Musk’s Strategic Investment in Trump’s Re-election Yielding Returns for X

Elon Musk’s nearly €280 million gamble on the re-election of President Trump is starting to pay off. According to a new Wall Street Journal report, advertisers are returning to X (formerly known as Twitter) to steer clear of ongoing lawsuits and avoid potential targeting of their businesses by the Trump administration.

Interpublic Group’s Major Move Amid Advertising Concerns

The article points out that major advertising agency Interpublic Group is currently pursuing a €12 billion merger with rival Omnicom. While such consolidation would usually raise antitrust issues under the Biden administration, X seems optimistic about leveraging this opportunity for mutually beneficial arrangements:

A lawyer at Interpublic Group received a call from X’s legal team in December. Sources indicate the message was clear: Increase client spending on Elon Musk’s platform, or face consequences.

Advertisers Flea After Musk’s Acquisition

Following Musk’s €40 billion acquisition of Twitter, advertisers quickly abandoned the platform as they awaited the impact of Musk’s relaxed content moderation policies. Musk famously told high-profile corporate leaders, including Disney CEO Bob Iger, to “go f**k” themselves regarding their advertising withdrawals, accusing them of stifling free speech.

X’s Advertising Landscape: Challenges and Opportunities

Historically, X has struggled to attract advertisers, boasting a smaller audience and inferior targeting capabilities compared to giants like Google, Facebook, or Amazon. Prior to Musk’s takeover, Twitter earned €4.7 billion in revenue, falling short of its rivals and lacking consistent profitability. Advertisers typically prefer “safe” environments to avoid endorsing controversial or harmful content, a challenge that persists on X despite new tools designed to manage ad placements.

A Risky Gamble with Long-term Implications

Musk’s bold maneuver may be converting X into a platform that does not need to excel in advertising revenues. As CEOs around the industry aim to curry favor with Trump — and by extension, Musk — the influence Musk wields in Washington has grown significantly. His platform X serves as a powerful tool for influencing lawmakers and policy decisions.

Financial Status and Revenue Concerns at X

Current reports indicate that X’s revenue remains significantly below pre-acquisition levels, estimated at around €930 million annually, while it faces €930 million in yearly debt payments. Musk recently disclosed that X is barely profitable, having reduced its workforce substantially. There is speculation regarding whether returning advertisers are committing to substantial budgets or simply allocating minimal funds to mitigate backlash:

“Brands are coming back in significant numbers, but mainly to spend the least possible on the platform to avoid legal and political repercussions,” remarked an Ebiquity representative.

Litigation and Advertiser Relationships

Post-Musk’s takeover and the consequential advertising influx drop, X initiated lawsuits against a number of advertisers, alleging collusion in pulling ad spend. The formation of an industry standards group, GARM, aimed to establish guidelines for brand safety in advertising, with X alleging direct targeting in their legal complaints.

Notably, X has been dropping advertisers from its lawsuits upon witnessing increased ad spending from them. The Journal indicates that CEO Linda Yaccarino has signaled to potential advertisers that failure to engage could lead to inclusion in ongoing lawsuits:

One ad executive reported that Yaccarino emphasized X’s antitrust litigation during discussions, expressing interest in identifying agencies and advertisers that have colluded to withhold funding from X.

High-Profile Brands Making a Comeback to X

Recent reports highlight that notable companies like Amazon, Apple, and Verizon are either returning to X or planning to reinstate ad campaigns.

Reflecting on Musk’s Twitter Purchase

Musk’s €40 billion acquisition of Twitter initially appeared to be a disastrous investment but could metamorphose into a strategic victory. He has quickly developed a related AI firm leveraging X’s data for a chatbot called Grok and continues to attract investors eager to ally with powerful figures. Bloomberg reported recently that X is exploring new funding avenues at its initial €40 billion valuation, despite facing years of declining worth.

FAQs

What is the impact of Elon Musk’s acquisition of Twitter on advertising?

Since Musk’s acquisition, many advertisers have pulled back, but there’s a recent trend of returning brands, primarily motivated by fear of political and legal repercussions.

How have advertising revenues changed for X post-acquisition?

X’s advertising revenue has significantly decreased, currently around €930 million per year, which is much lower than prior to Musk’s takeover.

What strategies is X implementing to attract advertisers?

X has introduced new tools to help advertisers manage their ad placements alongside content, while also using legal pressure to encourage spending.