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Marcus Johnson (00:00):

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(00:30):

Hey, gang, it's Tuesday, May 27th. Marisa, Emmy, and listeners, welcome to Behind the Numbers, an eMarketer video podcast made possible by Giphy. I'm Marcus, and today we'll be discussing the significance of the X and xAI merger, if the social platform can get back to making the kinds of ad dollars it was pulling in before Mr. Musk bought them, and where its users have gone, if anywhere.

(00:53):

Join me for that conversation. We have two of our analysts. Let's meet them both. Based in New York, we have Emmy Liedermann.

Emmy Liederman (01:01):

Hi. Thanks for having me.

Marcus Johnson (01:02):

Hello there, of course, and Marisa Jones.

Marisa Jones (01:05):

Hi. I'm excited to be here today.

Marcus Johnson (01:07):

Hello, hello. Okay. My fact of the day ... I've got a couple of facts about Iceland, fascinating place, which I knew before, but even more so. Okay, so I've got three facts for you. Beer was banned in Iceland until 1989 because the perception was that it was too tempting for young people and it could lead to heavier drinking. Two, this one's great, there are no mosquitoes in Iceland.

Emmy Liederman (01:41):

That's exciting for them.

Marcus Johnson (01:42):

Yeah, that's right. You can move there with me. It's amazing. Mainly, so it's because of the cold climate, unstable weather, unique weather, that's right, unique water and soil conditions. It makes it difficult for mosquitoes to survive there. And then, three, 10% of Icelanders will publish a book in their lifetime.

Emmy Liederman (02:04):

That feels like too many, like the market is oversaturated, if it's 10%.

Marisa Jones (02:04):

That's a lot.

Marcus Johnson (02:11):

Well, there aren't that many of them there, so 10% is not a huge amount because I think it's like 40,000 people, 10%.

Emmy Liederman (02:25):

But it's still one in 10, 10% of the people in Iceland. I don't know. I don't want to go too hard on that.

Marcus Johnson (02:32):

Emmy's still disappointed. All right. Yeah. I thought you'd be impressed. Emmy's like," That's too many books. Could we slow it down?"

Emmy Liederman (02:42):

I don't want to crush any of our Icelandic audience's dreams.

Marcus Johnson (02:51):

It feels like you do actually. Marisa, impressed with this one, or do you also want to-

Marisa Jones (02:51):

I am-

Marcus Johnson (02:51):

... prevent people from getting published.

Marisa Jones (02:51):

... and I'll be in Iceland for a layover. I'll be in Iceland for a total of one hour and a half this summer. I'll see what kind of books they have.

Marcus Johnson (03:00):

All right, scope it out. Yeah, it's shocking how small the country is, 400,000 people in the whole country, which would mean that, if they were a city in America, they'd be the same size as Wichita, Kansas, which is the 52nd largest city in America, has the same number of people as the country of Iceland. Remarkable place though-

Emmy Liederman (03:00):

That's wild.

Marcus Johnson (03:23):

... not just because there's no mosquitoes. Emmy, that took a turn, unbelievable. Don't listen to her, Iceland people, publish.

Emmy Liederman (03:31):

Yeah, please. I feel like I'm being way too negative.

Marcus Johnson (03:33):

Yeah, a little bit.

Emmy Liederman (03:33):

Marisa is bringing the positivity back.

Marcus Johnson (03:37):

Thank goodness.

Marisa Jones (03:37):

I'm excited. I'm excited for my little visit.

Marcus Johnson (03:39):

Anyway, today's real topic, are we seeing signs that X is mounting a comeback?

(03:49):

Earlier this year, Elon Musk merged X, the social media platform, with xAI, his artificial intelligence firm, in a deal valued at the combined company, over 100 billion dollars. Marisa, how much can the merger with xAI move the needle for the social media platform X?

Marisa Jones (04:15):

Well, I definitely think it does have a potential to move the needle a bit. I think the merger is hopefully going to ... and looking to address some of X's core problems, especially with advertisers, which is that xAI's technology will ideally enable better content moderation on X, which will hopefully drive better brand safety outcomes, which is a big reason that a lot of advertisers are still staying away from the platform. It could also position X to be more of a leader and player in AI development, which everyone's really trying to get to. That could help combat some of the financial problems that X has been having compared to its competitors. But, on the flip side, AI could present a problem and worsen brand safety concerns-

Marcus Johnson (04:15):

Oh, interesting. Yeah.

