Elon Musk’s recent explicit critique of advertisers boycotting X, formerly known as Twitter, has raised questions about the platform’s viability as companies exit and show reluctance to return. Musk’s acquisition of X last year was marked by a series of chaotic interviews, where he initially deemed Twitter a favorable advertising space based on Disney and Apple’s presence. However, seven months later, both Disney and Apple ceased advertising on X due to concerns about ads appearing alongside pro-Nazi content. The ongoing advertiser exodus has prompted Musk to lash out, even hinting at the potential bankruptcy of X.
The controversy began when a US organization, Media Matters for America, investigated ads on X that were displayed next to pro-Nazi content, leading several major companies to suspend their advertising. X vehemently contested the report, challenging its research methods and initiating a lawsuit against the organization. In a recent interview, Musk escalated the situation by using the term “bankruptcy,” underscoring the severe financial impact of the ad boycott on the company.
X heavily relies on advertising revenue, constituting around 90% of its income in the previous year. Musk acknowledged this vulnerability, stating, “If the company fails… it will fail because of an advertiser boycott. And that will be what bankrupts the company.” Industry experts, such as Mark Gay from marketing consultancy Ebiquity, note that there is no indication of advertisers returning, exacerbating the financial challenges faced by X.
Walmart’s recent decision to halt advertising on X adds to the growing list of departing advertisers. Musk’s confrontational stance towards companies that abandoned X during a recent interview further complicates the platform’s efforts to attract advertisers back. The public exchange between Musk and Disney’s CEO, Bob Iger, further strained relations and may discourage other CEOs from associating with X.
The prospect of bankruptcy for X, a company acquired by Musk for $44 billion, is considered extreme but not implausible. X’s financial health is contingent on advertising revenue, and if advertisers do not return, the company could face insurmountable challenges. Musk has reduced costs by laying off thousands of employees, but servicing the loans he used to acquire X remains a substantial financial obligation.
While bankruptcy is a scenario Musk would likely aim to avoid, he has several options, including injecting more of his capital or renegotiating loan terms with banks. However, Musk seems reluctant to provide additional funding. Renegotiation may prove challenging, and if X cannot service its loans or afford staff payments, bankruptcy becomes a real possibility.
The situation also raises questions about X’s long-term viability if alternative revenue streams are not established quickly. Musk has initiated efforts to diversify X’s offerings, introducing a new audio and video calls service and envisioning X as the “everything app.” However, these initiatives may take time to materialize and may not offset the immediate revenue loss from departing advertisers.
In conclusion, Elon Musk’s public spat with advertisers and the ongoing boycott pose significant challenges to X’s financial stability. While bankruptcy is a severe outcome, the company’s heavy reliance on advertising revenue and Musk’s reluctance to inject additional funds create an uncertain future for X. The platform’s success may hinge on its ability to quickly establish alternative revenue streams and repair relationships with departing advertisers.
