X revenue climbs with focus on AI and subscriptions

Elon Musk's X is shifting its revenue focus from advertising to data licensing, subscriptions, and artificial intelligence. This pivot appears to be paying off, as financial data indicates an increase in revenue from these streams, according to reports.

Materials shared with investors regarding a debt sale reveal that X, formerly Twitter, generated $91 million in revenue from data licensing and subscriptions in February, marking a 30 percent year-over-year growth. While advertising revenue also saw an uptick, it increased by 4 percent, reaching $146 million in February compared to $140 million in the same month last year, further reports indicate.

This contrasts with the platform's business model prior to Musk's acquisition. At that time, X heavily relied on advertising from companies. However, this revenue stream experienced erosion following Musk's implementation of changes to the platform. While advertising revenue has since stabilized, the growth in data licensing and subscriptions highlights a shift in the company's foundations.

Further underscoring this direction is Musk's recent decision to integrate X with his artificial intelligence company, xAI. Information shared with investors reveals the creation of a holding company, XAI Holdings, which now owns both entities. This alignment with AI is being presented as a factor in attracting investor interest.

Despite a decline in advertising revenue compared to its pre-acquisition peak – with Twitter's 2021 advertising revenue reaching $4.5 billion and projections for X's ad sales this year estimated at $2.26 billion – investor sentiment appears to be improving. Morgan Stanley recently launched the sale of remaining debt related to Musk's 2022 buyout, citing a turnaround in the platform's prospects.

Financial disclosures indicate that X now boasts nearly $1.5 billion in earnings before interest, taxes, depreciation, and amortization (Ebitda). This financial performance has enabled the company to secure nearly $900 million in an equity funding round from Musk and other investors, valuing the company at approximately $44 billion – the same valuation as Musk's purchase.

X's balance sheet is also showing signs of strengthening, with cash on hand increasing significantly from a range of $120 million to $320 million during the year through January to nearly $1.1 billion currently. The company intends to utilize some of these funds to repay debt or to invest in technology initiatives.

However, debt servicing remains a burden. Sources familiar with the matter revealed that X paid approximately $200 million in debt-servicing costs in March alone, with interest expenses exceeding $1.3 billion by the end of 2024.

In an effort to alleviate costs, the ongoing Morgan Stanley-led debt offering aims to refinance a portion of the buyout financing, which currently carries a 14 percent interest rate. The debt is being marketed with a 9.5 percent coupon, projected to reduce X's interest expense by $43 million.

As X strategically pivots towards AI and subscription-based revenue models, coupled with a focus on cost reduction, the company appears to be navigating a financial landscape that is increasingly capturing the attention and optimism of investors.