Stock of the week: Twitter
News that Elon Musk was set to shake up Twitter sent the share price soaring. Then over the weekend it was revealed that Musk won’t actually be joining the board after all…
Charting the Musk Move we can see that Twitter stock jumped from 39.25 to 48.59 on the open, and then surged again to 54.37, surpassing the 200 day moving average.
Since then, price has retreated, and the news flow has become less supportive. The burning question now is…
Could the whole “Musk Move” reverse?
Anything’s possible. It’s a pretty noisy backdrop to start making forecasts in, but ultimately it’s about Twitter rather than Elon Musk.
See, Twitter has always under-performed their social media rivals. While Facebook was busy building a trillion dollar company, Twitter has struggled to monetise to the same extent.
When new CEO Parag Agrawal took over from Jack Dorsey, there was hope that things could change for the company.
The launch of new premium services such as Twitter Blue in the US, Canada, Australia, and New Zealand were hoped to bring in more revenue.
Twitter Blue is a monthly subscription that gives our most loyal customers exclusive access to premium features and app customizations for a small fee.
When Musk originally disclosed a stake in the company, and was offered a seat on the board, he promised changes and significant improvements:
Musk tweeted some interesting suggestions to improve Twitter Blue:
"Price should probably be ~$2/month, but paid 12 months up front & account doesn't get checkmark for 60 days (watch for credit card chargebacks) & suspended with no refund if used for scam/spam,"
The idea behind the checkmark is to deal with the huge bot problem, presumably by allowing users to filter tweets only from verified users:
“It would massively expand the verified pool & make bot armies too expensive to maintain.”
No doubt this would be a winning proposal. Bots and impersonators are both big issues that Twitter is struggling to overcome. Is it compelling enough to convince the public to part with money though?
It’s hard to sell the idea that the customer should pay for the solution to a problem that (arguably) should be solved by the platform provider.
Another of Musk’s proposals is more intriguing…
"And no ads,"
"The power of corporations to dictate policy is greatly enhanced if Twitter depends on advertising money to survive."
Let’s do the maths.
According to Statista, Twitter had 217 million monetizable daily active users (mDAU) in Q4 2021. 2021 advertising revenues totaled $4.5 billion, dominating the total revenues figure of 5.08 billion.
For Twitter Blue to fully replace current ad revenues, around 88% of these 217 million users would need to subscribe to Twitter Blue at $2 per month ($24 per year).
190 million users at $24 brings in a cool $4.56 billion.
It’s an interesting idea, but is it realistic? Even so, how long would it take?
Even though Musk isn’t joining the board, he could stay involved as an activist shareholder. He might even prove more valuable in an outside role. Entertainment is all but guaranteed.
Upon announcing that Musk had decided not to join the board, Twitter CEO Agrawal commented that "There will be distractions ahead, but our goals and priorities remain unchanged."
Some of those distractions may pressure the company to push beyond their current comfort zone. Fascinating times lie ahead.
Not investment advice. Past performance does not guarantee or predict future performance.
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