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DealBook Briefing: Tesla’s Mass Market Hopes May Remain Elusive

A Tesla Model 3Credit...Lucy Nicholson/Reuters

Good Wednesday. Here’s what we’re watching:

• Tesla’s much-awaited fourth quarter results.

• Athenahealth names Jeff Immelt as chairman.

• Senate leaders reach a deal to raise spending.

• Shares of Snap jumped 40 percent after it reported results.

• Trump: Investors are making a mistake.

• What’s next for the Wynn empire now its founder has gone?

Send us your questions for the C.E.O.s of Merck, Stitch Fix and Salesforce for Corner Office.

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The headline numbers were okay: Tesla reported a loss of $3.04 per share, narrower than the $3.20 per share that analysts surveyed by Bloomberg were forecasting. Tesla took in $3.29 billion of revenue in the fourth quarter, more or less in line with the $3.28 billion that analysts were expecting.

But a crucial measure of profitability disappointed. Tesla’s gross margin in its automotive business, which reveals the profitability of actually producing its cars, came in at 13.8 percent, below the “about 15 percent” that Tesla itself forecast when it reported third-quarter results.

The culprit? The Model 3, Tesla’s first mass-market car. Many of the costs associated with the Model 3 are being booked in the income statement but difficulties in producing the car mean sales are low. As a result, the gross margin on the Model 3 was negative and is expected to remain so in the first quarter of 2018, Tesla said. The company did not specify how negative the gross margin on the Model 3 was.

Tesla tried to be reassuring. The company said it was on track to produce 5,000 Model 3s by the middle of 2018. The company had pushed back when it would hit this 5,000 vehicle target last month. But Tesla did not sound overly confident about achieving its Model 3 milestones. The company said:

“It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time.”

Cash flow may not be as impressive as it looked. In the fourth quarter, Tesla brought in $510 million of operating cash flow, a big turnaround from an outflow of $301 million in the prior three months. How did Tesla pull this off? The company said the increase was achieved in part by doing a better job collecting the money it is owed and by reducing its inventory of finished vehicles. But the company’s balance sheet showed a nearly $500 million increase in short-term liabilities in the fourth quarter. In other words, the amounts Tesla owes its customers and suppliers went up. It may be tough to keep generating cash flow in this fashion.

It wouldn’t be a Tesla call without something for the bulls: Elon Musk said on the call that “2018 is likely to be a very big year for Tesla” and that he is optimistic Tesla will be GAAP profitable. “It’s not certain, but I’m cautiously optimistic,” Mr. Musk said.

— Peter Eavis

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Credit...Michael Dwyer/Associated Press

Since stepping down from General Electric last year, Jeff Immelt has certainly been keeping busy. He interviewed for the Uber C.E.O. position and joined the venture capital firm New Enterprise Associates as a partner.

Now he is adding “chairman of a fast-growing health company” to his titles.

Athenahealth, a provider of electronic medical records software, announced Wednesday that it has hired Mr. Immelt as its chairman, capping a monthslong search for the position.

The context

The move adds a veteran corporate chieftain to oversee the fast-growing company, particularly as it seeks to prove that it’s capable of maturing.

Athenahealth had been under pressure last year from Elliott Management, which disclosed a 9.2 percent stake in the company last spring and pressed for operational changes. Jonathan Bush, the company’s founder and C.E.O. (and a cousin of George W. Bush) credited the activist investor with helping him realize that a shake-up was necessary.

The company beat earnings and revenue estimates in its fourth quarter.

For Mr. Immelt, joining Athenahealth is in keeping with his interest in the health care business, a focus of his at G.E.

What the principals say about the appointment

• “I literally feel like I just scored a decade’s worth of guitar lessons from Elvis,” Mr. Bush said in a telephone interview.

• “I’m convinced that this platform at Athenahealth can be one of the transformational platforms for health care,” Mr. Immelt said, adding, “I’m a junkie for the industry.”

The big question

Can a founder who has run the company since its beginning take direction from an outsider? Mr. Bush said that with Mr. Immelt, the answer is yes.

“I feel like I’m doing less marriage counseling with 12 adults,” Mr. Bush said of his board, adding that Mr. Immelt would be a partner to take advice from (and occasionally whine to).

