Elon Musk has defended his financial stewardship of Twitter, arguing that the social media platform would have faced a “negative cash flow situation of $3 billion a year” were it not for his controversial cost-cutting efforts.
The billionaire entrepreneur, who bought the social networking company for $44 billion in October after previously attempting to pull out of the deal, gave a snapshot of its dire finances during a Twitter Spaces online forum on Wednesday.
“We have an emergency fire drill on our hands. … This company is like you’re in a plane that is headed towards the ground and high speed with the engines on fire and the controls don’t work,” he said. “That’s the reason for my actions that may seem sometimes spurious.”
He said that the platform had been on course to spend about $5 billion in 2023. Overall costs at Twitter in 2021, the last annual period that the company reported before being taken private, were $5.6 billion, during which time it made a net loss of $221 million.
Musk predicted that Twitter’s net cash outflow, “if you didn’t make any changes,” would be about $6 billion to $6.5 billion next year. This is partly because the company has been loaded with $12.5 billion of debt to help to fund his acquisition, which required about $1.5 billion a year in annual debt servicing payments amid rising interest rates, he said.
“Not good since Twitter has $1 billion in cash,” he said. “So that’s why I spent the last five weeks cutting costs like crazy.”
His remarks suggested the company was on track to make about $3 billion in annual revenues next year. That would suggest Twitter was on course for revenues as much as $2 billion lower in 2023 than the $5 billion it achieved in 2021—which mainly came from advertising. Many marketers have pulled out of the platform since Musk’s takeover because of moderation concerns.
The picture of Twitter’s finances comes after Musk fired about half of its 7,500-strong workforce and stripped employees’ benefits, prompting concerns about whether the company is sufficiently staffed in areas such as content moderation and compliance.
On Sunday, Musk said in a tweet that Twitter had been “in the fast lane to bankruptcy since May.”
However, Musk said on Wednesday that changes he had made would mean the company would “roughly” hit cash flow break-even.
“With the changes we are making here on massively reducing the burn rate, and building subscriber revenue, I now think that Twitter will, in fact, be okay next year,” Musk said, adding that he had spoken to advertisers who were urging him to show how Twitter could provide a return on their investment.
The Tesla and SpaceX chief executive has previously indicated he plans to transform Twitter into an “everything app,” where users might be able to send funds or shop, for example, in an effort to generate new revenue streams, including payments and subscriptions.
However, an attempt to launch a new premium subscription service, Twitter Blue, has been rife with challenges after some users wielded the offer of paid-for “blue tick” verification in order to impersonate others, causing the company to pause and later relaunch the service.
Late on Tuesday, Musk said he would resign as Twitter’s chief as soon as he had found someone “foolish enough to take the job,” bowing to the result of a poll of the platform’s users he conducted at the weekend.
Musk also indicated he would continue to run the company’s “software and server teams” after stepping down, suggesting he will remain closely involved in day-to-day operations and product development at the social networking site.
Additional reporting by Richard Waters in San Francisco
© 2022 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.