Twitter in Perspective

Twitter and Elon Musk have overtaken the news flow over the last week. At least that's how it feels to this financial journalist. There are important stories to tell when it comes to Musk and Twitter, but it's also worth keeping the business itself in perspective. And Twitter, one might say, punches above its weight when it comes to actual economics. 

Barron's Eric Savitz notes today that Twitter's advertising revenue -- $4.5 billion last year -- is less than 1% of the total global market for ads. 

On Tuesday, the company's rather small role was reiterated by none other than its new owner. "Twitter cannot rely entirely on advertisers,” Musk tweeted during an exchange with author Stephen King. (Yes, it's been that kind of week.)  

By the end of the day, Musk had laid out his plan for charging Twitter users $8 a month for verification. There's no way to know how the market feels about the move, since Twitter shares no longer trade publicly. But the reaction of users didn't seem particularly favorable.

Still, let’s assume every single one of them signs up for the new verification. That would be 238 million users times $8 a month times 12 months. The VERY-best case scenario is revenue of $22.8 billion. At that level, Musk's $44 billion purchase of Twitter would be roughly two times revenue. That's exactly the multiple that Facebook parent Meta Platforms fetches today. 

(Presumably Twitter would still have some advertising sales on top of the verification revenue, but Musk said today that verified users would get half the ads, so it would likely be a smaller number than the current $4.5 billion.)

Put another way, even if Musk's plan is a crazy, runaway success, his purchase price is still roughly in line with today's fair value for the business. What does that tell us? Musk is going to need a much bigger idea if he ever hopes to make money on his investment. My colleague Tae Kim has one suggestion -- you can read about it here.