The news highlight has reflected that Twitter now needs to pay its bills. Elon Musk, the new owner of the platform, insisted as much in a tweet Monday in response to author Stephen King’s criticism of a plan to charge Twitter users $20 a month for account verification. Very promptly, Musk changed tack on Tuesday with a tweet. For the Blue subscription members, it is going to charge $8/month).
It was all about the situation when Musk was forced to acquire the social media company for $44 billion last week, after the passage of nearly six months after announcing that the deal was on hold. Chief among them have mentioned and raised a question about how Musk made a plan to make Twitter profitable, especially with large bills looming. There is nearly $1 billion annual interest expense that expenditure on Twitter. Analysts also made an estimation that the company could be saddled with at least $13 billion of debt that is likely to be used to finance one of the most expensive acquisitions in tech history.
The imposed fee of $8 per month for account verification may be a piece of that puzzle. According to an estimate made by Forbes, 10.4 million users would have to pay that fee each year to service Twitter’s debt. There are 25 times more than the roughly 400,000 users currently boasting blue check marks free of charge.
Though there are some of the users of Twitter who are ultimately willing to pay $8 a month for account verification, it’s unlikely to make much of a dent in the $1 billion of annual interest expense. Wedbush analyst Dan Ives, who covers Twitter, believes that $8 per month fees can be helpful in generating new revenues that can be equivalent to 4-5% of the company’s largest existing revenue stream, advertising revenue, “out of the gates depending on the uptake if adoption is strong.”
The increase from $230 million to $290 million of new revenue for total 2022 revenue at $5.8 billion—or 2.4 million to 3 million users paying $8 per month. Asked whether he could ever see $8 per month account verification generating $1 billion of revenue, Ives mentioned saying that no, this just helps in filling the hole in order to increase the monetization of Twitter, which has been on a treadmill.
“The $8 monthly charge is seen as imposing an incremental revenue stream,” according to analyst Richard Greenfield of Lightspeed Partners, “not replacing the current business” (which analysts estimate will generate $1.1 billion of EBITDA–earnings before interest, taxes, depreciation and amortization–in 2022). In other words, Musk has to look somewhere else for the revenue needed to service Twitter’s debt costs.