How Elon Musk Pulled X Back From the Brink

0:05The platform, formerly known as Twitter, has had a tough couple of years. The difficulties began in 2022, when Elon Musk purchased it for$44 billion.

0:39prevent the social media platform from collapsing. To buy Twitter, which Musk renamed X, he and a small group of investors spent some$30 billion of their own money. But Musk also had to borrow$13 billion more from big banks like Morgan Stanley and Bank of America. And as the platform started to struggle, those banks felt the pain. Here's our colleague Alexander Saidi, who covers banking. It was a really tough deal for the banks. They were stuck holding debt that, you know, while they were getting paid interest on it, they don't want to, you know, have their money tied up in these loans. So it wasn't something they loved.

1:18But we're talking now because the story's changed. The story has changed.

1:25While another one of Musk's big name companies, Tesla, has been in a slump recently, X has seen a huge turnaround. Last month, the company reached its highest valuation since Musk took over. And he said that X is now worth more than the$44 billion he paid for it. It's as much of the company's performance as it is, one, the world's richest man owns this company, and two, he's now very close with the most powerful man in the United States, the president.

1:59Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, April 16th.

2:12Coming up on the show, how Elon Musk pulled off a comeback for X.

2:30It didn't take long after Musk's takeover of Twitter for the company to stumble. One of his first moves, besides renaming the site to X, was to lay off many of the company's workers. As part of that, he dismantled the platform's content moderation team. And soon after, X began to lose revenue, in part because advertisers started to flee. Advertisers started to signal that they weren't sure that they wanted to keep advertising on Twitter, soon to be X, because of the new ownership. The financial picture just really deteriorated, and that was true for about two years. Soon after Musk took over, he said that the company was on the brink of bankruptcy.

3:15In 2023, the company was valued at roughly a third of what Musk paid for it. But while his business was on a downturn, Musk himself was growing closer with someone who was on the rise. Where is he? Come on up here, Elad. Donald Trump. Take over, Elad. Yes, take over. Musk officially endorsed Trump and showed up to a number of his rallies. He also donated more than a quarter of a billion dollars to the re-election effort. When Trump took office in January, Wall Street was excited about his expected pro-business policies. And Musk, with his close relationship to Trump, also got a boost. Musk capitalized on a wave of investor enthusiasm for him and his companies because of his alliance with President Trump.

4:05You know, there's a lot of Trump trades happening around that time. And in a way, X kind of looked like another Trump trade. And I think that that's what people felt really positive about. What did all this mean for X and its finances? Like, did advertisers get excited again? On the advertiser front, I mean, what you saw was advertisers who hadn't been on the platform in a while were willing to come back. I mean, most notably, Amazon announced that they would come back, which is a major shift after pulling advertising more than a year ago. Apple also is ramping up ad spending on X. So without a doubt, you're seeing the momentum from advertisers move in a positive direction.

4:53While some advertisers have been returning to X on their own, Musk has also started to flex his connections with the administration. Not only does Musk now have, like, financial power and commercial power, he's got political power. You know, X also had a little bit of a stick, too, you know. They could say, hey, we are really close with the administration now. You got to, like, respect us.

5:21In one incident last December, one of X's lawyers called up a big advertising firm, Interpublic, which was in the middle of a big merger with another ad company. According to Wall Street Journal reporting, X wanted to see Interpublic spend more on ads on the platform. A lawyer from X called a lawyer at this advertising group Interpublic and said that your deal to merge could face trouble given Musk's sort of powerful role there. So we need you to sort of, you know, play ball with us. Otherwise, we can make your life a little difficult. Can they do that? Is that legal? Well, they did it, according to our reporting.

6:01And I don't think it was sort of like, if you don't advertise now, we're blocking the merger. but I think it was more of a sort of like, it's a nice ad agency you got there. It would be a shame if something happened to it. At the time, a spokesman for Interpublic said the company does not make spending commitments on behalf of its clients. Representatives from X did not respond to requests for comment. With some advertisers returning to X, revenue has started to tick back up, according to the journal's reporting. The aggressive cuts Musk had made early on also helped the company's finances to recover.

6:35For the banks that invested in the original deal, this was all great news. It meant they might be able to offload some of Musk's debt. The way bank loans like that often work is that the banks, while they sort of put the cash up front, you know, to make sure the deal can happen, they often will sell and cut up those loans and give them to a broad investor base. You know, everything from mutual funds that can hold corporate debt like a bond fund to asset managers who focus on corporate debt. And that was the plan on the bank side. And earlier this year, the banks tried to finally make that sale.

