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Science

Elon Musk’s SpaceX Prepares for Starship Launch

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SpaceX is gearing up for a key test of its immense rocket that is designed for commercial launches, as well as the Mars mission

Elon Musk

has long sought.

Near a beach east of Brownsville, Texas, employees at Mr. Musk’s space company are preparing for the inaugural orbital flight of Starship, the towering rocket system the company has been developing for years to one day launch into deep space. The initial test mission would last around 90 minutes, beginning with a fiery blast of the ship’s booster over the Gulf of Mexico, SpaceX has said in a regulatory filing. 

It isn’t clear when SpaceX will attempt the first flight, after dates Mr. Musk has discussed came and went. Some officials at the National Aeronautics and Space Administration, a customer for a version of Starship, previously said they thought the mission could occur in early December. 

A SpaceX Falcon 9 rocket lifted off this month with a payload of 40 satellites for OneWeb’s broadband-satellite network.



Photo:

John Raoux/Associated Press

Mr. Musk, who acquired Twitter Inc. and recently delivered Tesla Inc.’s first all-electric semitrailer trucks, has described getting Starship into orbit as one of his main goals. At SpaceX, which Mr. Musk founded in 2002 and still leads, he has said the rocket system is consuming significant resources and faces formidable technical hurdles. 

The company is using new engines it developed on Starship and wants to be able to quickly and rapidly reuse the vehicle, akin to how airlines operate planes. Starship is also really big: Fully stacked, it stands taller than the rocket NASA recently used on its first Artemis moon mission. 

“There’s a lot of risks associated with this first launch, so I would not say that it is likely to be successful, but I think we’ll make a lot of progress,” Mr. Musk said last year, during an appearance before a National Academies of Sciences, Engineering, and Medicine panel.  

A spokesman for Space Exploration Technologies Corp., as the company is formally called, didn’t respond to requests for comment.

SpaceX’s Starship program has encountered setbacks on shorter-altitude flights, and it isn’t clear how much it would cost if something similar happened on an orbital mission.

Japanese billionaire Yusaku Maezawa plans a journey around the moon on Starship.



Photo:

philip fong/Agence France-Presse/Getty Images

The company’s strategy of accepting potential failures, and learning from them, has helped it develop spacecraft like Falcon 9, the workhorse rocket the company used on almost 60 launches this year through mid-December, former employees said.

“It’s better to lose them now than to lose them because you left data on the table, because you were too scared to have a failure in public during the development phase,” said Abhi Tripathi, who worked in several director roles at SpaceX and currently serves as mission operations director at the University of California-Berkeley Space Sciences Laboratory.

At SpaceX, “risk taking, as long as it is safe to personnel and to property, is highly encouraged,” Mr. Tripathi said. 

Jeff Bezos

‘ space company Blue Origin LLC is also working on its own large rocket, as is United Launch Alliance, the launch company jointly owned by

Boeing Co.

BA 0.53%

and

Lockheed Martin Corp.

SpaceX’s Starbase launch site in Texas.



Photo:

ADREES LATIF/REUTERS

If it works, SpaceX’s vehicle would lower the cost to get to orbit and give the company a sophisticated new rocket system, Mr. Musk said earlier this year. If it doesn’t, the program could threaten to become a money pit for a company that already has two proven rockets—Falcon 9 and Falcon Heavy—that are partially reusable, according to space-industry analysts and executives. 

NASA is a major backer for Starship, providing deals valued at more than $4 billion to use a moon-lander version of the vehicle for Artemis exploration missions. Senior agency officials have said the company has been meeting milestones under its contract. 

Technology entrepreneur Jared Isaacman and the Japanese billionaire

Yusaku Maezawa

have both said they purchased flights using the vehicle. A Japanese satellite operator said in August that it would use Starship to deploy a company satellite. 

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Will SpaceX ever send humans to Mars? Join the conversation below.

Starship is made up of a 230-foot-tall booster called Super Heavy that would power a 164-foot-tall spacecraft, also called Starship, into orbit, according to SpaceX. The latter ship is designed to carry cargo or crew, with a user’s guide touting room for up to 100 people. The spacecraft is designed to be refueled in orbit, enabling longer-distance flights, according to company and NASA presentations. 

SpaceX is spending heavily on the Starship program, according to space industry analysts. The privately held company has raised significant funds lately, selling at least $6.1 billion in stock over the past three years, according to securities filings. SpaceX recently began marketing employee shares for sale at a price that would value the company at around $140 billion.  

Mr. Musk has warned that SpaceX could face bankruptcy if a severe global recession made capital and liquidity difficult to obtain while the company was investing in Starship and Starlink, its satellite-internet business.

Technical challenges with new rockets are common. In July, the company had to deal with a fiery blast underneath one of the Super Heavy boosters, though last month SpaceX said it completed a significant engine test. SpaceX also has lost Starship prototypes. Two years ago, a Starship spacecraft flew a short-altitude test flight without a booster, but smashed into the ground when trying to land. 

In May 2021, the company landed a Starship spacecraft for the first time after another short flight.

For the first orbital test, SpaceX expects to bring the booster down in the Gulf of Mexico and land the Starship spacecraft in the Pacific Ocean, near a Hawaiian island, according to a company filing with the Federal Communications Commission. 

Jeff Thornburg, a former SpaceX propulsion executive, said the company’s biggest challenge is ensuring the Starship spacecraft can safely return to Earth. The vehicle will endure enormous stress and heat as it re-enters the atmosphere from orbit, he said, but is designed to be used quickly and repeatedly.