Marisa Jones (05:00):

... really depending on how well the technology is integrated into X's platform. That will really largely determine the merger. We're seeing that, after Musk bought X, formerly Twitter ... so when he purchased Twitter, we're seeing studies from UC Berkeley saying that hate speech rose 50% on the platform. If the xAI is being trained on that data, that could really just exacerbate the issue, make it a bit worse. Depending on how well the integration goes, that's really going to determine whether or not xAI has a potential to move the needle for X.

Marcus Johnson (05:38):

Yeah. Emmy, your level of optimism here.

Emmy Liederman (05:41):

I think that just the presence of, even if it is financially beneficial for the company, the presence of leaning into AI tools isn't necessarily what's going to make advertisers want to go back to the platform off the bat, because I think the industry is so inundated with social platforms leveraging AI for similar reasons that it doesn't feel like it's necessarily going to be a game-changer. But time would tell if actually leveraging the AI for content moderation was successful.

Marcus Johnson (06:16):

Yeah. There's two sides to this, how it helps X and how it helps xAI. Grace Harmon was noting one way that helps xAI out, this merger, which is that it gives it access to an invaluable collection of user data for product development and improvements. That's part of this, and then also X's growing cashflow apparently from returning advertisers like Amazon and Apple, which means xAI can use that money to invest in much-needed data centers, so it helps them out there.

(06:49):

It's also a step towards this master plan that Elon Musk seems to have had for years and years, which is that it brings him closer to this lifelong goal of turning X into an everything app where he hopes folks will pay bills, share news, entertain themselves, and he is, I guess, hoping that xAI's chatbot Grok is going to be central to the experience. Maybe, yeah, this is a longer-term play and we might not see the benefits of it right now, but this is a chess move for a strategy that will unfold many moves in the future.

(07:34):

As I mentioned, this helps xAI because they have access to a bit more money through X, because X had some advertisers return. And we're going to talk a little bit about whether enough advertisers can return to make X, formerly Twitter, a player, or the player it was, or even more so in advertising.

(07:57):

Just to recap what happened to its ad revenue over the last couple of years, there's a Wall Street Journal article noting that Mr. Musk bought X in 2022. It says advertisers fled over content moderation concerns and its loans soured as revenue fell. A month after he took over, Mr. Musk said the company formerly known as Twitter was on the verge of bankruptcy. Company revenue fell to three billion in 2023 from about four and a half billion the previous year. By early 2023, asset manager Fidelity valued the company at roughly a third of what Mr. Musk paid for it. X's revenue dropped again in 2024 to about two and a half billion, but showed signs of life in Q4 as it ticked up a little according to folks familiar with the matter.

(08:41):

Marisa, can X get back to the ad dollars it was making it before the takeover?

Marisa Jones (08:47):

Well, I think we also have to keep in mind that X, when it was Twitter, it was still never super popular or successful at generating ad revenues on par with its competitors. You're not seeing numbers like you're seeing obviously on platforms like Meta, but also on just other platforms, YouTube, more popular competitors. It's never been able to reach that level and-

Marcus Johnson (09:08):

That's great context because, really quickly, I went and looked and it does seem like Twitter's struggles in terms of generating ad revenue do predate Mr. Musk. It looks as though Twitter, they had brand safety concerns and they had performance advertising struggles before this. X's yearly ad revenues averaged about 1.5 billion per year, averaged, from 2015 to 2020. We are now estimating they're going to be close to 1.3. They have been around that for a long time. It's just there was an uptick during the post-pandemic digital advertising boom, if you will.

Marisa Jones (09:44):

And I think what we're also seeing is that X still has a very controversial status that a lot of advertisers are still very hesitant. While we do see advertisers like Apple returning to the platform and resuming their activity, there are still plenty who aren't returning. We're seeing an ongoing lawsuit between X suing the World Federation of Advertisers claiming that they illegally boycotted the platform, including brands like Nestle and Shell, and it's really showing that X's really pulling out all the stops to get advertisers back on the platform and get back to where it used to be ad-wise.

