X’s Losses Continue to Mount as Advertiser Boycott Expands

The challenges continue to mount for X, as more advertisers withdraw their ad spend over the critical holiday period.

Earlier in the month, a range of big-name brands announced that they would be pausing their X ads due to concerns that their promotions may be shown alongside offensive material in the app. The first major brand to withdraw its X ad spend was IBM, following the publication of a report by Media Matters on November 17th, which showed that IBM’s X ads were being displayed alongside content “promoting Adolf Hitler and the Nazi Party”.

On the same day, X owner Elon Musk amplified a prominent anti-Semitic conspiracy theory via his X account, which then saw a range of additional brands halting their X campaigns, including Apple, Lionsgate, Disney, and more.

Musk and his team have since launched legal action against Media Matters, in hopes of showing that its research was flawed, and biased towards the platform. Meanwhile, another report from NewsGuard has reinforced Media Matters’ findings, which has prompted another group of advertisers to withdraw their spending from the app.

According to a report from The New York Times, the expanding advertiser boycott is set to cost X around $75 million in ad revenue this year, eating further into its bottom line. Which will de-rail X’s optimistic projection of a return to profitability in early 2024, though that in itself wasn’t actually likely, based on X’s income and costs.

Going on rough estimates, Musk has said that X’s ad revenue is down around 50% overall, year-over-year, which, based on what X/Twitter generated in 2022, would mean that the platform had been on track before the ad boycott to bring in around $2 billion in ad revenue for 2023. That doesn’t factor in X’s additional income from subscriptions and data licensing, which, combined, would mean that X’s intake for the full year was looking to be around $2.6 billion, with the vast majority coming from ads, despite X’s push on these other elements.

X’s costs, meanwhile, are currently somewhere around $2 billion to $2.8 billion per annum, after Musk’s massive cuts. So, looking at the two figures, you can see where, optimistically, X’s projections of a return to revenue were coming from before this latest incident.

But it is also worth noting that X CEO Linda Yaccarino specifically noted that this estimation related to “operating” profitability, meaning that it excludes the massive debt load that X took on as part of Elon’s takeover of the app. In that deal, X has to also repay an additional $1.5 billion per year in debt, on top of its operating costs.

So while X, the business, may possibly have been on track to get back to profit, it was going to post a billion-dollar loss for the year regardless (worth noting too, Musk also announced back in March that X would be cash flow positive by Q2, underlining its optimistic approach).

But now, its business plans are clearly de-railed, when you factor in this $75 million loss, along with the added impacts of Apple and others pulling out that were not noted in the NYT’s projections.

Which could see it run up to $200 million when all’s said and done, depending on how long the boycott runs for. Which isn’t going to kill off X as such, as $200 million, while a huge amount, would still see it bring in over $2 billion for the year.

But as those losses compound over time, X is going to come under more pressure to further cut costs, or to find new revenue streams, or it could be on the fast track to bankruptcy, sometime in the new year.

Of course, Elon does have alternate funding avenues, like selling Telsa stock, or calling on rich backers., and it’s impossible to know what options he may have available on this front. But at some stage, as X continues to lose money, more questions will be asked as to why anyone should continue to support it, especially if Musk himself is going to continue amplifying controversial, divisive opinions, which he clearly thinks come under the banner of “free speech”.

Which is a key determination in this case, with Musk’s own view on “free speech” now the defining approach of the app. In Elon’s view, he, and everybody else, should be able to share unproven, incorrect, and/or misleading information with a view to expanding discussion around the issues of the day. That’s what free speech is in his view, being able to say whatever you want, regardless of whether it’s true or not, because it’s the subsequent discussion that it sparks that will eventually facilitate greater understanding.

Musk, for example, saw it as his free speech right to baselessly label a cave diver a pedophile in 2018, after a group of rescuers rejected his appeal to help them. The man then sued Musk for defamation, which Musk eventually won on a legal technicality, but rather than apologize for his actions, Musk said that the court’s decision restored his faith in humanity.

Musk has repeatedly amplified various conspiracy theories and concepts, from Covid’s origins to anti-Semitic tropes, and all of this, in his view, is fine, despite him sharing his every thought with hundreds of millions of people, a significant proportion of whom view him as an unimpeachable genius, and are hanging on his every word.

Which is clearly a vector for harm, yet in Musk’s view, it’s those that would try to limit or manage such who are the true oppressors of free speech.

It’s this disconnect between potential for harm and the perception of freedom that will mark the Musk era for the app, which could turn out to be the final act for what had been a significant platform of cultural influence.

That’s not to say that Twitter was perfect. Far from it. Twitter, under CEO Jack Dorsey, was virtually never profitable, and had no real direction or purpose, with Dorsey’s random meandering constantly leading to out-of-control costs, poor ad performance, and overall, a middling business prospect, despite its cultural ubiquity.

Something had to change, and many had hoped that Elon was the missing piece that might correct its path. And he has done many of the right things, in cutting the excess of Twitter past, and re-aligning the app around profitability.

But it’s his own posts in the app that continue to be virtual banana peels for his progress.

Which Musk himself remains reticent to acknowledge.

Last week, after X’s creator ad revenue share payouts went out, and were significantly lower than normal, Musk blamed Media Matters, saying that:

Yet, as outlined above, it wasn’t the Media Matters report that prompted the biggest backlash, it was Musk’s own posts, it’s him and his need to share his thoughts on every topic that’s harming his, and X’s reputation.

And Tesla’s as well, and SpaceX. Musk’s acquisition of X is going to end up costing him a lot more than the $44 billion he paid for it, and if X does go down in flames, the damage to his personal brand will continue to weigh on him for a long time in the aftermath.

Of course, Musk is a super rich guy, and he’ll be fine, he’ll just move onto some other project that takes his interest, while still airing his thoughts, and suffering fewer consequences of such than you or I might.

But right now, at this stage, it seems like Musk’s “everything app” vision is a distant dream. Like a colony of humans living on Mars.