“Reusability brings a lot of complicated engineering, because it can’t just survive once. It’s got to survive 10, 20, 100 plus times,” he said.

After months of delays, the FAA released its long-awaited environmental assessment of SpaceX’s South Texas Starbase launch site. WSJ’s Micah Maidenberg explains what the decision means for SpaceX and the company’s Starship program going forward. Photo Illustration: Alexander Hotz/WSJ

Write to Micah Maidenberg at micah.maidenberg@wsj.com

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Business

Elon Musk Seeks Additional Funds for Twitter

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Elon Musk’s

team has reached out for potential fresh investment for Twitter Inc. at the same price as the original $44 billion deal, according to one shareholder who said he was contacted about the proposal.

Ross Gerber,

president and CEO at Gerber Kawasaki Wealth & Investment Management, said a representative for Mr. Musk contacted him about offering more shares Thursday.

Mr. Gerber said his firm had previously put up less than $1 million to back Mr. Musk’s takeover of Twitter, which was completed in late October at a price of $54.20 per share.

Semafor earlier reported the new outreach to investors.

Elon Musk has warned of dire financial challenges facing Twitter, the social media company he took over for $44 billion in October. WSJ’s Mark Maurer explains how the company is trying to fix its finances and avoid a potential bankruptcy. Photo Illustration: Laura Kammermann

Twitter didn’t immediately respond to a request for comment. 

Additional equity investments would likely dilute existing Twitter shareholders. The potential extent of the dilution from the latest fundraising effort couldn’t immediately be determined.

Mr. Musk this week sold more than $3.5 billion worth of

Tesla Inc.

TSLA -4.72%

stock. It was his second round of sales since buying Twitter Inc. Mr. Musk sold nearly 22 million Tesla shares over a three-day period ended Dec. 14, according to a regulatory disclosure made public Wednesday.

Mr. Musk’s ownership of Twitter has gotten off to a tumultuous start. Last month, Mr. Musk said Twitter had suffered “a massive drop in revenue” and was losing $4 million a day. He later invoked the specter of bankruptcy.

As part of the acquisition, Twitter took on around $13 billion in debt. That could leave the social-media company owing annual interest payments of more than $1 billion, analysts have estimated, compared with around $51 million in 2021.

Mr. Musk’s focus on Twitter has irritated some Tesla investors as the company tracks for its worst annual stock-price performance on record.

Mr. Gerber said he was reviewing the proposal, but had some questions about how Twitter was being run. Those include how long Mr. Musk intended to act as chief executive and any transition plan, he added. 

Last month, Mr. Musk said he expects to find someone else to run Twitter, without giving a specific timeline for when the appointment might happen. 

Twitter has been in turmoil since Elon Musk took over. To get a sense of what’s going on behind the scenes, The Wall Street Journal spoke with former Tesla and SpaceX employees to better understand how Musk leads companies. Illustration: Ryan Trefes

Mr. Gerber, who also is an investor in Mr. Musk-run electric car maker Tesla Inc., said he wasn’t concerned about how Twitter is doing so far, but said he wanted more communication. “I think they just need to be clear with everybody about what’s going on. Not just with Twitter, but Tesla,” he said.

Several Tesla investors, including Mr. Gerber, have expressed frustration recently that Mr. Musk’s involvement in Twitter might be to the detriment of the auto maker. Tesla’s stock is down more than 57% this year. 

Mr. Musk on Friday tweeted that “Tesla is executing better than ever” and that he had earlier that day gone over production progress at the company’s plant in Texas.

Write to Alexa Corse at alexa.corse@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the December 17, 2022, print edition as ‘Musk Seeks Additional Funds for Twitter.’

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Business

Facebook Parent’s Oversight Board Criticizes ‘Cross Check’ Program That Protects VIP Users

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Meta Platforms Inc. has long given unfair deference to VIP users of its Facebook and Instagram services under a program called “cross check” and has misled the public about the program, the company’s oversight board concluded in a report issued Tuesday.

The report offers the most detailed review to date of cross check, which Meta has billed as a quality-control effort to prevent moderation errors on content of heightened public interest. The oversight board took up the issue more than a year ago in the wake of a Wall Street Journal article based on internal documents that showed that cross check was plagued by favoritism, mismanagement and understaffing.

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Business

Twitter Exodus Hits Teams Tasked With Regulatory, Content Issues Globally

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Elon Musk’s

move to purge Twitter Inc. employees who don’t embrace his vision has led to a wave of departures among policy and safety-issue staffers around the globe, sparking questions from regulators in key jurisdictions about the site’s continued compliance efforts.

Scrutiny has been particularly close in Europe, where officials have in recent years assumed a greater role in regulating big tech companies.

Staff departures in recent days include dozens of people spread across units such as government policy, legal affairs and Twitter’s “trust and safety” division, which is responsible for functions like drafting content-moderation rules, according to current and former employees, postings on social media and emails sent to work addresses of people who had worked at Twitter that recently bounced back. They have left from hubs including Dublin, Singapore and San Francisco.

Many of the departures follow Mr. Musk’s ultimatum late last week that staffers pledge to work long hours and be “extremely hardcore” or take a buyout. Hundreds or more employees declined to commit to what Mr. Musk has called Twitter 2.0 and were locked out of company systems. That comes after layoffs in early November that cut roughly half of the company’s staff.

Twitter conducted another round of job cuts affecting engineers late Wednesday, before the Thanksgiving holiday in the U.S., people familiar with the matter said. The exact scope couldn’t be immediately learned, though some of the people estimated dozens of employees were let go.