An outside perspective

“What Jeff brings is an understanding of scale on a couple of dimensions, not only in terms of people and processes but also how you think about scaling with your partners.”

— Henry Ellenbogen of T. Rowe Price, one of Athenahealth’s biggest shareholders, said in a phone interview.

— Michael J. de la Merced

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Credit...Win Mcnamee/Getty Images

Thomas Kaplan of the NYT reports that Senators Mitch McConnell of Kentucky, the majority leader, and Chuck Schumer of New York, his Democratic counterpart, have struck a far-reaching agreement that would add hundreds of billions of dollars to military and domestic programs over the next two years.

The deal would:

• raise the spending caps by about $300 billion over two years, according to a congressional aide.

• increase the limit on military spending by $80 billion in the current fiscal year and $85 billion in the next year, which begins Oct. 1, the aide said.

• increase the limit on nondefense spending by $63 billion this year and $68 billion next year.

The bigger picture

“The deal will cause federal budget deficits to grow even larger, on top of the effects of the sweeping tax overhaul that lawmakers approved in December. But because the agreement gives both parties what they wanted most, the deficit impact appears to be of little concern. Defense Secretary Jim Mattis, White House Press Secretary Sarah Huckabee Sanders and Speaker Paul D. Ryan all quickly embraced it.”

Critics corner

• Hard-line conservatives were unsparing in their assessment of the deal.

• Representative Nancy Pelosi, the leader of House Democrats, said she could not agree to any budget deal that was not accompanied by a debate over legislation to protect the fate of young immigrants brought to the country illegally as children, known as Dreamers.

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Credit...Thomas White/Reuters

Shares of the messaging and media company surged nearly 40 percent to $19.49 in recent trading. That’s their highest level since June and well above its initial public offering price of $17 a share.

The jump comes after the company reported results after the close on Tuesday. David Streitfeld of the NYT writes:

“Revenue was $286 million, up 72 percent from a year earlier and about $30 million more than analysts had expected. Daily users rose nine million to 187 million, the best growth in over a year. The retention rate of new Android users, a special focus for Snap, jumped nearly 20 percent over the previous year.”

“The company lost $350 million in the quarter, or 13 cents a share, which was narrower than the loss of 16 cents that was expected by analysts. And it also contrasted with the carnage of the prior quarter, when Snap recorded a net loss that was twice the forecast.”

The bigger picture

The results have helped quell some of the concerns about the company’s slowing revenue and user growth in the face of increased competition from the likes of Facebook.

Critics corner

Ross Sandler of Barclays: “We think shares could continue to grind higher as the narrative changes from 2017’s ‘FB is going to crush SNAP’ to 2018’s “users and revenue accelerate and the platform is under-monetized”. Shares are expensive (8.3x our FY19 revenue estimate), but everything is accelerating, and as we’ve seen repeatedly in consumer internet, these inflection points are not likely one-quarter events.”

Daniel Ives of GBH Insights: “This eye popping top-line beat was a ‘shocker’ and was a stark contrast to the overwhelming bear sentiment heading into the 4Q print and speaks to a company with strong growth prospects, albeit clear business challenges ahead to iron out in 2018. After much pain that investors have endured since SNAP went public, this quarter was finally a breath of fresh air that gives new life to the SNAP turnaround story in 2018.”

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The New York Stock Exchange in Lower Manhattan.Credit...Spencer Platt/Getty Images

President Trump, who has taken credit for a rising stock market as a measure of his own success, complained on Twitter Wednesday that “good (great) news” in the economy led to an abrupt decline in stock prices, his first comments about the stock market since its sharp drop earlier this week.

In the early-morning tweet, Mr. Trump lamented that in the “old days,” stocks would rise on good economic news, saying “Today, when good news is reported, the Stock Market goes down. Big mistake.” The tweet did not elaborate on what he meant by the “old days” or explain further his analysis of why stocks plummeted on Friday and Monday.

Until Wednesday’s tweet, the president had been unusually silent about the stock market, which has been rocked by volatility, including a decline in the Dow Jones industrial average of almost 7 percent over two days. At one point on Monday, the Dow was down almost 1,600 points, or about 6 percent of its total value, the markets plunging at the same moment as Mr. Trump was giving a speech in Blue Ash, Ohio. It closed that day down 1,175 points.

