Twitter’s Subscription Business
Elon Musk, Twitter’s new owner, announced today that the firm cannot be sustained only by advertising and tweeted information regarding its subscription plans.
In essence, this is a fairly standard business question. which is “how to collect more money from users who might be willing to pay more”. However, it seems to be a hotly debated subject that has attracted absurd amounts of hatred on Twitter (and a few thousand new followers overnight). Commenting on this subject automatically inserts you into discussions about elitism and prejudice against journalists. It’s a lovely mix. Really.
I’m far more interested in leaving that emotion aside and focusing on the business rationale of charging Twitter users $8 a month to be “verified” and for other features, like seeing fewer ads. Many commentators have pointed out that this subscription tier isn’t likely to net Twitter much money. There are 423,700 users verified currently. If they all paid, that would be $41 million in new revenue.
Small. even teeny weeny tiny. But is it worth it? Maybe. Because it’s important to remember that not all revenue is created equal when assessing new businesses. Subscription revenue is recurring. If your product isn’t that terrible, you won’t necessarily require a sales team, and you’ll probably keep the bulk of your customers year after year. Twitter Blue users will eventually have a far higher lifetime value than $8 per month or $96 per year.
Of course, there is always a risk. Twitter will now need to understand how the subscription business will impact its advertising revenue. Longtime ex-COO and adult-in-the-room Sheryl Sandberg has consistently opposed Facebook’s launch of a subscription service because it would have restricted the number of customers that Facebook could sell advertisements to. That’s a risk. At the same time, a product that would verify users and give advertisers more confidence about who they are reaching could help sales.
So there’s lots to figure out. But the subscription business should not be dismissed as too small off the bat. That’s the kind of thinking that made Twitter a takeover target to begin with. The smarter business leaders make decisions based on the value of the revenue in years to come. By that measure, subscription is another revenue stream with huge potential. Musk would be crazy not to do it.
Uber’s Financial Statements
Uber reported a net loss of $1.2 billion for the third quarter, $512 million of which was attributed to revaluations of Uber’s equity investments, according to a company release. Revenue was up 72% year over year.
The numbers are not always what they might seem! The company posted $8.3 billion in revenue, which rose 72% compared to the same period last year. But if you dig into what’s inside that $8.3 billion, it becomes clear the company’s organic growth was not that much after all.
Uber said its mobility division (the ride-hailing business) brought in $3.8 billion in revenue in the most recent quarter, growing 73%. But baked into that number is $1.1 billion flowing from a change earlier this year that prompted Uber to start recording all the fares it gets in the U.K. as revenue, instead of just the take rates remaining after the company pays its drivers.
If you take that $1.1 billion out of the total, the company’s mobility arm posted $2.7 billion in revenue. This means that they are up 23% from the same period last year. Back to where it was before the pandemic (the company’s mobility arm posted just nearly $2.9 billion in Q3 of 2019). Of course, this is still a significant milestone given that Covid-19 hit its mobility arm hardest. In the depths of the pandemic, food delivery accounted for most of Uber’s sales.
In terms of total revenue, taking out that $1.1 billion suggests the company’s top line grew nearly 50% year over year (not 72%). But you also have to consider that Uber’s freight division benefited significantly this quarter from the company’s acquisition of Transplace, a logistics company. And while Uber doesn’t break out exactly what impact that deal had on its numbers, it just goes to show: Always read the fine print.