Twitter sent fired engineers an email saying their code wasn’t satisfactory and offering four weeks of severance, some of the people said. Some other engineers received an email warning them to improve their performance to keep their jobs, the people said.

Ireland’s Data Protection Commission said this week it was asking Twitter whether it still had sufficient staff to assure compliance with the European Union’s privacy law, the General Data Protection Regulation, or GDPR. The company last week told the Irish data regulator that it did, but is still reviewing the impact of the staff departures, a spokesman for the Irish regulator said.

He said Twitter has appointed an interim chief data protection officer, an obligation under the GDPR, after the departure of Damien Kieran, who had served in the role but left shortly after the first round of layoffs.

In France, meanwhile, the country’s communications regulator said it sent a letter last Friday asking that Twitter explain by this week whether it has sufficient personnel on staff to moderate hate speech deemed illegal under French law—under which Twitter could face legal orders and fines.

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What will be the impact on Twitter of having a reduced staff to oversee regulatory and content issues? Join the conversation below.

The staff departures come as Twitter holds talks with the EU about the bloc’s new social-media law, dubbed the Digital Services Act, which will apply tougher rules on bigger platforms like Twitter by the middle of next year.

Didier Reynders,

the EU’s justice commissioner, is slated to attend a previously scheduled meeting with Twitter executives in Ireland on Thursday. He plans to ask about the company’s ability to comply with the law and to meet its commitments on data protection and tackling online hate speech, according to an EU official familiar with the trip.

Věra Jourová, a vice president of the EU’s executive arm, said she was concerned about reports of the firing of vast amounts of Twitter staff in Europe. “European laws continue to apply to Twitter, regardless of who is the owner,” she said.

Mr. Musk has said that he would follow the laws of the countries where Twitter operates and that it “cannot become a free-for-all hellscape.”

Twitter didn’t respond to a request for comment.

Late Wednesday, Mr. Musk tweeted that the number of views of tweets he described as “hate speech” had fallen below levels seen before a spike in such views in late October.
“Congrats to the Twitter team!” Mr. Musk wrote. 

Some of the people who either departed or declined to sign on to Twitter 2.0 appear to include Sinead McSweeney, the company’s Ireland-based vice president of global policy and philanthropy, who led government relations and compliance initiatives with regulations worldwide, as well as the two remaining staffers in Twitter’s Brussels office.

Ms. McSweeney and the two Brussels employees declined to comment, but emails to their work addresses started bouncing back undeliverable in recent days according to checks by The Wall Street Journal. Four other Brussels-based employees were earlier this month told they were being laid off, according to social-media posts and people familiar with the matter.

Twenty Air Street, London, the home of Twitter’s U.K. office.



Photo:

Dan Kitwood/Getty Images

Damien Viel, Twitter’s country manager for France, was also among a wave of staffers who posted publicly this week that they had left the company. He declined to comment when reached by the Journal.

At least some of the departures occurred in teams that reported to

Yoel Roth,

Twitter’s former head of trust and safety, who resigned earlier this month. In an op-ed for the New York Times, Mr. Roth said he resigned because Mr. Musk made it clear that he alone would make decisions on policy and the platform’s rules and that he had little use for those at the company who were advising him on those issues.

The team included Ilana Rosenzweig, who worked as Twitter’s senior director and head of international trust and safety. She has left the company, according to her LinkedIn profile. Based in Singapore, Ms. Rosenzweig led Twitter’s trust and safety teams across Europe, the Middle East and Africa, along with Japan and other Asia-Pacific countries, according to her profile.

“I decided not to agree to Twitter 2.0,” Keith Yet, a Twitter trust and safety worker based in Singapore, wrote on LinkedIn on Monday. Mr. Yet worked on child sexual exploitation issues and handling legal escalations from Japan and other countries, according to his LinkedIn profile. Attempts to reach Ms. Rosenzweig and Mr. Yet were unsuccessful.

The departures come amid a wave of new tech regulation, particularly in Europe. The Digital Services Act, which will by the middle of next year require tech companies like Twitter with more than 45 million users in the EU to maintain robust systems for removing content that European national governments deem to be illegal. 

The layoff announcements just keep coming. As interest rates continue to climb and earnings slump, WSJ’s Dion Rabouin explains why we can expect to see a bigger wave of layoffs in the near future. Illustration: Elizabeth Smelov

The act also requires these companies to reduce risks associated with content that regulators consider harmful or hateful. It mandates regular outside audits of the companies’ processes and threatens noncompliance fines of up to 6% of a company’s annual revenue.

Political leaders had warned that Mr. Musk’s Twitter would have to comply with EU rules. “In Europe, the bird will fly by our rules,” tweeted the EU’s commissioner for the internal market,

Thierry Breton,

hours after Mr. Musk completed his Twitter deal in late October tweeting, “the bird is free.”

A spokesman for the European Commission, the EU’s executive arm, said this week that it had active contacts with the company regarding the regulation and tackling disinformation and illegal hate speech, but declined to comment on the substance of Twitter’s compliance plans.

Activists and researchers are also concerned that the departures could undermine Twitter’s ability to block state-backed information operations aimed at spreading propaganda and harassing adversaries. The wave of departures “raises questions about how Twitter will moderate tweets and comments in a professional and neutral manner,” said Patrick Poon, an activist turned scholar at Japan’s Meiji University, who analyzes free speech.

—Liza Lin, Alexa Corse and Sarah E. Needleman contributed to this article.

Write to Sam Schechner at Sam.Schechner@wsj.com, Kim Mackrael at kim.mackrael@wsj.com and Newley Purnell at newley.purnell@wsj.com

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Science

CRISPR tools found in thousands of viruses could boost gene editing

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A systematic sweep of viral genomes has revealed a trove of potential CRISPR-based genome-editing tools.

