The ongoing Musk, Twitter acquisition drama has brought Twitter’s viability as a business, at least at present, into question on two fronts. The first is quite simply Musk’s reasoning for the attempted purchase. There’s a lot of back and forth between Musk and his critics regarding the definition of free speech and how it should apply to a social media platform and we’re not going to wade into that. But the simple suggestion that the world’s richest man was going to step in and save Twitter implied to many that Twitter was in need of saving from its own censorship issues.
The second is much less vague and a very tangible problem for Twitter if it proves to be true. Bots. Musk has stalled the acquisition process whilst there are detailed reviews into just how many accounts on Twitter are not in fact real (and monitisable) people. Bots for selling products and services or perhaps more nefariously for pushing political and even geo-political agendas. If it turns out that Twitter has been vastly underestimating the number of bots and spammers on the platform (currently “less than 5%”) then it could mean the ad space on the platform (it’s main source of revenue) is heavily overvalued. Musk’s justification for attempting to cancel the acquisition in the past few days is around Twitter’s alleged refusal to supply accurate figure for the number of bots on the platform. If this is even remotely true, then it begs the question, “What is Twitter hiding?”.
Breaking down both these in order to conclusively comment on their accuracy is at best difficult and using this analysis to make an accurate prediction for the question posed in the head of this article, “Is Twitter Dying”, would be foolhardy. What we can do is make a series of factual statements that can allow you to answer that question for yourself. Spoiler alert! You will probably be on the fence too after it.
Twitter’s Slow Growth
Let’s take the last 10 years as an example since that’s a nice round number and let's use Facebook as a comparison, since it is both the omnipresent social media giant everything is compared to and it's from the same generation of social media as Twitter (both became accessible to the general public in 2006).
Numbers for active users are somewhat murky as the definitions are both different for each platform and have changed over time. However, in 2012 the “active” users for Facebook and Twitter stood at roughly 1 billion and 200 million respectively. Fast forward to 2022 and those numbers stand at nearly 3 billion and 400 million. In other words Facebook has continued to experience an explosion in growth while Twitter has somewhat floundered in comparison.
Facebook has its own issues with retention and customer activity, though, from the figures above, their number one issue seems to be saturation within the global population. Once you remove all the people who live in nations where Facebook is blocked (notably China and Russia), all the people who have no internet access (maybe as many as ⅓ of the globe according to the UN) and then all the people who are under 13 and are not allowed to, or capable of using Facebook you can see the difficulties of continued growth. Twitter by comparison has simply failed to be as popular to its global audience as Facebook.
Poor (Or Rather No) Profit Margins
This one speaks for itself, while there are a number of factors which dictate how healthy a company is and annual profit & loss reports aren’t necessarily the best indicator of overall company performance. For example a company might invest heavily for 1 or 2 years, putting them in the red over the short term, but allows them to remain competitive or increase profits in the long term. However when red years start to become a pattern, you have to wonder if a company is financially stable or if its survival is based solely on constant inward investment.
For many, Twitter has crossed the line into the latter. Of the past 12 full financial years, in all but 2018 and 2019, Twitter reported a net loss. Admittedly 2018 & 2019 were highly profitable for Twitter however, long term investors, who thought that the company was finally turning a corner into profitability after a decade of losses would have been disappointed by the immediate return to the norm when Twitter recorded its largest ever loss of $1.1 billion in 2020.
Plummeting Stock Price
This ones a bit more complicated than it sounds. First of all, at time of writing, Twitter has lost over 50% of its market value in the previous 15 months. However that’s less worrying than it sounds, as many tech stocks have taken a hammering over the last 12 months. Both Facebook and Musk’s own Tesla haven’t fared much better and the overall stock market has been found to be somewhat overinflated as of late.
However, as you may have guessed, if we’re excusing a short term 50% slide as understandable, that’s because the long-term is even uglier. This one is simple, and related to the profit and growth numbers above, Twitter's overall market capitalization is lower now than it was during its IPO nearly 10 years ago. Ultimately if you had bought twitter stocks then you would have lost money in the time since in dollar value. And it only gets worse if inflation is taken into consideration. For those wanting to know, there has been some stock dilution over that period however raw market cap is ultimately nearly identical now to what it was nearly a decade ago.
The Dreaded Bots
Finally we get to the main talking point as of late. Just how many bots are there on Twitter? In truth all we can say at this moment is “millions”. Whether that statement stays as is or if it changes to “tens of millions” or “hundreds of million” is anyone's guess. What we can speculate on is what happens to the stock price if Twitter’s lawsuit against Musk backing out of the deal reveals the 5% figure to be much lower than the reality. If the figure is closer to 25% then one would assume Twitter’s “daily active user” count, otherwise known as it’s monetizable user count, would drop by the corresponding increase in bot numbers. This could in turn reduce Twitter’s ad revenue by equivalent numbers and ultimately market value could drop by an even larger amount as speculators fly from a company built on false numbers.
Elon Musk’s offer of $54.20 per share seems very generous with the present price hanging at $34 on the nose. It might turn out to be a ridiculous overestimation of the value of Twitter should that 5% bot figure turn out to be fanciful.
But maybe this is all part of Musk’s plan, offer something high enough for the board to accept, then demand a review of bots during the acquisition approval process, expose Twitter as an overvalued paper tiger and then offer something much lower per share, but still above current price, once the stocks go into freefall in response to the big reveal.
So is Twitter Dying?
Well as stated above we’re not so sure. Is Twitter dead? No, not yet, not by a long shot. What is not good however, is the current state of the business. Its legal battle with musk over the next couple of months won’t benefit perception of the company from an investor perspective and may even turn into an exercise in airing corporate “dirty laundry”. Potential legal drama aside, we might be asking this question again in an uncomfortably short time if it turns out Musk knows exactly what he’s doing by backing out of the deal. We’ll wait and see what happens.
Since Elon Musk took over over Twitter in October for a reported $44 billion, he has made some drastic changes. He's got rid of the "dead wood" employees, carried out a vote to remove him as CEO of Twitter and introduced Twitter Blue which is a paid subscription to Twitter which allows you to tweet larger content and offering the notorious blue check.
For more social media insights and analysis, follow the Zen Agency on LinkedIn.