Taking a company private can be a smart way to reform its operations outside the public-market limelight; no longer required to report quarterly to the world, companies that go private often have more latitude to make tough changes to their product mix and employee base.
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So, how is Twitter doing now that it is a private company, and a busy one at that? Per The New York Times, the social media company is enduring painful revenue declines compared to year-ago results. This new data echoes what we’ve heard concerning Twitter’s late-2022 results as well.
Elon Musk took Twitter private in late 2022, meaning that it has been a private company for some quarters now. Under new management, it has dramatically reduced its staffing, worked on expanding its subscription-revenue footprint and taken a new tonal direction under its new owner. The company is also in the process of onboarding a new CEO, even if its owner intends to retain control over a broad swath of Twitter’s product work.
This morning I want to do a little historical sleuthing through Twitter’s public results, information that we can compare and contrast to more recent information. Then we’ll mix in some information regarding Twitter’s debt costs and its slashed cost basis.
We’re going to be mixing reported data, hard figures and some larger macro trends all at once. Our goal will be directional comprehension and nothing more specific. Sound good? To work.
Twitter’s financial results
The Times reports that Twitter’s advertising revenues from the United States in the roughly five-week period from April 1, 2023, through the first week of May came to $88 million. That figure, while a large amount of money in the abstract, is off 59% from the year-ago result the Times wrote, “according to an internal presentation” that it managed to snag.
The same report had a few other key facts, including that Twitter expects that “its U.S. ad revenue this month will be down at least 56 percent each week compared with a year ago.”
The question before is just how bad those declines are. A few things to keep in mind as we examine them:
- Twitter’s operating costs have been dramatically reduced, with its employee base falling drastically since Musk took over through both layoffs and natural attrition.
- The advertising market this year is weak, with publications reporting declines in the first quarter. Generally speaking, advertising is cyclical and when the economy is less healthy, so, too, do advertising incomes fall.
A lower cost basis means that Twitter needs less revenue to cover its employee costs, and a slack advertising market implies that not all of the company’s advertising woes are self-inflicted.
Still, the Musk purchase of Twitter came with a huge debt package that social media company has to finance. The total debt value, $12.5 billion per SEC filings, comes with expensive interest costs. A Q1 2023 interest payment from Twitter cost around $300 million, Reuters reported at the time. Bloomberg wrote in May that Twitter had made a second payment as well.
Given that quarters are generally 13 weeks, Twitter’s $88 million in five-week, second-quarter advertising revenue from the U.S. market implies that the company’s domestic ad incomes are not enough to service its debt interest payments.
Twitter retains other revenue streams, including international advertising incomes, subscription-based fees and data access via its APIs, to name a few. The question before us is whether it seems likely that those other incomes are enough for Twitter to service its debt and pay its operating expenses.
The query matters as there have been some calls by technology talking heads for other companies including startups to follow in Twitter’s footsteps, slashing staff and taking on normal tech industry operating norms. So how is Twitter seemingly faring under its new regime?
Twitter’s historical data
To answer that question we have to go back in time. Let’s start with a look at the company’s 2021 results, what we know about its 2022 results through its sale and then what has been reported since. We’ll use the collected data to better understand its recent numbers.
- In 2021, Twitter reported $5.08 billion in total revenue, up 37% year over year.
- In the fourth quarter of 2021, advertising revenues constituted $1.41 billion of its $1.57 billion in total revenues. “Data licensing and other revenue” was worth $154 million.
- And in the fourth quarter, revenues from the United States were worth $885 million, or about 56% of its total top line in the period.
From there, data starts getting spotty as the Elon Musk transaction was kicking off. In Q1 2022, for example, Twitter reported a slimmer slate of figures, including $1.20 billion in total revenue, of which $1.11 billion was advertising-based. In the second quarter of last year, Twitter’s revenue was $1.18 billion, of which $1.08 billion came from advertising.
That’s the pre-Musk era. Post-Musk we have one more bit of data to ingest. Regarding Q4 2022, reporting indicates that Twitter’s revenues came to $1.025 billion, off from the previously mentioned $1.57 billion in revenue it reported in Q4 2021. That revenue figure works out to a monthly total of around $342 million, for reference.
If we take Twitter’s $88 million revenue figure for the roughly five-week period reported by the Times and extrapolate it for the full quarter, we can infer that Twitter’s Q2 2023 domestic advertising revenues are worth around $230 million. Twitter saw 58% of its Q3 revenue stem from the U.S. market and 88% of its revenues from advertising. If we mix and match numbers a bit — we are being admittedly aggressive here with our extrapolations — we can infer around $450 million in revenues for Twitter in the quarter, using old data as reference material.
Twitter has pushed more deeply into subscription revenues since Musk took over, meaning that we are probably being too conservative in our estimates. Tack on another $50 million for safety, and we’re looking at around a half billion in Q2 revenues by our back-of-the-envelope math. That feels low, yeah?
However, with Twitter revenue falling to just over the $1 billion mark in Q4 2022, a period in which Twitter and other advertising-focused companies often see stronger results due to the holiday period, the number might not be too bonkers. After all, if Twitter’s domestic ad revenues were off 59% in the period reported by the Times, and we extend that percentage decline to the company’s Q2 2022 aggregate (domestic and international) advertising results, we can see that Twitter would have seen advertising revenues of around $430 million. Throw in a chunk of subscription revenues, and our estimate for the second quarter of 2023 is a bit less insane-sounding.
A half billion a quarter would probably give Twitter enough revenue to cover its interest payments, provided that its gross margins allowed in the period for sufficient gross profit. We’re not sure what Twitter’s gross margins look like today, given that Musk has shaken up its hosting costs, among other expenses. But after you deduct revenue costs from even a larger revenue estimate for Twitter’s Q2 2023, then deduct the cost of interest payments, it really does seem like Twitter is in a tight spot when it comes to its ability to generate profit. (Again, by our estimates and calculations. We’re just riffing here!)
Social media is hard. Other companies in Twitter’s market are enduring a slowdown in their business. But with a poor economic climate and huge debts, the company does appear to be squeezed today between the aspirations of its owner and its market reality.