CRISPR–Cas systems are common in the microbial world of bacteria and archaea, where they often help cells to fend off viruses. But an analysis1 published on 23 November in Cell finds CRISPR–Cas systems in 0.4% of publicly available genome sequences from viruses that can infect these microbes. Researchers think that the viruses use CRISPR–Cas to compete with one another — and potentially also to manipulate gene activity in their host to their advantage.

Some of these viral systems were capable of editing plant and mammalian genomes, and possess features — such as a compact structure and efficient editing — that could make them useful in the laboratory.

“This is a significant step forward in the discovery of the enormous diversity of CRISPR–Cas systems,” says computational biologist Kira Makarova at the US National Center for Biotechnology Information in Bethesda, Maryland. “There is a lot of novelty discovered here.”

DNA-cutting defences

Although best known as a tool used to alter genomes in the laboratory, CRISPR–Cas can function in nature as a rudimentary immune system. About 40% of sampled bacteria and 85% of sampled archaea have CRISPR–Cas systems. Often, these microbes can capture pieces of an invading virus’s genome, and store the sequences in a region of their own genome, called a CRISPR array. CRISPR arrays then serve as templates to generate RNAs that direct CRISPR-associated (Cas) enzymes to cut the corresponding DNA. This can allow microbes carrying the array to slice up the viral genome and potentially stop viral infections.

Trove of CRISPR-like gene-cutting enzymes found in microbes

Viruses sometimes pick up snippets of their hosts’ genomes, and researchers had previously found isolated examples of CRISPR–Cas in viral genomes. If those stolen bits of DNA give the virus a competitive advantage, they could be retained and gradually modified to better serve the viral lifestyle. For example, a virus that infects the bacterium Vibrio cholera uses CRISPR–Cas to slice up and disable DNA in the bacterium that encodes antiviral defences2.

Molecular biologist Jennifer Doudna and microbiologist Jillian Banfield at the University of California, Berkeley, and their colleagues decided to do a more comprehensive search for CRISPR–Cas systems in viruses that infect bacteria and archaea, known as phages. To their surprise, they found about 6,000 of them, including representatives of every known type of CRISPR–Cas system. “Evidence would suggest that these are systems that are useful to phages,” says Doudna.

The team found a wide range of variations on the usual CRISPR–Cas structure, with some systems missing components and others unusually compact. “Even if phage-encoded CRISPR–Cas systems are rare, they are highly diverse and widely distributed,” says Anne Chevallereau, who studies phage ecology and evolution at the French National Centre for Scientific Research in Paris. “Nature is full of surprises.”

Small but efficient

Viral genomes tend to be compact, and some of the viral Cas enzymes were remarkably small. This could offer a particular advantage for genome-editing applications, because smaller enzymes are easier to shuttle into cells. Doudna and her colleagues focused on a particular cluster of small Cas enzymes called Casλ, and found that some of them could be used to edit the genomes of lab-grown cells from thale cress (Arabidopsis thaliana), wheat, as well as human kidney cells.

CRISPR ‘cousin’ put to the test in landmark heart-disease trial

The results suggest that viral Cas enzymes could join a growing collection of gene-editing tools discovered in microbes. Although researchers have uncovered other small Cas enzymes in nature, many of those have so far been relatively inefficient for genome-editing applications, says Doudna. By contrast, some of the viral Casλ enzymes combine both small size and high efficiency.

In the meantime, researchers will continue to search microbes for potential improvements to known CRISPR–Cas systems. Makarova anticipates that scientists will also be looking for CRISPR–Cas systems that have been picked up by plasmids — bits of DNA that can be transferred from microbe to microbe.

“Each year we have thousands of new genomes becoming available, and some of them are from very distinct environments,” she says. “So it’s really going to be interesting.”

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Business

How Elon Musk’s Twitter Faces Mountain of Debt, Falling Revenue and Surging Costs

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To make the deal work, Mr. Musk has been trying to add subscription revenue and reassure advertisers about the platform’s future. Twitter was losing money before Mr. Musk bought the company, and the deal added a debt burden that requires fresh sources of cash.

It is tough to determine the state of the company. Twitter no longer has to file regular financial reports to the Securities and Exchange Commission, which are crucial tools for determining a company’s financial health.

Analysts and academics have been able to piece together a picture of the company from information Mr. Musk has offered as well as details of the deal and the company’s last regulatory filings. Bankruptcy could be one result. Mr. Musk, the world’s richest person, could also raise new funds, or buy back debt from lenders, giving Twitter a buffer to turn around its business. 

Here is a look at their assessments of Twitter’s financial situation and prospects. 

Twitter Finances, Pre-Musk

Twitter is and was a popular tool for politicians, celebrities and journalists. But as a business, it was stagnating. 

It hasn’t booked an annual profit since 2019, and posted a loss in eight years of the past decade. The company’s net loss narrowed in 2021, to $221.4 million from $1.14 billion the previous year.

Twitter has struggled to attract new users and increase revenue, which came in at about $5.1 billion last year. In its last quarterly filing as a public company, for the period ended June 30, revenue was $1.18 billion, down slightly year-over-year. 

Nearly 90% of its revenue last year came from advertising, and it traditionally has been the company’s main source of revenue. In 2021, Twitter took in $4.51 billion from advertisers, and $572 million from licensing data and other services.

