X CEO Linda Yaccarino faces the pitfalls of sharing power with Elon Musk

That was on display inside X earlier this year, when Yaccarino tried to strike a deal with Visa. She was aiming to solve two problems at once: Turn to an advertiser to commit to more spending on X, and partner with the financial brand to build a payments product, part of owner Elon Musk’s vision to make X an “everything app" offering digital banking and more.

Yaccarino held discussions with Visa, according to people familiar with the matter, and pushed to announce a deal in the spring.

Product executives who report to Musk resisted, saying it was premature for X to cede some control to another company over the design of a payments product, people familiar with the deliberations said. A deal didn’t happen on Yaccarino’s desired timeline.

When Yaccarino joined X in June 2023, she had the difficult task of fixing the company’s ad business, the key source of revenue, which had taken a major hit after Musk acquired the company then known as Twitter in 2022. Even before the takeover, Twitter wasn’t consistently profitable.

At the outset, Musk and Yaccarino said they would divide responsibilities at X, where she would handle sales and daily operations while Musk oversaw the engineers. The billionaire entrepreneur dislikes layers of management; however, he also leans on deputies who can handle daily responsibilities, as he splits his time across his six companies, which include electric-vehicle maker Tesla and rocket company SpaceX.

Tensions over the division of labor with Musk at X are impeding some core initiatives, including some payments efforts and restoring ad revenue. And inside X, some employees debate which executive they should go to for certain decisions, people familiar with the company’s operations say.

Yaccarino has said she benefits from the opportunity to work with Musk. “Who wouldn’t want Elon Musk sitting by their side running product?" she said at a conference last year. A spokesman for X declined to comment for this article.

The situation was further complicated by the arrival on the scene of Steve Davis, one of Musk’s closest aides and president of Musk’s tunnel-building venture Boring Co.

In recent months, Davis has been looking for ways to cut more costs at X and has been examining employee performance, according to current and former employees. Among the targets of scrutiny, they said, has been Yaccarino’s ad sales department, where U.S. teams have missed their sales targets.

In a surprise to many employees, Yaccarino fired her deputy, Joe Benarroch, from X in early June, according to people familiar with the move. His departure came as X faced controversy over a new adult-content policy and Davis was looking at cutting some jobs from Yaccarino’s team, among other issues, some of the people said. Benarroch was one of Yaccarino’s first hires when she joined Twitter and had been a close lieutenant to Yaccarino at NBCUniversal, where she previously worked.

Davis, whose recent involvement at X was earlier reported by the Verge, was a linchpin in Musk’s initial push to overhaul then-Twitter after the takeover. Davis led efforts to cut hundreds of millions in costs, according to a lawsuit filed by former Twitter employees over severance.

The business continues to struggle with attracting users as well as advertisers, according to data from outside firms. X lost 14% of its daily mobile-app users year-over-year as of the second quarter, according to Sensor Tower estimates. X says usage is growing but declined to share its numbers for daily users.

Ad spending by big U.S. media-buying agencies on X is down 66% since June 2023 compared with the previous year, according to measurement firm Guideline.

Musk said earlier this year that X’s advertising and subscription revenues had started rising rapidly, without providing numbers.

X is planning to sublease excess space that it is no longer using at its main office complex in San Francisco, people familiar with the plans said this month. Musk slashed the company’s head count after his takeover, citing financial challenges.

Musk at times has thrown wrenches into Yaccarino’s plans, such as when he called off a video deal with newsman Don Lemon or when he told advertisers boycotting X to “go f— yourself."

Last year, Musk made the call to strip headlines from links because he thought headlines made posts look too big. Sales staff had warned internally against the change, saying it would hurt big accounts like news outlets, former employees said. Months later, X brought back headlines in a slimmer format.

Yaccarino has established other partnerships. She struck a deal this year for BetMGM to be X’s live-odds sports-betting partner, a deal that included BetMGM ramping up its ad spend on X and a fee, people familiar with the terms said.

X executives have been talking with financial-technology companies, including Plaid and Marqeta, about various potential partnerships, people familiar with the discussions say. Marqeta, a credit-card issuing and processing platform, is nearing a deal with X.

X has also been applying for money-transmitter licenses in U.S. states, a key step toward offering payments features.

A challenge for Yaccarino is that the longer advertisers stay off the platform, the harder it will be to convince them to return because many have found their ads perform better on sites such as TikTok and Instagram, advertisers said.

Yaccarino has gotten a generally positive reception among marketers around video content shared on X by professional publishers like sports leagues. She renewed a deal this year between X and the National Football League that represents a major draw for advertisers.

Such efforts, however, haven’t been able to make up for the dramatic downturn in X’s ad sales business. Several large agency executives say they haven’t seen a large-scale return to X, and some brands that have returned are spending less than before.

Seven months after his “go f— yourself" outburst, Musk struck a more conciliatory tone during an ad industry gathering in France. Asked what he would say to advertisers considering returning to X, Musk said he believed it was “worth trying out."

Write to Alexa Corse at alexa.corse@wsj.com, Suzanne Vranica at Suzanne.Vranica@wsj.com and Angel Au-Yeung at angel.au-yeung@wsj.com