(10:21):

Just a few days ago, the World Federation of Advertisers and advertisers associated with the lawsuit shot back, essentially claiming that X'S loss of ad revenues were its own fault for not being able to effectively moderate content and prove its brand safety commitment. Even a successful lawsuit, if the ask for the lawsuit to be dismissed is not granted and the lawsuit goes through, it really likely won't help X become this advertising giant or contribute so much to its everything app goal. If it wants to be able to exceed the pre-Musk takeover ad levels, it really needs to look at new ways to boost its ad value to attract advertisers and really give advertisers proof that it can generate tangible outcomes for them. And as long as there remains concerns about X's ability to control harmful content, there will remain advertisers who aren't willing to go back to the platform.

Marcus Johnson (11:21):

Yeah. What do you think?

Emmy Liederman (11:23):

It is interesting on in terms of content moderation. And this [inaudible 00:11:29] organization for LGBTQ+ people just came out with a social index report and it was rating all the different platforms based on how much of an effort, publicly at least, or data that they have showing that they're trying to limit or remove this harmful content from their platforms. X definitely had the worst score out of all of them, but YouTube and Meta specifically were called out for changing the language of their content moderation policies, and in the words of that organization, leaning towards what you would more so expect from a Truth Social.

(12:07):

I think that when it comes to this conversation of advertisers going back, it is a little bit about the fact that there is evil, quote-unquote, in terms of content moderation everywhere, and a lot of these platforms aren't up to par where a values-driven brand would want them to be. It's almost back to X.

Marcus Johnson (12:32):

Yeah. There's also the question of whether this strategy is sustainable. Marisa, you were writing that the change largely responds to Mr. Musk's new political power, brands hoping to improve relationships with Mr. Musk and in turn curry favor with current administration, advertisers perhaps responding to pressure to avoid legal disputes with some brands. And you were citing up, as well as Jasmine Enberg, who said that they're now spending on X seeing it as the cost of doing business. It also seems like this might not be a long-term strategy.

Marisa Jones (13:06):

Yeah, it is very much we might be seeing some advertisers returning briefly for however long Musk maintains this political power that he currently has to avoid these legal issues like we see with him suing the World Federation of Advertisers. There could be some who are returning just simply to be able to avoid something like that happening, for sure.

Marcus Johnson (13:27):

Yeah. Yeah. We do expect a turnaround though. We just put out our new forecast, so the team saying that 2025 will be the first year X will grow revenue since he took over as the company's and revenue free fall reaches its floor and gets a little bounce this year. We estimate that US sales will grow 18%, reaching that 1.3 billion that I mentioned earlier with worldwide sales, as US worldwide sales are growing a similar share to hit 2.3 billion. However, we do expect, next year, that the US growth will go from that pretty strong 18% down to single digits, so it's not going to maintain those double digits into next year.

(14:12):

But, that said, X hasn't gotten off to the best start, it would appear, The New York Times reporting that, as of early March, X said that it had served $91 million in ads in Q1 below its target of 153 million. Long way to go. As we mentioned, Twitter wasn't a significant player in the digital ad landscape. When you look at share of spending before the takeover, it was only 1% of US digital ad spend. Now it's close to 0.4%, so a long way to go and also a long way to go to get that valuation back up. In December, X estimated to be worth just 30% of what Mr. Musk had paid for it according to Fidelity again.

(15:02):

Despite revenue turnaround this year, we still expect X users to continue to continue to decline in the US, falling from 52 million users today to 50 million next year. That would mean, since Mr. Musk took over, users have fallen by 17% from 2022 to 2026. Emmy, where have X users migrated to if anywhere?

Emmy Liederman (15:30):

I think a lot of it is Bluesky has seen some uptick. I think that people are particularly interested in Bluesky because it has orientation and people like AOC and more liberal figures have moved over to Bluesky. But I think that Meta has tried harder, has been more successful, I should say, at garnering a lot of these audiences, leaning into sports a lot more because that is a use case that's really popular among Twitter users or X users, and launching this partnership with UFC. I would say, out of the competitors, Threads would be the one to look out for the most. Marisa, I don't know if you've seen that as well.