The company had more than $2 billion in cash and less than $600 million in net debt before the takeover talks—very little debt for a company in the S&P 500 index. But that cash position was down 35% from a year earlier as of June 30, filings show, and Mr. Musk paid for Twitter by taking on $13 billion in debt. He paid for the rest in equity, some contributed by multiple investors. 

Twitter had a market capitalization of $37.48 billion in March, the month before Mr. Musk agreed to buy it, S&P data showed. Social-media stocks have slumped sharply since then. But now, according to

Jeffrey Davies,

a former credit analyst and founder of data provider Enersection LLC, “This thing’s probably not worth more than what the debt stack is, quite frankly, unless you put a lot of option value just on Elon.” Mr. Musk last month said he and investors were overpaying for the company in the short term. 

Revenue Under Musk

Mr. Musk said earlier this month that Twitter had suffered “a massive drop in revenue” and was losing $4 million a day. It isn’t clear if that reflects the broader downturn in the digital ad market or the pause in advertising by several companies since Mr. Musk bought the business. 

Some companies, including burrito chain

Chipotle Mexican Grill Inc.,

cereal maker

General Mills Inc.

and airline

United Airlines Holdings Inc.,

have paused their ad spending on Twitter over uncertainty around where the company is headed. The departure of several top executives from its ad department have soured relationships, The Wall Street Journal has reported.

The exodus of advertisers poses a threat for a company so reliant on that revenue stream. “As an online ad company, you’re flirting with disaster,” said

Aswath Damodaran,

a finance professor at New York University’s Stern School of Business. 

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Deal negotiations for long-term contracts that usually begin at the end of the year haven’t taken place yet or have been put on hold. Those deals comprise more than 30% of Twitter’s U.S. ad revenue, The Wall Street Journal reported.

Revenue will likely remain under pressure until advertisers fully grasp the new business model, potentially leading many of them to return to the platform, said

Brent Thill,

a senior analyst at Jefferies Group LLC, a financial-services firm. “Those advertisers will come back if they feel that the users are there and there’s an ability to monetize their advertisement,” Mr. Thill said. 

But that could take time. Mr. Thill said it could take months for advertisers to get clarity. “It’s an enigma,” he said.  

Market-research firm Insider Intelligence Inc. recently cut its annual ad-revenue revenue outlook for Twitter by nearly 40% through 2024. 

Mr. Musk wants the company to lean more on subscriptions and depend less on digital advertising. He said last Tuesday that the company’s upgraded subscription service, costing $7.99 a month, would launch Nov. 29. 

A walkway at Twitter headquarters in San Francisco. The company has aggressively cut staff to reduce expenses.



Photo:

George nikitin/Shutterstock

Reducing Costs

The company has moved quickly to slash costs, including cutting its staff by half. Salaries and other compensation make up a large chunk of overall expenses. The company had 7,500 full-time employees at the end of 2021, up from 5,500 a year earlier, filings show.

The layoffs of roughly 3,700 people could save the company roughly $860 million a year, if the employees that are leaving made an average of about $233,000 annually—the company’s most recently disclosed median pay figure. The estimated savings would represent about 15% of Twitter’s $5.57 billion in costs and expenses last year. Its costs and expenses climbed 51% from the previous year, as hiring drove up its payroll.

More employees left the company last week, rejecting Mr. Musk’s demand that they commit to working “long hours at high intensity” to stay.

Debt Mountain 

Before Mr. Musk’s acquisition, net debt totaled $596.5 million as of June 30, according to S&P Global Market Intelligence, a data provider. That compares with a negative balance of $2.18 billion the prior-year period, indicating a cash surplus.

Twitter paid $23.3 million in interest expense in the quarter ended June 30, according to a filing. 

Now, the company will have to pay at least $9 billion in interest to banks and hedge funds over the next seven to eight years, when the $13 billion in debt matures, according to a review of Twitter’s loans by Mr. Davies, the former credit analyst.

The interest payments are substantial for a company that reported $6.3 billion in total operating cash flow over the past eight years, he said. 

What’s more, the company’s debt stack now includes floating-rate debt, meaning that interest costs are set to rise as the Federal Reserve continues to increase interest rates. Twitter’s debt was entirely fixed rate before the deal. 

Twitter’s credit ratings, which were below investment grade before the transaction with Mr. Musk, have deteriorated further.

Moody’s

Investors Service on Oct. 31 downgraded Twitter’s rating to B1 from Ba2, a two-notch drop, and S&P Global Ratings on Nov. 1 downgraded it to B- from BB+, a five-notch drop. 

If Twitter files for bankruptcy, Elon Musk’s $27 billion investment would likely be wiped out.



Photo:

Susan Walsh/Associated Press

Financial Prospects 

Twitter’s financial challenges could result in the company filing for bankruptcy, raising equity or buying back some debt from its lenders, analysts and academics said. 

If Twitter files for bankruptcy, as Mr. Musk warned was possible in an all-hands meeting earlier this month, his $27 billion investment would likely be wiped out because equity holders are the last to be paid when a company restructures.

Buying back debt from lenders at a steep discount would help the company reduce its debt load and interest costs as well as its valuation, which would be beneficial in the long run, Mr. Davies said. 

“I don’t think they can issue any more debt,” Mr. Davies said. “It’s a really, really tough structure.” 

The company could also replace some of the debt with equity, both from Mr. Musk and from outside investors, said

David Kass,

a finance professor at the University of Maryland’s

Robert H. Smith

School of Business. For that, Mr. Musk would need to persuade potential investors that he has a viable long-term business plan, he said. Replacing debt could enable the company to generate cash. Mr. Musk has said some of his latest

Tesla Inc.

stock sale, yielding almost $4 billion in cash, was because of Twitter. 

