The Daily: Can X stem user declines and what the company might turn into in 2025?

On today's podcast episode, why X is continuing to lose users, if they can turn their ad revenue fortunes around, and what the social media platform might morph into next year. Tune in to the discussion with Senior Director of Podcasts and host Marcus Johnson, Senior Director of Briefings Jeremy Goldman, and Analyst Daniel Konstantinovic.

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Episode Transcript:

Daniel Konstantinovic (00:03):

It's pretty well-established at this point since Musk's takeover, so the question is, why, amid all of these user declines and the changing priorities of the platform, why are advertisers coming back?

Marcus Johnson (00:23):

Hey, gang. It's Monday, December 2nd. Jeremy, Daniel, and listeners, welcome to Behind the Numbers Daily, an eMarketer podcast made possible by LiveRamp. I'm Marcus. Today, I'm joined by two folks. We start with our senior director of briefings based in New York City, I believe. Coming to us live from our studio today, it's Jeremy Goldman.

Jeremy Goldman (00:41):

Still stuffed from Thanksgiving. Hey, Marcus.

Marcus Johnson (00:44):

Hello. I was like, has it been that already? It has. We already did it. Glad you had a good one.

(00:50):

We're also joined by Daniel Konstantinovic. He is one of our analysts who writes from marketing and advertising briefing. He is also based in the city. Hello, fella.

Daniel Konstantinovic (00:59):

Hello. Good to be here.

Marcus Johnson (01:00):

Hello there. Yes, indeed. Thank you for being here.

(01:02):

We start with the fact of the day. Which animals have the best memories after people?

Daniel Konstantinovic (01:10):

Well, there's an obvious one.

Jeremy Goldman (01:12):

What, elephants?

Daniel Konstantinovic (01:14):

Yeah, elephants. They never forget.

Marcus Johnson (01:16):

Is that our guess?

Daniel Konstantinovic (01:17):

Whales.

Marcus Johnson (01:18):

Whales, no, but kind of.

Jeremy Goldman (01:21):

Cockatoos? Isn't that a kind of bird?

Daniel Konstantinovic (01:25):

A cockatoo?

Marcus Johnson (01:26):

It is a kind of bird, yeah. But what made you... Is it because they-

Daniel Konstantinovic (01:30):

I have no idea. I'm stumped on this one, so I'm like, I'm just...

Marcus Johnson (01:37):

Dolphins have a claim to the crown. Jason Bruch, an animal behaviorist at the University of Chicago, notes that the bottlenose dolphin can remember whistles of other dolphins they've lived with after 20 years of separation. Each dolphin has a unique whistle that functions like a name, allowing the marine mammals to keep close social bonds.

(02:00):

Why? Christine Dell'Amore of National Geographic writes that the reason that dolphins need a long-term memory is technically still unknown but could be linked to maintaining relationships, since over time dolphin groups often break up and reorganize into new alliances, a social system called fission-fusion, and also as a survival mechanism to try and remember who is a friend and who is a foe.

Jeremy Goldman (02:24):

Well, can I just say, I think this is the third thing I've learned about dolphins from you, so it's basically everything I've learned about dolphins was either from kindergarten or Marcus Johnson.

Marcus Johnson (02:36):

You're welcome. Just trying to keep that kindergarten education going. There's so much they didn't cover.

(02:41):

Oh, also, you are kind of right because elephants and chimpanzees are thought to have similar abilities but tests aren't as conclusive.

Daniel Konstantinovic (02:41):

Oh, okay. I'll take the technicality. I'll take a victory where I can get it.

Marcus Johnson (02:51):

A close second. It's not really a victory, but that's fine.

(02:55):

Today's real topic-

Daniel Konstantinovic (02:56):

We'll see.

Marcus Johnson (02:58):

... X's current position and what we can expect from them in 2025.

(03:09):

All right, gents, we're checking in on X. Used to be called Twitter. People still call it that, so we might interchangeably in this episode. But the short history, Elon Musk officially bought Twitter around two years ago for $44 billion. He reduced content moderation, laid off 80% of its staff, and turned the science of verification badges into pay-to-play system where you can amplify the reach of your posts, writes Bobby Allyn of NPR.

