers keep leaving and don’t come back, can the social network survive? In April, Musk gave an interview to BBC News — in it, he released the first of many chaotic statements about the acquisition of the X. He said something quite revealing, but it went unnoticed at the time. When talking about advertising, Musk said at the time: “If Disney is comfortable advertising children’s films [no X] and Apple feels good about advertising iPhones on the platform, these are good indicators that X is a good place to advertise.” Seven months later, both Disney and Apple no longer advertise on X — and Musk used profanity to express his reaction to the companies’ change in stance. From Twitter to X: in the world of small businesses, when is it worth changing your logo? The companies paused the ads after an investigation by a US organization, Media Matters for America, found that the ads appeared alongside pro-Nazi posts. In a statement, X fiercely challenged the report, questioned the research methods and opened legal proceedings against the organization. In an impassioned interview on Wednesday (29/11), Musk also mentioned the word bankruptcy, in a sign of how much the advertising boycott could harm the company’s financial results. For a company he bought for $44 billion last year, bankruptcy may seem unthinkable. But it is possible. To understand why, you need to look at the extent to which X depends on advertising revenue — and why advertisers seem to abandon the platform. While we don’t have the latest numbers, last year around 90% of X’s revenue came from advertising. This is the heart of the business. On Wednesday, Musk went far beyond insinuations about this. “If the company goes bankrupt… It will go bankrupt because of an advertiser boycott. That will be what will bankrupt the company,” he said. In an interview in New York, USA, Elon Musk sent a blunt message to advertisers. GETTY IMAGES via BBC Mark Gay, client director at marketing consultancy Ebiquity, which works with hundreds of companies, says there is no sign that any advertisers are returning to X. “The money has gone out and no one seems to have a strategy for reinvesting on the platform”, he points out. On Friday (1/12), retail giant Walmart announced that it would also no longer advertise on X. After Musk used blunt words to react to this move by advertisers — in which he sent companies to “that place” — the businessman even made a direct mention of one of the companies. “Hi, Bob,” he said — a reference to Disney CEO Bob Iger. When Musk puts chief executives “in the crosshairs” like this, they become even more reticent to get involved with X, says Lou Paskalis of marketing consultancy AJL Advisory. Jasmine Enberg, principal analyst at consultancy Insider Intelligence, adds: “You don’t need to be a social media expert to understand that publicly and personally attacking advertisers and companies that pay the bills for X won’t be good for business.” So could X really go bankrupt? If advertisers disappear forever, what trump card does Musk have? When he was interviewed by BBC News in April, it was clear that Musk understood that subscriptions to X would not replace advertising dollars. “If you have a million subscribers for, say, 100 dollars (R$492) a year, that’s equivalent to US$100 million. That’s a small revenue stream compared to advertising,” he estimated. In 2022, Twitter’s advertising revenue was around US$4 billion (R$19.6 billion). Insider Intelligence estimates that this year the value will fall to US$1.9 billion (R$9.3 billion). Musk says Twitter lost 50% of advertising revenue and continues to have negative cash. The company has two major expenses. The first is the personnel account. Musk has already cut X to the bone by laying off thousands of employees. The second is to pay off the loans that Musk took out to buy Twitter, which total around 13 billion dollars (R$64 billion). Reuters reported that the company now has to pay around US$1.2 billion (R$5.9 billion) in interest payments every year. If the company cannot pay the interest on the loans or pay the employees’ salaries, then, yes, X could indeed go bankrupt. But that would be an extreme scenario, one that Musk would certainly like to avoid. Elon Musk’s rebranding of Twitter to X began at the end of July 2023. REUTERS via BBC Musk has options. By far the simplest thing would be to invest more money — but it seems he doesn’t want to do that. Musk could try to renegotiate with the banks, in order to have access to less onerous interest rates. But if the renegotiation doesn’t work and the banks don’t get their money back, then bankruptcy may be the only option and, at that point, the banks may try to pressure for a change in management of the social network. “It would be very confusing and complex,” says Jared Ellias, professor at Harvard Law School in the USA. “And it would be extremely challenging. It would create a lot of news because he would constantly be deposed and have to testify in court.” It could be terrible for Musk’s business reputation and would also impact how the entrepreneur would be able to obtain loans in the future. And, in a bankruptcy scenario, would X simply go offline? “I find that very hard to believe,” says Ellias. “If that happened, it would be because Musk decided. But even so, if he did that, creditors would have the option of taking the company into bankruptcy, appointing an administrator and resuming the platform,” he predicts. What’s next for Musk? The obvious solution to all of these X problems is to simply find another revenue stream — and fast. Musk is certainly pursuing this. It launched a new audio and video calling service. Last month, Musk broadcast playing video games on the platform — he hopes that X can compete with applications that already do this, such as Twitch. He wants X to become the “everything app”, covering everything from chats to online payments. According to the American newspaper The New York Times, which obtained Musk’s presentation to investors last year, X should raise US$15 million (R$73 million) from a payment system in 2023. He estimated that this value would rise to around US$1.3 billion (R$6.4 million) in 2028. OX also has a huge database — and its vast archive of conversations can be used to train robots. Musk believes this data is extremely valuable. READ ALSO: Personal data leak: see how to protect yourself and what to do if you are a victim Twitter sets a temporary limit amid Musk’s ‘fight’ with ChatGPT and other robots against data scraping; understand Beyond X: see 10 changes on Twitter under the command of Elon Musk So X still has a lot of potential. But in the short term, none of these options fill the financial hole left by the departure of advertisers. That’s why Musk’s scathing response was so disconcerting to many. “I have no theory to explain why these statements make sense,” says Paskalis. “There is a revenue model in mind [de Musk] that escapes me.” 5 points about the Twitter crisis

[ad_2]

Source link