If successful, the company could generate positive free cash flow in two or three years, which it could use to pay down the residual debt and eventually go public again, Mr. Kass said. “The prospect of an eventual IPO within three to five years would be a very attractive enticement for large funds,” he said. 

—Theo Francis and Jennifer Williams-Alvarez contributed to this article.

Write to Mark Maurer at mark.maurer@wsj.com

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Business

Opinion: Tesla investors have been the biggest losers in Elon Musk’s Twitter deal, and those losses continue

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Twitter users have complained a lot about Elon Musk’s early moves after taking control of the social network, but their complaints seem tiny compared with what Tesla Inc. investors have had to suffer.

As the U.S. focused on election returns Tuesday evening, Tesla
TSLA,
-7.17%
Chief Executive Musk tried to slip through disclosure of his long-awaited stock sales, revealing that he had sold nearly $4 billion of Tesla stock in the previous three trading sessions. Musk did not publicly address the stock sales nor his intentions to sell more within 24 hours of the disclosure, even while tweeting roughly 20 times in that period.

[MarketWatch asked him on Twitter to address the sales twice, and did not receive a reply; Tesla disbanded its media-relations department years ago.]

The sales fueled a further downturn in shares of the electric-vehicle maker on Wednesday, when the stock fell 7.2% to $177.59, its lowest closing price since November 2020. Tesla is currently down 49.6% on the year, which would be far and away the worst year yet for the stock — the previous record annual decline was 2016, when it fell 11%.

The problems for Tesla investors go far beyond Musk selling its stock so that he could overpay for a company with limited growth prospects and a host of other problems, but the poor optics certainly start there.

“He sold caviar to buy a $2 slice of pizza,” said Dan Ives, a Wedbush Securities analyst.

Ives was one of several on Wall Street to predict Musk would need to sell more shares to either close a gap in his financing of the $44 billion deal to buy the social-media company, or provide additional operating funds. In a telephone conversation Wednesday, he said the Twitter move is “a nightmare that just won’t end for Tesla investors.”

One reason it isn’t ending is that Musk’s need for cash in relation to Twitter is not done with the recent sales, portending more in the future. Musk said in a tweet late last week that Twitter had a “massive drop in revenue” due to activists pressuring advertisers to pull their ads, and he will have to continue paying the employees he did not lay off while servicing a debt load that analysts have estimated will cost him $1 billion a year, much more than Twitter has cleared in profit in the past two years. Twitter reported a net loss of $221 million in 2021, and a net loss of $1.13 billion for 2020.

Read more about Elon Musk potentially pumping Tesla stock ahead of a sale

“The first two weeks of ownership have been a ‘Friday the 13th‘ horror show,” Ives said, adding that the verification plan and mass layoffs of 50% of employees — and then trying to rehire some of the engineers, developers and cybersecurity experts — was “really stupid.” And, according to CNBC, Musk has also pulled more than 50 Tesla engineers, many from the Autopilot team, to work at Twitter.

“But it’s consistent with how this thing has been handled,” Ives said, adding that Musk is “way over his skis” with the Twitter acquisition.

Amid all the chaos of his first two weeks running Twitter, how much time has Musk had to run his other companies? Musk was already splitting his Tesla time with SpaceX, The Boring Company, Neuralink and many other endeavors, and now he has taken on the gargantuan task of turning a social-media company that has never been highly profitable, nor valuable, into something worth the $44 billion he paid.

The effort, Ives said, has “tarnished his brand,” which in turn has a big risk of hurting Tesla. Many investors have bought into the Tesla story because they believe Musk is a genius and they back his vision of electrifying the automotive industry. Twitter does not meld into that vision, except as a platform to spout his opinions, vitriol and promote more wacky concepts.

Since Musk began his quest to buy the company, he has endured more criticism than ever before, with even some fans starting to throw shade or question his decisions. Investor Gary Black, managing partner of the Future Fund LLC, for example, pointed out that Tesla’s top engineers should not be running Twitter, where the news was getting worse.

Tesla is not a company that can just run itself at this point. Musk has claimed he did not want to be chief executive but that there was no one else to take over the car company, which is why he has served as CEO for years. It’s not clear, though, how much effort he actually has made at trying to recruit someone. Now, as Tesla faces its usual multitude of issues, he is off spending his time trying to turn Twitter into a payments company, or maybe a subscription company, or maybe an “everything app,” or whatever he comes up with tomorrow.

“Musk needs to look in the mirror and end this constant merry-go-round of Twitter overhang on the Tesla story, with his focus back on the golden child Tesla, which needs his time more than ever given the soft macro, production/delivery issues in China, and EV competition increasing from all corners of the globe,” Ives wrote in a note Wednesday, in which he reiterated an outperform rating on Tesla stock.

For Twitter to reach anywhere close to the valuation Musk paid for it, it’s going to need a ton of attention from a focused leader, but how can Musk be that leader and give Tesla the attention it deserves? The answer is he cannot, and is very likely to give the attention that Tesla needs to Twitter instead after committing $44 billion (not all of it his) to that endeavor. Tesla investors will be left staring at the sea of red that this year has wrought, and wondering if its leader is about to sell more shares to fund his other effort.



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Business

Meta’s Mark Zuckerberg Says He Is Accountable as Company Preps for Mass Layoffs

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Meta

META -0.26%

Platforms Inc. will begin laying off employees on Wednesday morning, Chief Executive

Mark Zuckerberg

told hundreds of executives on Tuesday.

The coming cuts are expected to total many thousands of employees and will likely be the largest of the year to date in the tech sector, The Wall Street Journal previously reported.