(03:34):

Fidelity says that since Musk bought the company, its valuation has fallen 75% to around $9 billion. Looking at how its users are doing, not great, reporting from the Financial Times notes, according to similar web data, active daily users in the UK have dropped from 8 million to less than six in the past year. Most of that fall coming after Mr. Musk made comments about the summer riots. Over the same period, X's active users in the US have fallen by about a fifth. And X reported in the first half of 2024 the EU users were down 5% year-on-year. So, all down across the board across those countries at least that I mentioned.

(04:13):

Jeremy, I'll start with you. Why is X continuing to lose users?

Jeremy Goldman (04:17):

I think part of the reason is that X is not so interested in keeping users, and by that I mean inevitably whenever you start to do things that are not necessarily user-centric, obviously there's a lot of things that the ads that are there are interrupted and strange, and we can obviously talk about how the platform's not making more ad revenues also, but it's become a bit of a place where content moderation, of course the person who owns the platform, is not that interested in that particular topic.

(04:53):

But it turns out, generally speaking, broad content moderation is not a bad thing. It tends to attract users because it gets the 5% to 10% of whatever less pro-social content off of the platform. And obviously Musk feels a bit differently than the average user in terms of how much policing should be going on, so I think that that's probably one of the top reasons right there.

Marcus Johnson (05:19):

Danny, users, according to our stats, users, if we just look at the US of X, peaked in 2022. That was the year towards the end of that year is when Musk bought the company. We expect that X or Twitter lost, will lose 7 million users in the US from 2022 when Musk took over to 2025, so it goes from 59 million to 52 million over that period. Can they turn around user declines, do you think?

Daniel Konstantinovic (05:51):

I'm torn on this one, to be honest. I think not, but I think that they may be able to hang on to a share of users that's significant enough for the platform to not completely cave in. There is clearly an audience for what Musk has done with the platform. There is a very devoted following and a certain part of the political spectrum that is really finding a home on X, I suppose. So, will all users depart the platform? I don't think so.

(06:24):

That said, we predict a pretty steady decline. And some developments that have happened recently that I'm sure we'll get into could cause that decline to go even further or accelerate, because a lot of the value in X, formerly Twitter, as a platform for users is leaving along with the people who are leaving. It's not just that brands are not spending on there, but things that really made Twitter a destination, like high volumes of journalists and news publications, influential power users, these types of users are leaving the platform pretty consistently since Musk took over, and especially now in the aftermath of the election.

(07:08):

It's harder to verify information found on X for a lot of reasons, partially because of the rise of AI, which makes it very easy to post fake material, which, to Jeremy's point, is not really being moderated, to the fact that it's pretty easy to appear to be someone who you are not on the platform. And the verification badges are now a pay-to-play item that anyone can get on their account. The quality of information there has really gone down, and I think that is what made X or Twitter a platform with some degree of mass appeal.

Marcus Johnson (07:44):

Yeah. You mentioned that you think that they can retain enough folks to make this thing work still in terms of from a dollars and cents perspective.

Daniel Konstantinovic (07:56):

Sorry, go ahead.

Jeremy Goldman (07:57):

Sorry. I want to say the thing about making it work, I think a very important thing to mention obviously is, did you know that Elon Musk is worth more than the three-

Daniel Konstantinovic (07:57):

Yes.

Jeremy Goldman (08:07):

... of us combined? It's true.

Marcus Johnson (08:08):

Barely.

Daniel Konstantinovic (08:09):

[inaudible 00:08:09].

Jeremy Goldman (08:09):

I had to look it up.

[NEW_PARAGRAPH]And so I think that really to look at this through the lens of, for instance, the amount of money that, let's say, Musk may have lost on this platform that he didn't necessarily completely want to buy, I think what he has been able to do in terms of turning it into a personal branding vehicle and an ability to essentially get his thoughts out there more than any other user by simply adjusting the algorithm to promote his own views, that's very beneficial and that's actually helped him support somebody who won the election, which then increased Musk's net worth many times more than the amount of losses that he got as a result of the...

(08:54):

That's why I say it's very difficult to say that this is not beneficial ultimately or that the platform can't keep running. It's arguably maybe healthier than pretty much every other platform around in the standpoint that it doesn't have to report to shareholders and it just has to make essentially one person happy. It's a bit different.

