Twitter Would Need 64 Million Subscribers To Replace Existing Revenue And Cover Losses

If new Twitter owner and CEO Elon Musk wants to move Twitter off of ad revenue entirely, he’d need just over 64 million subscribers at $8/month to make that happen. On a platform with just 238 million monetizable users according to Twitter’s most recent public earnings filings, that would be quite a feat. In fact, it would essentially require one in every four monetizable Twitter users to subscribe.

Contrast that with YouTube’s 80 million subscribers on 2.6 billion users — and a strong value proposition in terms of music and videos — and it looks even tougher.

Twitter’s most recent earnings release states that the company had $1.2 billion in revenue for Q2 2022. At $8/month and therefore $24/quarter, the company needs almost 50 million subscribers to fully cover that revenue. But Musk has stated that the company is losing over $4 million each and every day, which adds $360 million worth of expense.

Total it all up — and you can see my math here — that shortfall requires 15 million more subscribers, for a total of just over 64 million.

However, the most likely scenario is that Twitter keeps as much ad revenue as possible while also adding as much subscription revenue as possible, and that the company does all of this while simultaneously dumping as much salary as possible: the 3,700 staff members who lost their jobs last week, and another 4,400 contract workers reportedly cut today.

If Twitter can keep ad revenue per user basically where it has been, at about $5/user/quarter, Twitter only needs a hair under 24 million subscribers, or one in ten, to buy into its $8/month plan. That’s not a given, of course, with various ad agencies pulling back from Twitter recently.

However, it’s likely that they’ll return as the dust settles, and if the new Twitter can stabilize somewhat.

Note that I’m assuming in this model that subscribers, who Elon Musk has said will see half the ads, are still worth the $5/month of non-subscribers in ad revenue. That’s both due to the fact that they’d be more valuable people for advertisers to target — known spenders with money — and heavy users of the site so that even at a 50% ad load, they’d probably still see more ads than non-subscribers.

If Twitter could pull this model off, it’d be a huge win, with 40% higher revenue.

(This is all based off Q2 revenue data, Twitter’s last public earnings filing. Revenue numbers will be higher in quarters like Q4 with holiday ad spend.)

It’s important to remember, though, that getting a 10% subscription rate is like winning the lottery. Many Twitter users, including some of the bigger stars on the platform, reject the notion, saying that they provide value and should actually be paid to be on Twitter.

A somewhat more achievable though still huge goal would be 5%. That would actually would also work out in Twitter’s favor, increasing revenue on a quarterly basis by about 20%.

Whether Musk can achieve that at Twitter remains to be seen. The Q2 earnings state that Twitter earned less than 10% of its income from subscriptions and other sources, which included a since-sold adtech subsidiary, MoPub. MoPub probably accounted for most of the $101 million in non-advertising revenue, which means that getting to even around $600 million level in subscriber revenue — 5% of users subscribing — would be a major challenge.

However, Musk has some factors in his favor.

He’s reducing costs at Twitter via mass layoffs and terminations, and self-reported usage of the platform has increased, potentially bringing in more passionate and likely-to-subscribe people.

Lower costs reduce the need for revenue, though they may also reduce Twitter’s ability to innovate, grow, and serve both advertising customers as well as users. Another challenge: as a result of the deal to take Twitter private, Musk has saddled the company with more than $25 billion in debt which will require interest payments of about $845 million annually.

One thing is for sure: Musk’s acquisition of Twitter has shaken up a fairly stable and boring social media landscape and made it one of the hottest topics in tech.