There's no love lost between Mark Zuckerberg and Elon Musk. In fact, the two billionaires allegedly agreed to a physical fight recently before Musk's mother reportedly intervened to call it off. Even if that fight didn't take place, Zuckerberg is about to land an incredibly painful blow on Musk without even throwing a punch. That's because his company, Meta Platforms (META 0.43%), just launched "Threads," a brand-new social media platform designed to compete directly with Twitter, which Musk purchased and took private for a whopping $44 billion last year.
Twitter has been plagued with challenges ever since the acquisition, with advertisers abandoning the social media platform and the majority of its workforce getting laid off. Musk himself recently admitted the company was just months away from having to file for bankruptcy protection.
Is Meta's latest move about to deal the final blow?
Image source: Getty Images.
Twitter has opened the door to an existential threat
Twitter is undoubtedly Elon Musk's favorite social media platform, and that was true long before he bought it. He frequently uses it to post his musings, share memes, and update his customers on exciting developments at his other companies (Tesla, SpaceX, and Neuralink).
He made a formal $44 billion offer to buy Twitter in 2022, but not long after he tried to back out of the deal when he realized that running the platform would not be a walk in the park. After all, $44 billion is a lot of money to stake on a business Musk knew very little about running, even if he was the world's richest person at the time. He eventually agreed to finalize the acquisition when it became clear his legal case for nullifying the deal wouldn't win in court.
The early stages of the Twitter-Musk era were somewhat disastrous. His goal was to create a true public town square, where freedom of speech reigned supreme. But advertisers started ditching the platform when they realized the changes Musk advocated would result in an unmoderated free-for-all. A recent report claims Twitter's ad revenue for April was down a whopping 59% year over year.
In an interview with CNBC's David Faber in May, Musk said Twitter was on track to lose $3 billion annually shortly after his acquisition, and it had just $1 billion in cash left in the bank. That placed the company just four months away from bankruptcy, which prompted Musk to slash 80% of Twitter's staff and broadly reduce expenditures. Musk says Twitter is now close to profitability, though it's clearly a much smaller operation. He's simply cut costs to meet a much lower revenue base.
The changes, along with the discontent among users and advertisers, opened the door to a wave of would-be competitors who sense weakness and would love to capture Twitter's hundreds of millions of daily active users. Former Twitter co-founder Jack Dorsey has even developed a rival company called BlueSky. And now, Mark Zuckerberg is swooping in with all the resources of his $750 billion Meta Platforms company behind him.
Introducing "Threads"
According to The New York Times, early disagreements between the two billionaires can be traced back to a 2014 dinner at Zuckerberg's house, where he and a team of Facebook developers tried to convince Musk that artificial intelligence (AI) was a positive for the world. Musk disagreed, and he even spent time posting his concerns on Twitter that same year, warning that AI could be more dangerous than nuclear weapons.
The disagreement morphed into a feud in 2016 when a SpaceX rocket reportedly destroyed a Facebook satellite, prompting the billionaires to exchange words publicly. Musk has spent years jabbing Facebook since then, urging people to delete the app amid privacy concerns -- but really, it's more likely because he just doesn't like Zuckerberg.
In a counterpunch, reports suggest Meta immediately began designing a Twitter competitor the moment Musk's acquisition became official. Somewhere between that moment and the official launch of Threads this week, Zuckerberg and Musk supposedly agreed to a physical cage fight. Depending on your view of the world, you're either very grateful or very disappointed it has been called off (allegedly by Musk's mother, of all people).
After using it myself, I can see that Threads has genuine potential to unseat Twitter. It's still very light on features; there's no "trending" section yet, nor is there a chat function, but since Meta's other assets like Facebook and Instagram already have those, it probably won't be long before Threads does, too.
So far, 25 million users have signed up to Threads in just the first few hours since its launch. Zuckerberg says the world needs a public conversations app with over 1 billion people on it, and that Twitter failed to "nail it."
Threads could become what Twitter aspired to be
Meta Platforms already has over 3.8 billion monthly active users across Facebook, Instagram, and WhatsApp, so it has a distinct advantage over the start-ups trying to take advantage of Twitter's woes. Only 10% of Meta's users would need to move over to Threads to make it as active as Twitter is right now, and just 26% would have to join to make Zuckerberg's vision for the app a reality.
In 2021 (prior to Musk's involvement), Twitter generated $5 billion in revenue, a drop in the bucket for Meta, given it's expected to take in $126 billion this year. However, a Threads app with over 1 billion users would have very different economics, so it could wind up becoming a meaningful revenue generator for the company.
Overall, Meta has the user base, development teams, monetization experience, and financial resources to make Threads a success. For those reasons, I think Zuckerberg is about to deal a devastating blow to Musk without ever setting foot in the ring.
Here's the good news for investors and observers: While Twitter is now a private company, Meta Platforms is very much public, and you can buy shares today and tag along for the ride.
