June 5, 2023

Elon Musk says Twitter is losing $4 million a day: how many $8 subscribers does it need to break even?

Elon Musk says Twitter is losing $4 million every day, and he’s willing to try anything he thinks can help the social media platform turn a profit.

First: Musk’s plan will charge Twitter users $7.99 for a blue checkmark on their account. The new service has drawn backlash from a number of prominent Twitter users – it’s already been suspended after some accounts used it to impersonate high-profile brands and people – but people on the platform are clearly willing to pay up.

The key question is: how many?

The simplest answer is that at $7.99 per subscriber, about 15 million paying users would generate the $120 million in monthly revenue Twitter needs to cover its operating losses — $344 million in the past three months, according to its July earnings report.

But in his first email to all Twitter employees, Musk said “about half” of Twitter’s revenue needs to come from subscriptions “to survive the coming economic downturn,” CNBC reported Thursday.

The other half could come from advertising revenue, which is especially difficult to predict given the number of companies currently suspending campaigns on social media.

Twitter’s financial projections are also being hampered by thousands of layoffs and multimillion-dollar severance packages for some departing executives.

Still, the big picture seems clear: Musk is dependent on a large number of people to buy subscriptions, possibly in the millions.

That may be a tall order.

“It gets worse before it gets better”

At the end of October, Musk teamed up and announced a new Twitter advisor Jason Calacanis posted a Twitter poll asking how much money, if any, users would be willing to pay “to be certified and get a blue checkmark on Twitter.”

Of the roughly 2 million users who responded, 18.5% (almost 371,000 people) said they would pay at least some amount for the subscription.

But the survey may not be representative of all Twitter users. Daniel Ives, senior equity analyst at Wedbush Securities, predicts a best-case scenario of 10% joining the subscription service.

That could mean 23.78 million accounts: In Twitter’s July earnings report, the company said it had 237.8 million monetizable, daily active users. But that will only happen if everything goes in Musk’s favor, Ives says.

The subscription plan is “an absolute disaster,” he tells CNBC Make It. “When 240 million users have practically gotten Twitter for free, this is like suddenly charging $3 for bread at restaurants that you’ve been getting for free for the last 10 years.”

Musk’s changes — to the company’s workforce and the Twitter experience itself — also risk alienating users and business partners.

Several prominent Twitter users have already either left the platform or announced their intention to do so rather than pay to keep their blue checkmarks. In some cases, they try competitors like Discord or Mastodon. (Twitter did not immediately respond to CNBC Make It’s request for comment.)

Twitter’s biggest obstacle to profitability isn’t its subscription model, Ives says — it’s convincing advertisers to return to the platform. The company’s layoffs are likely to make that task more difficult, “because they need more engineers and developers and marketing ultimately to drive new initiatives,” he adds.

Either way, Ives offers this prediction: “It’s going to get worse before it gets better.”

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