Marisa Jones (16:15):

Yeah, I've definitely seen ... and I would say that its most obvious competitor right now is Threads just because Threads is essentially a lookalike app of X, and we are seeing a lot of people migrating there, which we can see in our forecasts showing that Threads users, we expect, will outpace X users by 2026 in the US.

Marcus Johnson (16:35):

Wow.

Marisa Jones (16:35):

Threads really isn't super far off from being at the point where X is at. Thread is on a very steady incline and X is on a very steady decline. And Threads is also now expanding its ads to the global market, which it could very much benefit from advertisers' uncertainty about X's brand safety. Meta overall definitely has a better reputation with advertisers than X does. Seeing an alternative that looks like X, that acts like X, and that will quickly have more users than X, Threads is a big competitor.

Marcus Johnson (17:10):

Yeah. Bluesky, 36 million, I think they're daily users, according to its user count. Threads ... that's fascinating. US users of threads overtaking X by next year is what you said?

Marisa Jones (17:29):

Yeah. 2026.

Marcus Johnson (17:30):

Okay. It's interesting because X, worldwide, they've been losing users ever since Mr. Musk took over, but they still have 350 million global monthly users, so still a lot of folks using the platform.

(17:50):

Let's end with this. What do we think is X's, I don't want to say ceiling, but the turnaround? Do we expect them to get back to where they were? Are they going to have this turnaround this year and start to increase ad revenue at a certain pace, but never get back to the former levels of ad revenues in the future? What do we think about X's short-term future?

Emmy Liederman (18:15):

I think the slight uptick makes sense when you think about the political climate. And I think that a lot of brands want to play nice with Musk and the Trump administration, and they see putting their advertising dollars back into X as a better solution to do that than pulling back on their DEI efforts, because they've really seen that pulling back on DEI has had ... and they come out with data about specifically Gen Z consumers wanting to distance themselves from brands and purchases because of brands that no longer have DEI initiatives or don't align with their values. I think this is a little bit more of a strategic, "How do we play nice? How do we offer maybe the lesser of two evils in the short term?" and not as much as, "We really want to reach X's audience and we're really ecstatic about their ad solutions."

Marcus Johnson (19:17):

Marisa, how about you?

Marisa Jones (19:17):

Yeah, I feel pretty similarly to Emmy. I think we will see a bit of an uptick continuing in advertisers flocking back to the platform out of fear of political and legal pressures that they might be feeling. But, really, the question is how long this will last, because how much are advertisers going to be willing to be committed to this if the user base is continually declining, especially in core audiences, if Gen Z and younger audiences are losing interest in the platform as it becomes perhaps more leaning towards a political spectrum that Gen Z doesn't align with as heavily? If we're losing core audiences and core sources of digital buyer growth, then how long are advertisers likely to stick around even if they're returning in the short term, especially as alternatives emerge?

Marcus Johnson (20:06):

Yeah. Yeah, we've seen some of the user numbers going down, also our time spent forecast has been ticking down, I think going for about 36 minutes a day down to closer to just 30, to half an hour, which is not nothing, but it's going in the wrong direction. Yeah, all really good points.

(20:23):

That's all we've got time for for today's episode. Thank you so much to my guests for hanging out with me today. Thank you to Marissa.

Marisa Jones (20:29):

Thank you.

Marcus Johnson (20:30):

And to Emmy.

Emmy Liederman (20:31):

Thank you for having me.

Marcus Johnson (20:33):

And thanks to the whole editing crew, Victoria, John, Danny, not Lance, who after the last episode said, "That was pretty good." Pretty good, Lance? Unbelievable. What do you have to say for yourself? He doesn't have a microphone, so nothing. He agrees with me 100%. Stuart runs the team. Sophie does our social media. Thanks to everyone for listening in to Behind the Numbers, an eMarketer video podcast made possible by Giphy.

(20:57):

Tomorrow, Sarah will have another episode of the Reimagining Retail Show, discussing May's eight most interesting retailers of the month list, top eight, not just a random eight. That'd be weird.