Marcus Johnson (09:17):

Danny, what do you make of this? Because this is a theory that I was reading about from Dan Primack, this idea that Elon was playing 3D chess with his ex acquisition. And he did try to back out of the deal, so maybe not. But Dan Primack of Axios was suggesting, as Jeremy, I think you're alluding to, correct me if I'm wrong, but that Musk may have bought Twitter for power, not profit.

(09:36):

And he writes that the gamble paid off as he used the platform to help shape public opinion during the election, artificially amplifying his political messages and giving him influence with Donald Trump that money alone wouldn't have bought. Mr. Primack notes that Trump's victory means that Musk has become the most powerful unelected American ever, and that could be a boon for SpaceX, Tesla, and XAI, whose fortunes are heavily dependent on federal government contracts, policies, and regulation. Those companies are much larger than X or Twitter, even at $44 billion, and more core to Musk's lifelong goals.

Daniel Konstantinovic (10:09):

Yeah. To what Jeremy said, when I say make this work, I mean to give the platform a reason to exist perhaps. There is so much money behind the platform that it can take on losses for a long time before Musk has to worry about pulling the plug. And it's something that I don't think he would fathom doing. I don't want to comment on Musk's ability to play or do well at 3D chess, but I assume that he bought the company thinking, "I'm going to be able to turn this into a big moneymaker." That has obviously turned out not to be the case, but I'm sure that the amount of influence and control that it gives him over new cycles was also something he really took into consideration during the acquisition. The value that it's generated for him and for his other businesses, which rely heavily on government contracts for their revenues, I'm sure that has made the balance sheet look better.

Jeremy Goldman (11:07):

By the way, I think Danny is totally right about this. I think it's also worth saying, even though that there've been a number of missteps at Musk social, otherwise known as X, otherwise known as Twitter, over the last few years, it's also worth mentioning that it was not the best ad platform ever pretty much, so that therefore it always had an outsized importance to the zeitgeist in relation to how many dollars it can make from an advertising standpoint. I think that's something that people should definitely note. And anybody who notices the fact that X has a real way of controlling the conversation to some degree, as long as it's around, even though other platforms might be a lot bigger, it's the real time short form, quick nature of the platform that makes it have an outsize impact on the public discourse.

Marcus Johnson (12:01):

Yeah, it wasn't the most significant part of advertiser's budgets before he bought it. In 2021, it was 0.8% of the total media ad spending pie in the US. The next year, 2022, it was 0.7%, so that share was going down. The dollars were also ticking down a little bit. It fell 3% from 2021 to 2022 if you look at their US ad revenues, so they were already going in the wrong direction. The problem was that 2022 to 2023, they got cut in half, and we are forecasting or projecting that they're going to continue to tick down the following years.

(12:35):

Some brands are returning to the platform, according to Fortune, IBM, Comcast, Warner Brothers Discovery, Disney, they're all returning. Jeremy, you were noting in a piece that they've issued the first ever transparency report to try to help it win back advertisers. The problem is brands are spending less, it seems, on the platform. Over 25% of advertisers plan to reduce ad spending on X by 2025, according to Kantar, citing content moderation concerns and safety as well.

(13:00):

And then also, just the brand value just took a beating. 2022, Brand Finance valued Twitter at nearly 6 billion in terms of its brand value. By 2024, it had fallen 90% to about 700 million. So, that's also suffered as a result of this.

Daniel Konstantinovic (13:16):

I think the recent return of a lot of advertisers is a really interesting development. The narrative that Twitter has been losing advertisers and losing ad revenues, it's pretty well-established at this point since Musk's takeover, so the question is, why, amid all of these user declines and the changing priorities of the platform, why are advertisers coming back? It's not like the advertising value has suddenly increased.

(13:43):

In my opinion, the explanation is that these are companies that perhaps would like to win some favor with Musk or with an incoming Trump administration, which it seems Musk will play some significant role in. If you look at some of these companies like Comcast, Disney, Warner Brothers Discovery especially, these are companies that are interested in pursuing mergers somewhat aggressively under this new administration. You have David Zaslav, who's the CEO of Warner Brothers Discovery, saying that a Trump administration means Warner Brothers Discovery would be emboldened for M&A that perhaps wouldn't have flown under the Biden administration or under a Harris administration.

