X, the social media platform formerly known as Twitter, is facing a serious financial challenge as it struggles to pay off the massive debt it incurred from its acquisition by Elon Musk in 2022. The company’s CEO, Linda Yaccarino, recently claimed that X is cash-flow positive, excluding the cost of servicing its debt. However, this statement does not reflect the reality of X’s precarious situation, as it owes about $1.2 billion in interest payments per year to the banks that lent $13 billion to finance Musk’s purchase. In this article, we will examine how X’s debt burden threatens its future as a social media platform, and what steps it can take to overcome it.
X’s Debt Dilemma
X’s debt dilemma stems from the fact that Musk paid a hefty premium to buy Twitter, which was generating about $5 billion in annual revenue at the time of the deal. Musk offered $44 billion for the company, which was about 40% higher than its market value. To finance the deal, Musk borrowed $13 billion from a consortium of banks, including JPMorgan Chase, Bank of America, and Goldman Sachs. He also spent about $20 billion of his own cash, and borrowed a few billion dollars from other wealthy individuals.
The problem is that X’s revenue has not grown significantly since the acquisition, and its market value has plummeted to about $15 billion. This means that X is worth less than the debt it owes to the banks, making it a distressed asset. Moreover, X has to pay about $1.2 billion in interest payments per year on its debt, which eats up a large chunk of its cash flow. According to Bloomberg, X had about $2.5 billion in cash and equivalents at the end of June 2023, which is barely enough to cover two years of interest payments.
X’s Growth Strategy
To overcome its debt burden, X needs to boost its revenue and profitability by attracting more users and advertisers to its platform. The company has been trying to do this by introducing new features and services, such as:
- A premium subscription plan that offers ad-free browsing, exclusive content, and enhanced security for $7.99 a month.
- A three-tiered subscription plan that would allow users to choose between different levels of ads and features for different prices.
- A content moderation policy that allows more freedom of expression and less censorship than other social media platforms.
- A rebranding campaign that changed the name of the company from Twitter to X, and adopted a new logo and slogan.
However, these initiatives have not been very successful so far, as X has faced several challenges and criticisms, such as:
- A loss of users and advertisers who were unhappy with the name change and the content policy.
- A backlash from regulators and lawmakers who accused X of spreading misinformation and inciting violence.
- A lawsuit from Twitter’s co-founder and former CEO Jack Dorsey, who claimed that Musk violated his contractual rights by changing the name of the company.
- A technical glitch that caused X to crash for several hours in July 2023.
X’s Future Prospects
X’s future prospects depend largely on whether it can generate enough cash flow to service its debt and invest in its growth. According to Yaccarino, X is already cash-flow positive when excluding the cost of servicing its debt, and expects to reach that milestone even when including debt by the second half of 2024. However, this projection may be overly optimistic, as it assumes that X can maintain or increase its revenue growth rate, while reducing its operating costs and capital expenditures.
Moreover, even if X can achieve positive cash flow after paying interest, it still has to repay the principal amount of its debt, which is due in 2032. This means that X will have to either refinance its debt at lower interest rates or generate enough profits to pay off its debt before it matures. Alternatively, X could try to sell itself to another buyer who is willing to assume its debt or pay it off. However, given X’s low market value and high debt load, it may be difficult to find such a buyer.
Therefore, X faces a tough road ahead as it tries to survive and thrive as a social media platform. It will have to overcome its debt burden, as well as compete with other platforms that have more users, revenue, and innovation. It will also have to deal with the legal, regulatory, and reputational risks that come with being owned by Elon Musk, who is known for his erratic and controversial behavior. Whether X can succeed in this endeavor remains to be seen.
