Elon Musk‘s owned X, formerly Twitter, continues to grapple with a substantial dip in its advertising revenue. The social media platform is estimated to generate roughly $2.5 billion in advertising revenue in 2023, a nearly 40% decline from the previous year and a 22% decrease from its pre-acquisition performance in 2020. During that period, the company reported an impressive $3.21 billion in advertising revenue, highlighting the notable shift in financial dynamics since Musk assumed control.
X generated a little more than $600 million in advertising revenue in each of the first three quarters of 2023. Projections suggest that this trend will persist into the current Q4 quarter. This nine-month performance stands in stark contrast to the exceptional feat of surpassing $1 billion in advertising revenue per quarter in 2022.
Twitter has traditionally heavily relied on advertising business, accounting for more than 85% of its total revenue. However, this landscape has undergone a discernible shift following Elon Musk’s takeover.
As per insights from two informed sources, advertising sales on the revamped X platform now constitute between 70% and 75% of its total revenue. Extrapolating from this information, it suggests that the expected sales for the year 2023 could reach approximately $3.4 billion. This calculation considers revenues from advertising and sales derived from subscriptions and data licensing deals. However, the final annual revenue figure is uncertain, with the ongoing holiday quarter potentially influencing sales as people are anticipated to shop more after encountering ads on the social media platform.
Joe Benarroch, the head of business operations for X, challenged the reported narrative, stating, “This presents an incomplete view of our entire business, as the sources you’re relying on for information are not providing accurate and comprehensive details.”
Benarroch also emphasized that X is an “evolving new global business with multiple revenue streams. We are not Twitter any longer and not measuring ourselves by old Twitter metrics — both in revenue and user metrics.”
Factors Contributing to X Ad Sales Decline
Delving into the specifics, X’s struggle with content moderation under Musk’s leadership takes centre stage, raising concerns among advertisers and shedding light on the evolving landscape of social media monetization.
Elon Musk has openly acknowledged a notable decrease in sales, mentioning an approximate 50% drop in ad revenue in both March and mid-July, although the specific timeframe remains unspecified. In September, he further confirmed a 60% decline in US ad revenue, attributing it to activist-driven campaigns urging marketers to cease spending on the platform.
Beyond advertising, X generates revenue through its subscription service, X Premium, and data licensing agreements. External estimates indicate the subscription business contributes less than $120 million annually. In 2021, under its former identity as Twitter, the platform generated $572 million in revenue from data licensing deals. Although X was not profitable when Musk took over, the company reported over $5 billion in revenue the year preceding Musk’s acquisition. In early 2021, Twitter executives, led by then-CEO Jack Dorsey, publicly aimed to achieve $7.5 billion in revenue by the end of 2023.
Despite a significant decline in ad revenue, Elon Musk has adopted a cost-cutting strategy, inadvertently unsettling brand-conscious marketing partners on its X platform. His frequent posting of controversial statements to his 166 million followers, along with the reversal of bans for policy-violating users like conspiracy peddler Alex Jones, has raised concerns among advertisers.
In November, Musk’s endorsement of an antisemitic post prompted major advertisers, including Apple Inc. and Walt Disney Co., to halt ad spending. Although Musk later apologized, he bluntly told boycotting advertisers at a conference to “go fuck yourself,” asserting that withholding funds amounted to blackmail.
X Prioritizes Smaller Businesses to Boost Revenue
Elon Musk has frequently voiced his ambition to transform X into an everything app, primarily driven by its subscription-based model. The goal was to have subscription revenue make up half of the company’s total revenue. To strengthen its subscription business, X has been allocating a portion of its ad revenue to verified users. This innovative approach is aimed to enhance the appeal of subscriptions and introduce a unique incentive for verified users on the platform.
However, the X’s subscription service currently has just over 1 million paying subscribers, falling significantly short of Musk’s initial expectations.
In response, X is shifting its focus away from major brand advertisers and actively engaging with more small and medium-sized businesses on the platform. Will this strategy provide the necessary boost to counterbalance the decline in ad revenue and secure a more sustainable future for X? Let us know in the comment section below!
