The value of X has dropped by almost 80 percent since it was purchased by the billionaire Elon Musk, according to a recent estimate by Fidelity.
The estimate shows a disastrous drop since Musk bought the social media giant in 2022.
A Sharp Decline in Value
When Musk took X private, the platform no longer traded publicly. As a result, its financial standing became harder to measure.
However, Fidelity, a major investor in the company, has released estimates of its share values, providing a glimpse into the financial health of X.
As of August 2023, Fidelity estimated that its shares in X were worth just $4.2 million. This represents a 79 percent decrease from the initial valuation of $19.66 million in October 2022.
This latest figure is also a substantial drop from Fidelity’s July 2023 estimate, marking a 24 percent reduction in just one month. The current valuation suggests X is worth roughly $9.4 billion, a stark contrast to the $44 billion Musk paid.
Ad Revenue Woes and Market Perception
Several factors are contributing to X’s declining valuation, with a primary reason being the company's shrinking advertising revenue.
Analysts believe Musk overpaid for the platform, which they argue was realistically worth closer to $30 billion at the time of purchase.
Dan Ives, managing director and senior equity analyst at Wedbush Securities, said:
"Musk clearly overpaid for this asset."
He said X’s current value hovers around $15 billion, despite Fidelity's lower assessment.
Advertisers have expressed concerns about the types of content being promoted on X, with some brands fearing their ads may appear alongside extreme or controversial posts.
A global survey by Kantar found a net 26 percent of marketers plan to decrease their spending on X in 2024, more than any other major global ad platform.
Only 4 percent of advertisers believe that X provides adequate "brand safety," compared to 39 percent on Google.
Controversies and Advertiser Backlash
Musk’s management of X has been nothing short of turbulent, with several high-profile incidents contributing to the platform’s challenges.
One notable event occurred in November 2023, when Musk faced backlash from advertisers after he endorsed an antisemitic conspiracy theory promoted by White supremacists.
Although Musk later apologized for what he called his “dumbest” social media post, his apology was undermined by a defiant message to advertisers who left the platform, telling them, "Go f**k yourself."
The reaction from brands was swift, with many halting their advertising campaigns on X.
These actions only intensified the ad revenue crisis the platform is facing under Musk's leadership.
Despite the financial and public relations difficulties, X continues to command a large user base.
According to the company, it had 570 million monthly active users during the second quarter of 2023, a 6 percent increase from the previous year. However, this growth has not been uniform across all regions.
Research from Similarweb shows X had 73.5 million monthly active users on iOS and Android combined in the United States in August 2023.
This represents an 11 percent year-over-year decline and a 20 percent drop since Musk’s purchase of the platform in October 2022. On the other hand, X’s international presence has seen more positive trends, with stronger web traffic outside the United States.
However, the overall picture remains concerning, with several key markets showing dwindling engagement.
Musk’s Vision for X and the Role of AI
Despite the setbacks, some analysts believe that X could become more valuable in the long run, especially as part of Musk's broader ventures in artificial intelligence.
Gene Munster, managing partner at Deepwater Asset Management, argues that Fidelity's estimate may be overly conservative.
He believes X’s data could prove critical to the development of Grok, an AI chatbot created by Musk’s AI startup, xAI. He said:
"If you want a real-time understanding of what people are thinking, Twitter is the best source of that. And that is valuable."
Grok's integration with X's vast data troves could position Musk to benefit from the AI boom.
Munster suggests that the acquisition of X, initially seen as a costly gamble, may turn out to be a strategic win as AI becomes more prevalent.
He said:
“Musk buying Twitter is a case of better lucky than smart.
The Future of X: Opportunity or Decline?
While X’s current financial situation may seem bleak, the platform remains a significant player in the social media landscape.
Musk’s commitment to leveraging AI and the unique real-time data that X provides could eventually boost the company’s value.
However, the road to recovery will likely be long, requiring significant shifts in advertising strategies, content moderation, and overall platform management.
As X continues to evolve under Musk's leadership, its future remains uncertain, but the potential for innovation and growth — particularly in the realm of AI — could be the key to turning things around.