Elon Musk's expletive-laden tirade against advertisers pulling out from X, formerly known as Twitter, has confused experts. If advertisers persist in their departure and don't return, can X stay afloat?
In April, I conducted the initial of a series of frenetic interviews with Musk concerning his acquisition of X.
He uttered something that, in retrospect, was quite insightful, but which I had not noticed in the moment.
He indicated that the fact that Disney is advertising children's movies and Apple is advertising iPhones on Twitter is an indication that it is a good platform for advertising.
After seven months, Disney and Apple have pulled their advertising from X - and Musk has told companies that have done the same to "Go away."
He strongly suggested during a fervent interview on Wednesday that bankruptcy is a real possibility, clearly demonstrating how the ad boycott is having a major effect on the company's financial standing.
It might be inconceivable that a company that was acquired for $44bn (£35bn) last year could face bankruptcy, yet it remains a possibility.
To gain insight, it's important to examine the dependency of X on advertising income, in addition to the cause for advertisers not returning.
Though we're not privy to the most modern data, last year's results indicated that advertising accounted for approximately 90% of X's income. This is the company's lifeblood.
On Wednesday, Musk strongly suggested this.
He stated that if the company was to fail, it would be due to an advertiser boycott, which would be the cause of bankruptcy.
According to Mark Gay, Ebiquity's Chief Client Officer at a marketing consultancy that serves numerous firms, there is no evidence that anyone is returning.
"He noted that no plan has been formulated to reinvest the funds that have been released," he said.
On Friday, in an additional setback, Walmart, the major retail chain, declared that it would no longer be running ads on X.
In Wednesday's interview at the New York Times DealBook Summit, Musk directed harsh words towards advertisers that have left X, prompting even harder discomfort among them with his following statement.
He greeted Bob - a reference to Disney's chief executive Bob Iger.
When Musk targets chief executives like this, it will discourage them from engaging with X, according to Lou Paskalis of the marketing consultancy AJL Advisory.
Jasmine Enberg, principal analyst at Insider Intelligence, remarked: "It's clear that launching public and personal assaults on the businesses that support X's revenue is not a viable strategy for success."
If advertisers are no longer present, what does Musk possess?
When I interviewed him in April, he had obvious comprehension that subscriptions on X were not enough to substitute for advertising revenue.
He informed me that if one million individuals were to sign up on a yearly plan with a cost of approximately a hundred dollars, the income generated would be $100m. Despite this figure appearing considerable, it is comparatively insignificant when set against the revenue generated from advertising.
Twitter's advertising revenue is projected to decrease significantly, according to Insider Intelligence. In 2022, it was estimated at $4bn, but this year it is thought that it will dip to $1.9bn.
The company has two significant expenditures. The first is its personnel costs. Musk has stripped X to the least amount possible, resulting in many job losses.
Servicing loans that Musk obtained to acquire Twitter, amounting to an estimated $13bn, requires the company to pay approximately $1.2bn in interest annually, as reported by Reuters.
If the company cannot meet the interest payments on its loans or pay its employees, then it is possible for X to become insolvent.
It is an event that Musk certainly would be keen to prevent from happening.
He has choices. The easiest course of action for Musk would be to invest further - however, it seems he does not favor that approach.
Musk could attempt to modify the current terms of his interest payments with the banks in order to lower the burden. He may propose, for instance, "payment in kind" interest - a payment plan of delayed payments.
In the event that renegotiation fails and the banks are unable to receive reimbursement, bankruptcy may become the only alternative. It is then that the banks may attempt to press for a shift in management.
According to Jared Ellias, a professor of law at Harvard Law School, the situation would be both chaotic and complicated. Moreover, it would pose a major obstacle due to the fact that the individual would likely have to appear for multiple depositions and court hearings, thus making headlines.
It could be detrimental to Musk's business standing, as well as influencing his ability to obtain loans in the future.
Under a bankruptcy situation, would X cease to operate?
"That's tough to swallow," says Ellias. "If it were to happen, that'd have to be because Elon chose to pull the plug. However, if he did, the creditors would have the potential to put the company into bankruptcy, appoint a trustee and switch the lights back on," he states.
The clearest way for X to address these issues is to rapidly come up with an alternate source of income. Musk is certainly attempting to do this.
He has unveiled a new audio and video call system. Last month, he broadcasted himself playing video games - he is aspiring for X to rival services like Twitch.
He desires for X to end up being an app which encompasses everything from conversations to digital payments.
The New York Times acquired the pitch deck Musk was providing to investors last year, which stated X would bring in $15 million from a payments business by 2023, reaching about $1.3 billion by 2028.
X is possessing a huge trove of data, and its substantial collection of conversations can be employed to teach chatbots. Musk is of the opinion that this data is immensely valuable.
There is potential with X.
For now, none of these alternatives are able to make up for the void created by advertisers.
The reason Musk's vulgar tirade was perplexing to so many people is unclear.
Paskalis states that he has no plausible explanations, and that there is a monetary plan in his mind that he is unable to comprehend.
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