-Written by Shiqi-
Elon Musk has made up his mind to walk away from his $44 billion purchase in response to Twitter’s ($TWTR) hide of bots’ statistics. Even though Twitter stated that fake accounts make up less than 5% of total users, they did not present a solid report to show the accuracy. And an expert estimating the fake account to be 10-15% fueled even more questions about their fake account issues.
Q1: How could spam accounts affect business models in Twitter?
- Account promotion charges are directly affected by fake accounts
- Bots’ data would make advertisers swift to other social platforms
- Fake accounts can be used to increase real followers in some way
Advertising services generated 89% Of Twitter’s revenue in FY 2021, and data licensing takes the rest of it. Twitter advertising pricing depends heavily on ad types (Promoted tweets, promoted accounts, and promoted trends). Promoted tweets cost $0.50 to $2 per action, while promoted accounts cost $2 to $4 per follow. Besides, promoted trends cost $200,000 per day.
To charge more money, Twitter can use fake accounts to follow clients. Suppose that 5% of 229 million accounts are fake ones, there are 11.45 million bots/fake accounts, and they charged at least $22.9 million more from clients according to the minimum charge standard for account promotion and possibly more if the percentage is significantly higher. However, users are more likely to follow accounts that have more followers, and it makes sense for Twitter to create fake accounts and use them for promotions. Apart from this, although tweet promotion and trend promotion are not directly affected by bots’ numbers, clients take the number of active users into consideration when choosing which social platform to do the advertisement on. It is possible that Twitter will lose clients after this.
Q2: Are there any possibilities that Twitter will recover from it soon?
Yes. Musk has clarified that he remains committed to the deal, and his team will figure out a way to analyze the fake accounts. Back in April, he launched a surprise bid to buy Twitter for $54.2, and he may use the bot’s problem to bargain about the price now. Once both parties reach a reasonable price, Twitter will revive.
Conclusion: With undisclosed statistics about bots, possible fierce lawsuits, possible lawsuits from clients, a likelihood of clients losing faith, which will result in reduced spending or completely shutting down advertising deals, and uncertainty around the deal with Elon Musk, it is not a good time to buy the stock, and Twitter will go down in the short term until they compromise on a reasonable price. If you are currently holding shares, write calls to make as much as possible since this lawsuit might drag out for a while
Do your own DD before making any investment decisions.