Mr. Zuckerberg appeared downcast in Tuesday’s meeting and said he was accountable for the company’s missteps, and that his over-optimism about growth had led to overstaffing, according to people familiar with the meeting.

Meta’s head of human resources,

Lori Goler,

told the group that employees who lose their jobs will be provided with at least four months of salary as severance, according to people familiar with the meeting.

Mr. Zuckerberg described broad cuts and specifically mentioned the recruiting and business teams as among those facing layoffs. A general internal announcement of the company’s layoff plans is expected around 6 a.m. Eastern time on Wednesday, with the specific employees losing their jobs informed over the course of the morning.

Following the meeting, company directors in numerous sections of the organization began notifying their subordinates of cuts and reorganizations.

Inside Meta, employees have been seeking specifics about the coming layoffs for days and planning for the worst by forming external groups with current colleagues and discussing how to use benefits.

Meta reported more than 87,000 employees at the end of September. Company officials already told employees to cancel nonessential travel beginning this week, the Journal previously reported.

The planned layoffs would be the first broad head-count reductions to occur in the company’s 18-year history.

Meta’s stock has fallen more than 70% this year. The company has highlighted deteriorating macroeconomic trends, but investors have also been spooked by its spending and threats to the company’s core social-media business. Growth for that business in many markets has stalled amid stiff competition from TikTok, and

Apple Inc.’s

AAPL 0.42%

requirement that users opt in to the tracking of their devices has curtailed the ability of social-media platforms to target ads.

After hiring aggressively through the pandemic, the tech industry is facing its biggest retrenchment in years. Twitter Inc. is laying off thousands of employees under new owner

Elon Musk,

as he tries to restructure the company to match his vision while facing widespread concern from advertisers about its new direction.

Snap Inc.

SNAP 2.70%

said in August it would cut roughly 20% of staff, or more than 1,000 employees, to prepare for what it said would be an expected period of low sales growth lasting into 2023.

—Salvador Rodriguez contributed to this article.

Write to Jeff Horwitz at Jeff.Horwitz@wsj.com and Sam Schechner at sam.schechner@wsj.com

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Business

Facebook Parent Meta Is Preparing to Notify Employees of Large-Scale Layoffs This Week

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Meta Platforms Inc.

META 2.11%

is planning to begin large-scale layoffs this week, according to people familiar with the matter, in what could be among the largest round in a recent spate of tech job cuts after the industry’s rapid growth during the pandemic.

The layoffs are expected to affect many thousands of employees and an announcement is planned to come as soon as Wednesday, according to the people. Meta reported more than 87,000 employees at the end of September. Company officials already told employees to cancel nonessential travel beginning this week, the people said.

The planned layoffs would be the first broad head-count reductions to occur in the company’s 18-year history. While smaller on a percentage basis than the cuts at Twitter Inc. this past week, which hit about half of that company’s staff, the number of Meta employees expected to lose their jobs could be the largest to date at a major technology corporation in a year that has seen a tech industry retrenchment. 

CEO Mark Zuckerberg has said recently that ‘some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year.’



Photo:

Michael Nagle/Bloomberg News

A spokesman for Meta declined to comment, referring to Chief Executive

Mark Zuckerberg’s

recent statement that the company would “focus our investments on a small number of high priority growth areas.”

“So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year,” he said on the company’s third-quarter earnings call on Oct. 26. “In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today.”

The Wall Street Journal reported in September that Meta was planning to cut expenses by at least 10% in the coming months, in part through staff reductions.

The cuts expected to be announced this week follow several months of more targeted staffing reductions in which employees were managed out or saw their roles eliminated.

“Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Mr. Zuckerberg told employees at a companywide meeting at the end of June. 

Meta, like other tech giants, went on a hiring spree during the pandemic as life and business shifted more online. It added more than 27,000 employees in 2020 and 2021, and added an additional 15,344 in the first nine months of this year—about a fourth of that in the most recent quarter.

Meta’s stock has fallen by more than 70% this year. The company has highlighted deteriorating macroeconomic trends, but investors have also been spooked by its high spending and threats to the company’s core social-media business. Growth for that business in many markets has stalled amid stiff competition from TikTok, and

Apple Inc.’s

requirement that users opt-in to the tracking of their devices has curtailed the ability of social-media platforms to target ads. 

Last month, investment firm Altimeter Capital said in an open letter to Mr. Zuckerberg that Meta should slash staff and pare back its metaverse ambitions, reflecting the rising discontent among shareholders. 

Meta’s expenses have also risen sharply, causing its free cash flow to decline by 98% in the most recent quarter. Some of the company’s spending stems from heavy investments in the additional computing power and artificial intelligence needed to further develop Reels, Meta’s TikTok-like short-form video platform on Instagram, and to target ads with less data.

But much of Meta’s ballooning costs stem from Mr. Zuckerberg’s commitment to Reality Labs, a division of the company responsible for both virtual and augmented reality headsets as well as the creation of the metaverse. Mr. Zuckerberg has billed the metaverse as a constellation of interlocking virtual worlds in which people will eventually work, play, live and shop. 

Meta has invested heavily in promoting its virtual-reality platform, but users have been largely unimpressed.



Photo:

Guillermo Gutierrez/Zuma Press

The effort has cost the company $15 billion since the beginning of last year. But despite investing heavily in promoting its virtual-reality platform, Horizon Worlds, users have been largely unimpressed. Last month, the Journal reported that visitors to Horizon Worlds had fallen over the course of the year to well under 200,000 users, about the size of Sioux Falls.

