Are investors in X having second thoughts about Elon Musk?

For Elon Musk, his social media platform X is a valuable campaigning tool in his mission to make Donald Trump the next president of the United States.
But for investors who helped Musk take the media company private two years ago, X, formerly known as Twitter, has been the source of huge value destruction.
Since Musk paid $44 billion for the company in October 2022, its value has declined by nearly 80 per cent, according to estimates from Fidelity, one of a string of investors that helped finance the takeover.
The list of investors whose combined interests have lost billions of dollars in value, if Fidelity’s estimates are correct, also include the Saudi billionaire Prince Alwaleed bin Talal al Saud; Jack Dorsey, co-founder of Twitter; Larry Ellison, co-founder of Oracle; funds managed by Andreessen Horowitz; and a venture capital firm co-founded by Joe Lonsdale, co-founder of Palantir Technologies.
Meanwhile, the seven banks, including Morgan Stanley and Bank of America, that lent Musk money for the deal have faced the prospect of selling the debt at a loss or leaving it on their loan books.
Some of the world’s biggest investors did not foresee what was coming, with funders hoping Musk would replicate valuation gains seen from investments in his other companies, such as at the space and satellite start-up SpaceX, a beneficiary of government contracts. One source close to investors in the deal said: “After the SpaceX fund success, investors thought, what could go wrong?”
In some respects, Musk has followed through with what he said he was going to do with the platform. After making a bid for Twitter, he said he believed in its potential “to be the platform for free speech around the globe”, suggesting he would relax content moderation operations.
Musk was a critic of the former management’s decision to ban Trump after the January 2021 attack on the US Capitol, due to what they said was a risk of further incitement of violence. Since taking ownership, Musk has cancelled the ban on Trump and sacked workers responsible for moderation.
Meanwhile advertisers, Twitter’s biggest source of revenue, took fright over concerns about what content their products could appear alongside. Companies including Walt Disney and Comcast paused advertising on X and increased advertising on the Meta-owned app Instagram last year after Musk endorsed an antisemitic post that falsely claimed members of the Jewish community were stoking hatred against white people. He later apologised for sharing the post.
Musk has not delivered on other commitments he made when acquiring Twitter. He had pledged to “defeat the bot scourge”, which he estimated accounted for at least 20 per cent of Twitter accounts, well above Twitter’s claim they made up 5 per cent.
In February, X claimed that this year’s Super Bowl resulted in impressions, user posts and video views rising 31 per cent, 41 per cent and 75 per cent respectively year on year.
However, after the event, CHEQ, a cybersecurity firm that tracks bots and fake users, claimed that almost 76 per cent of traffic from X to its advertising clients’ website during the Super Bowl weekend was fake. The figure was far higher than the estimated share of bots accounting for fake traffic at Facebook, Instagram and Facebook, which CHEQ determined to be less than 5 per cent.
X stopped publicly reporting its earnings after it was taken private. However, Emarketer, a market research agency, estimated that X’s global advertising revenue in 2023 was $2 billion, down 52 per cent on the previous year. It estimates that revenue from advertising will decline by a further 4.3 per cent to $1.9 billion this year. In the United States, X’s biggest market, Emarketer expects advertising revenue this year to fall 2.5 per cent to $1.1 billion, while in Britain it forecast a decline of 4 per cent to $160.3 million.
Scott Kessler, technology, media and communications analyst at Third Bridge Group, said there has been a growing trend of advertisers prioritising ways of getting users to take actions like buying a product, as opposed to prioritising ways of introducing or reinforcing a concept of a strong brand.
He said: “It is widely recognised and acknowledged that Meta, with Facebook and Instagram, have done a good job on this front, whereas X, notwithstanding the opportunity, hasn’t really executed or delivered in a similar way.”
Advertisers have also been drawn to the opportunity of partnerships with Netflix and Amazon Prime Video, which have introduced ad-supported memberships, Kessler said. “I think it has to some extent raised the bar on what a lot of advertisers and brands have wanted and expect from these types of partnerships,” he added.
In August, Musk went to war with an influential advertising lobby group, which he alleged had illegally conspired to boycott advertising on his platform. Days after Musk filed a lawsuit, the Global Alliance for Responsible Media (Garm), which represented major companies including Mars and CVS Health, said it was shutting down because allegations that “misconstrue its purpose and activities have caused a distraction and significantly drained its resources and finances”.
Some advertising revenue will be replaced by the introduction of a subscription model at X, including a premium ad-free membership priced at about $16 per month, and a basic subscription at $3 a month, which gives users options to edit posts, write longer posts and share longer video uploads. X does not share its subscription numbers. However, analysts do not believe they will be able to fully make up the estimated loss in advertising revenue.
There is also uncertainty about the number of users on the platform. Musk claimed in July that X had attracted record traffic. In a post on the platform, he said: “X usage hit another all-time high yesterday with 417 billion user-seconds globally!” He said US user-seconds had reached 93 billion in a single day, 23 per cent higher than the previous record of 76 billion.
Research by Similarweb found that in September there were 527.2 million unique visitors worldwide to X.com and Twitter.com, compared to 523.4 million in the same month last year. In the US, monthly active users on iOS and Android in September fell 7.9 per cent year-on-year to 70.4 million, while in the UK monthly active users fell 17.4 per cent to 10.4 million over the same period. However, Similarweb also found that X has grown its year over year market share of social media traffic in the last four months, at the expense of other social media platforms, including Facebook.
Some investors have insisted that they have no regrets. Prince Alwaleed, who rolled Twitter shares valued at around $2 billion into the venture when it was taken private, told The Washington Post that he values his stake at the same level. “In our books, on my books personally, we are valuing at minimum [at] the entry level that we entered with,” he said in an interview in August “There’s no devaluation whatsoever.”
Lonsdale, the Palantir co-founder, said last month that he continued to support Musk’s acquisition for ideological reasons. “If Elon hadn’t bought Twitter, if he hadn’t done this, the entire West would be at 10x the threat,” he told CNBC’s Squawk Box.
Musk has focused on reducing expenses at the company since he took over. He said last year that he had cut 6,000 staff members, or 80 per cent of the workforce. The question investors will be asking is where future revenue growth comes from.
The platform could receive a boost if Trump wins the election. Kessler said he thinks it would lead to more users and more engagement: “I think there are certain advertisers who would be interested in seizing upon what very well may be an increase, or even a surge, in users and engagement.”
Barton Crockett, internet media analyst at Rosenblatt Securities, who followed Twitter as a public company, said: “It seems to me that what he [Musk] wants to do is create a voice and give himself a platform and create a platform that kind of works in the way that he thinks it should work.
“And for that to happen, he just needs the business to be viable, which means losses need to be small enough for him to manage with his vast wealth. Or it needs to break even-ish … and it needs to have a large enough audience to be relevant.”
While Musk has had huge success with other ventures, including Tesla, the electric vehicle company, the performance of X “does kind of prove the point that nobody’s perfect”, Crockett added. “I think that these backers, if they had 2022 hindsight, they might have wished they hadn’t gone there.”