Mr. Trump’s assertion that the fall was pegged to good economic news stems from Friday’s job report, which showed wages beginning to rise as the economy nears full employment.

— Michael D. Shear and Alan Rappeport

The bigger picture

Welcome to the end of easy money, as strengthening economies lead to higher wages and tighter unemployment — and potentially to central bankers raising interest rates.

President Trump’s tax cut was meant to supercharge growth in an economy already doing fine. (Though Eduardo Porter notes that productivity is low and new business formation has slowed.) Economists and analysts are increasingly worried that the tax overhaul will do the opposite of what it was intended to.

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Credit...Charles Krupa/Associated Press

Steve Wynn resigned yesterday as the C.E.O. of Wynn Resorts after allegations of sexual misconduct. Those accusations have created an important test for corporate America.

In recent months, many powerful men have had to step down from senior positions as they have faced accusations of sexual harassment, but none were the head of a public company like Mr. Wynn. How would the board, shareholders, regulators, customers and unions react?

We now know something about the shareholder perspective: Shares in Wynn Resorts were up 7 percent in early-morning trading today. Regulators in Nevada, Massachusetts and Macau are still conducting their own investigations.

But the biggest unresolved question remains the board and its conduct.

The board set up a committee of independent directors to carry out an investigation after the WSJ article, but it was not clear how rigorous it would be. The board did not have a track record for holding Mr. Wynn accountable.

In an email exchange with me, Lucian Bebchuk, a Harvard law professor and an expert in corporate governance, asked why the board did not suspend Mr. Wynn from his position pending the investigation, or demand that he not interact with Wynn Resorts employees, a step that would have limited his ability to influence the board investigation.

In fact, the board, in its statement, sounded somewhat saddened by Mr. Wynn’s departure, saying it had “reluctantly” accepted his resignation.

One remaining way to assess the board’s resolve will be Mr. Wynn’s separation agreement, which is not yet finalized.

When the WSJ article was published, Mr. Wynn denied the accusations of sexual misconduct, calling them “preposterous.” On Tuesday he said, “I have found myself the focus of an avalanche of negative publicity.”

It is not clear why Mr. Wynn decided to step down. It may have been pressure from gaming regulators. Customers might have been pulling back.

Mr. Wynn may have wanted to preserve the value of his own stake in Wynn Resorts. But as it stands, it does not look like the board was a strong force.

— Peter Eavis

Steve Wynn has stepped down from his $17 billion casino empire, a little over a week after allegations of forced sex and other sexual misconduct claims emerged in a WSJ investigation.

There had been little sense at Wynn Resorts over the last week that the man who made modern Las Vegas was on his way out:

Top executives spent hours with Mr. Wynn going over plans for a new casino he would like to build in Las Vegas, according to a person familiar with the matter, while the company’s general counsel hopped on a call with other executives to discuss the Vegas Strong Fund, a nonprofit formed in the aftermath of last year’s mass shooting on the Las Vegas Strip, according to a person familiar with the call.

He also attended the company’s 1,500-guest Super Bowl party on Sunday, the WSJ says.

In a statement, Mr. Wynn blamed his exit on “a rush to judgment” that took “precedence over everything, including the facts.”

The intrigue: The company’s news release reads almost like a corporate eulogy, calling Mr. Wynn a “beloved leader and visionary.” So why the sudden exit? (Our colleague Peter Eavis will weigh in on DealBook this morning.)

The big questions

• Do other S. & P. 500 C.E.O.s now have something to fear?

• And is the Wynn empire — from Las Vegas to Macau to, soon, Massachusetts — now ripe for a takeover or breakup?

Critics’ corner

• “While there are plenty of jobs for women as waitresses and croupiers, far too few rise to the levels at which they have the power to make a change,” David Fickling writes. (Gadfly)

• “It’s easy for a company in turmoil, especially one so closely associated with a celebrity founder that has effectively been forced out, to become prey,” Jeff Goldfarb writes. (Breakingviews)

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Credit...Kevork Djansezian/Getty Images

The billionaire Los Angeles doctor joins Jeff Bezos, Sheldon Adelson and Warren Buffett after he reached a deal to buy the L.A. Times and the San Diego Union-Tribune from Tronc for nearly $500 million. The deal price includes the assumption of $90 million in pension liabilities.