“I get that a lot of people might disagree with this investment,” Mr. Zuckerberg told analysts on the company’s earnings call last month before reaffirming his commitment. “I think people are going to look back on decades from now and talk about the importance of the work that was done here.” 

Following the call, analysts downgraded their rating of Meta’s stock and slashed price targets. 

“Management’s road map & justification for this strategy continue to not resonate with investors,” analysts at RBC Capital Markets said in a note last month. 

Write to Jeff Horwitz at jeff.horwitz@wsj.com and Salvador Rodriguez at salvador.rodriguez@wsj.com

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Business

Elon Musk Defies Management Mantras With His Rapid Overhaul at Twitter

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In

Elon Musk’s

first week at Twitter Inc., he flouted much of the advice management gurus have dished out for decades.  

The billionaire’s swift actions stand in contrast to those of many new leaders, who often use the first 90 days to meet with employees, listen to concerns and assess how to improve a company’s products before embarking on strategy shifts, executives and corporate advisers say.  

“At a minimum, this is an untraditional approach,” said

Joel Peterson,

the former chairman of

JetBlue Airways Corp.

, who has served on dozens of corporate boards and advised chief executives across industries. “It’s iconoclastic, it’s unusual, it’s not what everybody would do—but I don’t really fault him for it.” 

Sweeping layoffs at Twitter have eliminated roughly half of the company’s workforce.



Photo:

Leonardo Munoz/VIEWPress/Getty Images

Mr. Musk—who once described himself to The Wall Street Journal as a “nano manager” steeped in the smallest details—appears to be employing many of the management tactics he deployed in building his other companies,

Tesla Inc.

and Space Exploration Technologies Corp., executives and advisers say. Those include a hands-on obsession over product decisions, a distaste for corporate structures and a focus on speed. Tesla is now the world’s most-valuable car company, and SpaceX is the world’s busiest rocket-launch operation.

Management specialists have long said that the first few months of an executive’s tenure are critical, a time when corporate chiefs can plot their agenda and begin to reset a corporate culture. Well-known books on the subject, such as “You’re in Charge—Now What?” say that new leaders should strike a balance, setting expectations internally and shaping their management team, while learning about the organization, too. 

Peter Crist,

chairman of Crist Kolder Associates, an executive-search firm, said new leaders typically spend the initial months looking to understand the talent within a company, learning employees’ strengths and weaknesses before making changes to staffing.

“Normally, a CEO from the outside coming in isn’t going to wipe the slate clean on the first day,” Mr. Crist said, adding that swift personnel changes can create uncertainty for the workers that remain. “There has to be both a stabilization of the enterprise model and importantly a stabilization of the talent, and it’s got to get done relatively soon,” he said.

Mr. Musk is hardly the first corporate iconoclast. He is also more than familiar with Twitter, having more than 100 million followers. 

Twitter Purchased by Elon Musk: A Timeline of How It Happened

On top of that, he is acquiring a company that for years lagged behind its rivals in attracting users and generating revenue, and the industry broadly is facing a slowdown in growth and other challenges that have slashed the valuations of companies such as

Facebook

owner Meta Platforms Inc. 

Some of Mr. Musk’s early actions struck corporate veterans as routine. He spent part of his week meeting with advertisers on video calls and in other settings, aiming to reassure customers that the platform remained a safe place for brands, the Journal reported. Several large advertisers, including

General Mills Inc.

and

Pfizer Inc.,

temporarily paused their advertising. Mr. Musk tweeted on Friday that Twitter had experienced a massive drop in revenue, which he said was due to “activist groups pressuring advertisers.”

Hubert Joly,

former CEO of retailer

Best Buy Co.

, said listening tours with customers and employees can be helpful in the initial period of engineering a turnaround. When Mr. Joly took the reins of Best Buy in 2012, he spent days in retail stores observing customer behavior and holding pizza meetings with staffers. In those gatherings, he asked three questions to employees: “‘What’s working? What’s not working? What do you need?’” Mr. Joly said.

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Mr. Joly said that while he wanted to act fast, he resisted the temptation to quickly close stores or cut head count, as some proposed, or to immediately impose his ideas on the organization without understanding the existing dynamics. “My job was easy: Show up, ask these questions, listen carefully, take notes, and do what I was told because they had all of the answers,” he said of employees.

Mr. Musk has solicited feedback from some Twitter users, including prominent ones. He asked the author Stephen King whether he would consider paying a price of $8 a month to have his account verified. Members of Mr. Musk’s team also polled Twitter users about a subscription feature. 

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What do you think of Musk’s management style? Join the conversation below.

Twitter on Saturday said it has begun rolling out software updates to charge users $7.99 a month for its Twitter Blue subscription service, up from $4.99 currently. Subscribers get their accounts verified, a service that has been free and offers a blue check mark to notable accounts.

Mr. Musk has said in the past that he believes CEOs err when they allocate too much of their schedule to meetings, rather than focusing on refining a product. “Spend less time on finance, spend less time in conference rooms, less time on PowerPoint and more time just trying to make your product as amazing as possible,” he said in a Journal interview in 2020. 

During an executive’s first few days at a company, though, leaders can become overwhelmed, advisers say. Some say it is important to focus on key strategic decisions, assemble a team and then delegate. 

At an investment forum in New York on Friday, Mr. Musk said that after buying Twitter, he is now working 120 hours a week instead of his typical 70 or 80 hours. Still, he expected that to eventually change. “Once Twitter’s set on the right path, it’ll be much easier to manage than SpaceX or Tesla,” Mr. Musk said.

Write to Chip Cutter at chip.cutter@wsj.com

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