(14:26):

If you're one of these companies that is seeking to get through a regulatory hurdle in acquiring someone, as many of these streaming companies are trying to do, advertising on X is probably in your interest and you can devote a not majorly significant portion of your spending as an olive branch in exchange for something more significant.

Jeremy Goldman (14:47):

It's like when you give somebody a small tip just to ensure that they don't spit in your food. I think it's the same thing.

Marcus Johnson (14:52):

That's the way you're tipping?

Jeremy Goldman (14:54):

You know there are moments where you're like, "Ah, this person doesn't deserve anything, but in this circumstance I just want to protect myself." In some ways, I think that that's what this minor, these bits and pieces of ads that are coming back from major players, I think Danny's right.

(15:10):

Only other thing I was going to say there is that, going to your point about valuation, as of end of September, Fidelity had cut its estimate of X's value by 79% since Musk's purchase. My guess is it's probably went up a slight bit since the election, but probably not enough to make up all that had been lost in the past 23, 24 months.

Marcus Johnson (15:33):

Yeah. Well, let's look forward to the next, let's say, 12 months.

(15:39):

As we close out this year, what do we expect to see from X? One point that was made was Alex Heath of The Verge reminding us that X was supposed to be a bank by now. He was pointing out that in an internal meeting last year, Elon Musk said it would blow his mind if X couldn't handle someone's entire financial life by the end of 2024, which is, of course, this year.

(16:00):

Danny, I'll start with you first. What do you expect from Twitter, from X, in 2025?

Daniel Konstantinovic (16:06):

Ugh, it's hard to say.

Marcus Johnson (16:08):

Figure it out, Danny.

Daniel Konstantinovic (16:09):

Yeah, I know.

Marcus Johnson (16:10):

We need answers.

Daniel Konstantinovic (16:10):

Let me read the tea leaves, which are falling in a strange Musk face-shaped pattern. I suspect that it will continue to stay the course, I suppose. That's the safest bet of all, is that it'll just keep doing what it has been doing, which is trying to convince advertisers to come back, increasing transparency somewhat, but still staying a platform that is first and foremost about what Elon Musk wants it to be about, and one that serves his political interests.

(16:43):

I think how X will fit into the picture with all of these competitors that are sprouting up is another interesting question. Which one of all these competing platforms will emerge on top, if there will be one that is clearly on top? I think that's something to look out for.

Marcus Johnson (17:01):

Yeah, and we're going to talk a bit about Bluesky tomorrow's episode and who they are, why they've had this surge, and what their staying power looks like.

(17:09):

Jeremy, I guess a lot of this is predicated on these two, Mr. Musk and Mr. Trump, remaining friends for the next four years.

Jeremy Goldman (17:14):

Yeah, I think that that's true. I think that in the short term you can probably expect them to be relatively chummy. And I think it is also true, going back to your point about the innovation that was promised, probably expect a few gradual improvements, but largely for it to be the same public square that it's been of late. It doesn't actually look all that different than it did, let's say, a year ago, so there's not really a great reason to assume that all of a sudden there should be a ton of dollars put into it.

(17:48):

In terms of remediating and investing in the platform, I can see content moderation getting a little bit better around the edges. They have made some efforts to some degree along those lines, but the flip side is the more people you get onto the platform, generally speaking, the more you need to invest in content moderation. Very much remains to be seen if X is willing to do that.

Marcus Johnson (18:10):

Yeah. All right, well, that's all we've got time for for today's episodes. Me and these gents will see you for tomorrow's episode. They're going to join me to talk about Bluesky.

(18:17):

Thank you so much to Jeremy.

Jeremy Goldman (18:18):

See you tomorrow.

Marcus Johnson (18:19):

Yes, sir. Thank you to Danny.

Jeremy Goldman (18:21):

Thanks. See you tomorrow.

Marcus Johnson (18:21):

Yes, indeed. Thank you to Victoria. She edits the show. Stuart runs the team, and Sophie does our social media. Thank you to them.

(18:27):

Thank you to everyone for listening in. We hope to see you for that very episode tomorrow of the Behind the Numbers Daily, an eMarketer podcast made possible by LiveRamp.