LAT staff have chafed at the decisions of Tronc and its chairman, Michael Ferro. More from Sydney Ember of the NYT:

Many employees at The Times have of late adopted the mantra “anyone but Ferro,” but it is also not clear what decisions Dr. Soon-Shiong, who largely made his fortune selling generic drugs and developing a new type of cancer drug, will make as the paper’s owner.

Separately, Tronc said it is reorganizing its Tribune Interactive business. The company said Ross Levinsohn, the publisher of the Los Angeles Times who was put on leave after National Public Radio published a report that detailed allegations of sexual harassment against him when he was at other companies, will be reinstated and named the chief executive of Tribune Interactive.

The deals flyaround

• SoftBank said it had spent $40 billion from its roughly $106 billion Vision Fund and Delta Fund, and that it plans to spin out its Japanese mobile unit.

• Google is expanding its New York headquarters, agreeing to buy the building across the street — which is home to Chelsea Market — for more than $2 billion. (Real Deal)

• An activist investor, Blackwells Capital, urged the supermarket chain Supervalu to break itself up, and plans a proxy fight. (WSJ)

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Credit...Sam Hodgson for The New York Times

As the stocks calmly glided higher in 2017, investors from hedge fund titans to day traders poured billions in to bets that volatility would continue to fall.

Those wagers blew up this week.

Now investors are selling the exchange company behind the trading in volatility.

Shares of the C.B.O.E. Global Markets, whose volatility index facilitated those wagers, are down 17 percent since the start of the sell-off. Thursday they are off 3 percent.

The reason? Concern that demand for VIX futures could drop after a blowup in some popular products that use them to bet on falling volatility in the stock market, writes MoneyBeat’s Ben Eisen.

Critics corner

Kenneth Worthington, JPMorgan Chase: “Given VIX has been a key growth driver of CBOE, we also see the potential for a deterioration in CBOE valuation.”

Alexander Blostein, Goldman Sachs, via CNBC: “While we remain optimistic around the firm’s longer-term growth prospects... we expect the unwind in VIX exchange-traded products (including any potential further unwind of these products) to weigh on Cboe’s VIX futures franchise, creating headwinds to the firm’s top-line growth and potentially the stock’s valuation.”

Blame the VIX/machines/debt?

• Analysts took a closer look at the “inverse VIX” trade — bets on a continued fall in the popular Wall Street volatility index that went very sour on Monday and forced a lot of selling.

• Steven Mnuchin suggested yesterday that algorithms might be behind the whipsawing: “I have heard from others that it has played a role, as there’s more programmed trading, this tends to have volatility in both directions.”

• Carl Icahn said exotic investment funds and lots of leverage had made the markets a “casino on steroids.”

Think about the deals: A Turkish franchisee of Burger King restaurants postponed its market debut yesterday, while deal makers worry that a steady stream of big mergers will dry up.

• Mr. Trump called for a government shutdown if Congress did not address illegal immigration, even as lawmakers work on a two-year budget deal. John Kelly, his chief of staff, derided Dreamers who did not register for protected status.

• The White House says it will explain the “principles” of its infrastructure plan on Monday. (CNBC)

• The U.S. had a record trade deficit with China last year, potentially encouraging a tougher line from the Trump administration. (NYT)

• Mr. Trump wants the Pentagon to hold a big — and rare — military parade in Washington this year. (WaPo)

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Brian Chesky, Airbnb’s co-founder and C.E.O.Credit...Richard Drew/Associated Press

On one side: Brian Chesky, the home rental giant’s co-founder and C.E.O., who wants it kept private a while yet.

On the other, supporting an I.P.O. this year, according to Bloomberg’s unnamed sources: the C.F.O. Laurence “L.T.” Tosi and the Airbnb investors General Atlantic, Glade Brook Capital, TCV and TPG.

More from Olivia Zaleski:

Despite pledging support for Chesky’s desire to keep Airbnb private, Sequoia Capital partner Alfred Lin, along with Jeff Jordan of Andreessen Horowitz, wanted to explore the possibility. In December, they asked Michael Grimes, the head of global technology investment banking at Morgan Stanley, to present options for going public, said people close to the bank.

Ultimately, Mr. Tosi — who didn’t see eye to eye with Mr. Chesky on other issues and generally did not fit in at Airbnb — resigned.

