By Jim Lundy and Betsy Burton
After much speculation and market noise, it was finally announced today that Twitter’s board of directors has unanimously agreed to Elon Musk’s offer to purchase the social media platform at a price of $44 billion. This makes Twitter the highest-profile social media platform under the control of a single person.
Musk has been trolling Twitter for months about its editorial control and his perception of lack of “free speech.” And while this may be part of Musk’s reasoning, Elon Musk is a businessperson with high ambitions and visions. There are all kinds of questions about the social, and political impact of this move. While these are interesting debates, at Aragon, we are keenly interested in what this means for Twitter’s business and revenues. And how it will impact our end-user and technology/service providers.
Twitter’s board of directors has unanimously agreed to Elon Musk’s offer to purchase the social media platform at a price of $44 billion.
Twitter’s Business 2022
It is critical to look at Twitter’s business and revenue to understand where the potential opportunities lie for a Musk-controlled business.
In FY2021 the company reported total revenue of $5.08 billion, an increase of 37%, over 2020 and advertising revenue totaled $4.51 billion, an increase of 40%, over 2020. The problem is that the company has been reporting fluctuating monetizable daily active usage (mDAU) numbers for the US, which led to a 2% increase yr-over-yr. The rest of the world accounted for a 15% increase yr-over-yr. The company also faced operating losses due to a litigation settlement after changing some of its core performance metrics.
Twitter is listed as the 16th highest platform in terms of numbers of users worldwide according to DataReportal, with the highest number of users by far in the US and Japan. Also, according to DataReportal, the population is 68.5% men versus 31.5% women, and globally Twitter users are primarily in the 35-49 years old age bracket (DataReportal, 2021)
But the real jugger knots are ad engagements and cost per ad. In the three months ending December 31, 2021, ad engagements decreased 12% from the three months ending December 31, 2020. In the three months ending December 31, 2021, the cost per ad engagement increased by 39% compared to the three months ending December 31, 2020.
In addition, the company reported $571 million in data licensing. What is interesting about this number is that in 2021, the company made 89% of its revenue from advertising and 11% of its revenue from data licensing.
So, what can Elon Musk do now that Twitter will not be impeded by investors and less impeded by regulators?
Twitter Business 2024
There are several areas that we believe Elon Musk will be focused on.
First Musk is going to want to get those mDAU numbers up dramatically, particularly in the US as well as western economies such as Europe, and the UK. Musk will certainly tout open and free speech as the reasoning, which may be part of his personal interest/brand. But again, the primary goal will be to increase users and more importantly usage. In fact, the more market hype and controversy twitter can generate the more Twitter can increase its mDAU which garners more advertising.
Second, we believe Musk will be looking to increase its data licensing numbers by monetizing users’ personal information more. Again, without public reporting, the company will have more freedom to increase its information monetization business by selling data and analytics to businesses and governments. Look for Musk to create new incentives for users to share more information by boosting the content generation and sharing capabilities.
Musk will be seeking to increase the number of women and younger users, as well as increase their mDAU. This is a key future-state buying population for advertisers.
Last, the Twitter 15-second videos are cited as impacting the company’s cost of business. We believe Twitter will likely be developing technology to off-load this processing to reduce the costs. This will make Twitter a higher-quality content-sharing platform.
Bottom Line
Users and partners should not expect significant business model changes, such as charging for Twitter in the short term. However, don’t discount the creative business models that Musk could bring to the platform to increase its interest and quality. We expect Musk to generate a lot more hype, excitement, and controversy on Twitter in order to garner more market attention. Expect new video and content technology to enable Twitter to compete more effectively with Instagram without impacting its cost of services.
Be aware of monetizing users’ personal information. We believe Musk will be seeking to increase ad revenues and data licensing revenues for Twitter as well as other Elon Musk ventures through the Twitter user and content base.