7:20In January, a crowd of investors gathered in an auditorium at the Morgan Stanley office in New York. The banks were there to sell about$3 billion of Musk's debt. It was the first time that the banks had decided we were going to test the whole market and see if there's interest in buying this debt. And things went really well, better than the banks even expected. All in, including a series of transactions that played out over, you know, about a month after that happened. And the banks ended up selling$10 billion of debt all in when they were only planning to sell around three. The debt sale shows just how far X has come in the past year.

8:05And recently, Musk made an announcement that builds on that success. It has to do with another one of his companies, XAI. That's after the break.

8:29In 2023, Elon Musk founded an artificial intelligence company, and he named it, of course, XAI. Musk really likes X. I'm sure there must be something about it, like, you know, space X. It's his favorite letter, right? Yeah, yeah, yeah. There must be some reason to it. He's such a nerd, like, I'm sure there's some nerdy reason. I say this as a nerd myself. X-AI is best known for its AI chatbot, Grok. Its most notorious feature is that when it answers questions, it might swear. And overall, Grok has an edgier attitude than your typical chatbot. X-AI isn't the world's biggest artificial intelligence platform, but investors see it as a startup with potential.

9:13And one key advantage X-AI can boast is its connection to Musk's other companies. First of all, when it comes to creating an artificial intelligence model, Engineers have to feed that model tons of data. And thanks to X, there's a lot of available data for XAI. XAI has trained itself off of X slash Twitter data, which, you know, is quite extensive. And there's a lot of data that automatically gets loaded up to it, financial market data, commentary, news. So, you know, one of the advantages I think XAI has is that it's not training itself off of a static set of existing data. it actually has found a sort of live database that is truly in real time being updated with developments around the world.

10:02According to people familiar with the matter, XAI has paid X hundreds of millions of dollars for that data, which is helping the social media company pay its bills. And that's not the only financial tie between the two. X has given XAI computer chips and other crucial hardware. And in return, X got a bunch of stock in this increasingly valuable AI company. This close relationship extends to employees as well. People were starting to sort of work for two companies at the same time. Like, you started to see there were people at X who had, you know, two hats at once. They were both XAI and X engineers, for example.

10:41So Elon was very purposefully, you know, moving resources inside of his empire towards the AI company. It was clearly a big priority for him.

10:54Would you say that Musk is using or has used XAI to maintain X's success or X's, like, viability? I think what I can say with, you know, confidence is that X is a lot better off because of XAI. There is a huge advantage in having this web of companies that kind of rely on each other and can share resources. Like if one business is going through problems, then you can pull on some of your others to help it out. X's growing ties to XAI made the social media company more and more attractive to new investors. And then, last month, Musk announced something that really got them excited. In a post on X, he said that he was bringing the two companies together.

11:39together. X would be folded into XAI. So Musk announced the merger. How did he go about doing that? What do we know about the deal? Yeah, I mean, it was definitely a very unique transaction in a lot of ways. I mean, one thing that might give you a sense for the flavor of the kind of deal it was, was that you actually had, you know, for X and XAI, they had the same law firm and the same bank advising both companies on the deal. So normally that never happens because you want to ensure that each side is getting the best deal for themselves. So everyone acknowledged that's not typical. It's not usual.

12:22In the announcement, Musk said that the combined valuation of the two companies was over$100 billion. He said it was, quote, just the beginning. Alex says the merger marks a significant step towards fulfilling one of Musk's most well-documented ambitions, creating what he calls the Everything app. One key thing to remember is when Elon bought Twitter, he very explicitly said, you know, my goal is to, one, rechristen it X, and then to turn this into the Everything app. You do your payments through it. You do messaging through it. You communicate and read the news through it. And the question was like, okay, so you want to do that.

13:03How are you going to do that? And now it's become clear that the way he at least first sees himself embarking on doing that is by merging these two companies together. And I think that there's no doubt about it that with X and XAI as one, like it will move more in that direction. XAI can be the like computing power that makes all of the everything happen.

13:28What does this story say about the way Elon Musk does business? I think it shows that he can make a few good bets and have them pay off. He bet on the right horse in the election. He listened to the advice that was being given to him to use this open window in the beginning of 2025 to sell things to investors, and that paved the way for these successes. And obviously, I mean, XAI, you know, its interrelations with X have been true for the entirety of its existence. So that was clearly foresight, was seeing a way to bring these two companies together and just waiting for the right opportunity to do it.

14:18This has definitely been a good stretch of months for X and XAI. but who knows what the future holds. There's still a lot of risks out there. So we'll see.

14:38That's all for today, Wednesday, April 16th. The Journal is a co-production of Spotify and the Wall Street Journal. Additional reporting in this episode by Peter Rudiger, Lauren Thomas, and Suzanne Vernitsa. Thanks for listening. See you tomorrow.