An Airbnb spokesman denied there was ever any intent to pursue an I.P.O. this year.

Bonus trivia: Mr. Tosi set up a hedge fund of sorts at Airbnb, which was responsible for 30 percent of Airbnb’s cash flow last year and made about $60 million.

The tech flyaround

• Goldman Sachs’s retail arm is in talks to offer financing for Apple customers, unnamed sources say. (WSJ)

• Snap bolstered revenue and user growth in the fourth quarter, and investors rejoiced. (NYT)

• At the Uber-Waymo trial, Travis Kalanick kept calm and talked about his “jam sesh” with the autonomous-driving engineer at the center of the dispute. (NYT)

Senators criticized Uber for how it handled a 2016 data breach. Meanwhile, the company is hoping to offer air taxis by 2025, through a deal with Bell Helicopter, and is giving its U.S. riders exclusive Winter Olympics content.

• A pollster hired by Facebook to track public sentiment about Mark Zuckerberg said he left after coming to believe the company wasn’t good for society. (The Verge)

• European regulators are closely examining Apple’s bid for the music app Shazam. And Apple might give rebates to users who bought iPhone battery replacements before it discounted them.

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Credit...Keith Rankin

The S.E.C. and the Commodity Futures Trading Commission told senators that Congress should consider expanding federal oversight of cryptocurrency trading.

And Agustin Carstens, the head of the Bank for International Settlements, said central banks must be prepared to intervene, calling digital currencies a “combination of a bubble, a Ponzi scheme and an environmental disaster.”

Mr. Carstens also argued that cryptocurrencies were freeloading on existing financial infrastructure and the legitimacy that came from being linked to it.

On a positive note, while Bitcoin is at about $8,000 this morning, things could get far worse, according to Goldman Sachs:

Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by a small set of future competitors, Goldman’s Steve Strongin said in a report dated Feb. 5.

• Slack named a longtime executive, Allen Shim, as its C.F.O., another step on the road to a listing. (Slack)

• AIG has hired Caroline Krass, a partner at Gibson, Dunn & Crutcher and a former general counsel of the C.I.A., as deputy general counsel. (AIG)

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Credit...SpaceX

“Crazy things can come true.”

— Elon Musk, after SpaceX successfully launched its Falcon Heavy rocket (carrying a cherry red Tesla roadster) from Cape Canaveral, Fla. yesterday. David Bowie’s “Life on Mars” played at the end of the webcast.

• A livery driver who had written about being a casualty of the gig economy killed himself outside City Hall in Lower Manhattan on Monday. (NYT)

• Business Wire, the corporate news-release distributor owned by Berkshire Hathaway, is dealing with a cyberattack. It has caused outages for nearly a week. (WSJ)

• Morgan Stanley gave the cold shoulder to Derek Jeter, co-owner of the Miami Marlins, and his banker, Greg Fleming, when asked if large brokerage clients would like to buy a piece of the team, unnamed sources said. (Fox Business)

• FEMA awarded an Atlanta entrepreneur, Tiffany Brown, $156 million to supply 30 million meals to Puerto Ricans after Hurricane Maria. Only 50,000 have been delivered. (NYT)

• The German carmaker Daimler publicly apologized on Tuesday after its Mercedes-Benz brand caused an outcry in China by quoting the Dalai Lama in a social media post. (NYT)

• Can Christian Louboutin trademark red soles? The European Union’s highest court says no. (NYT)

• PepsiCo will not be making Lady Doritos. (NYT)

• One of the issues that contributed to Laurent Potdevin’s departure as C.E.O. of Lululemon, unnamed sources say, was a multiyear relationship with a female designer. (CNBC)

• Quentin Tarantino, accused by Uma Thurman of putting her life at risk by making her perform a dangerous stunt for the “Kill Bill” films, described it as one of the biggest regrets of his life. He disputed some details of her account. (NYT)

• The supermarket Tesco is facing Britain’s largest ever collective equal pay claim, for a potential total of about $5.6 billion. (BBC)

We’d love your feedback. Please email thoughts and suggestions to bizday@nytimes.com.

A correction was made on 
Feb. 7, 2018

An earlier version of this article misspelled the surname of Slack’s C.F.O. He is Allen Shim, not Allen Shin.

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