December 17, 2018

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DealBook Briefing: Why Facebook Broke Its Revenue Growth

DealBook Briefing: Why Facebook Broke Its Revenue Growth
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The social network reported slowing revenue growth in its quarterly earnings yesterday — and said that would probably be the new normal.

Facebook also sketched out what its new business plan would look like, months after conceding it needed to change after numerous privacy and disinformation scandals. The company will focus less on its News Feed and more on ephemeral messaging, private chats and video. Mike Isaac of the NYT explains the impact of the shift:

Facebook does not charge as much for advertisers to run ads on “Stories” as it does in the News Feed, so shifting to ephemeral messaging may not be as lucrative, the company said. That is partly because tools to make ads for “Stories” are not fully developed yet, and it is easy for users to ignore ads on the service or skip the service altogether, analysts said.

The company will also continue to invest in solving problems relating to issues such as misinformation and user privacy.

Mark Zuckerberg acknowledged that the move would hurt financial growth. “We have great products people love, but it will take us some time to catch up,” he said. “Our revenue growth will be slower.”

Investors might be spooked. “This is no longer the muscular Facebook that could do little wrong financially,” Shira Ovide of Bloomberg Opinion writes. “This is a company that has suddenly hit a dangerous patch where much could go wrong.” But Facebook shares rose in after-hours trading following the earnings release.

The industrial conglomerate reported a huge third-quarter loss yesterday. But more troubling for investors were the virtual elimination of the company’s dividend and a criminal inquiry into its accounting practices. G.E. shares fell nearly 10 percent yesterday, hitting lows not seen since 2009.

The biggest problem, as Steve Lohr of the NYT points out, is G.E.’s power business. The company bet big on natural gas, but attractive renewable energy sources have reduced demand for gas turbines. And a deal to buy the power division of the French company Alstom proved to be a disaster.

Some people still see light at the end of the tunnel, however:

“Right now, G.E. is in a real trough, and it looks like the business is collapsing,” said Richard Keck, president of the Keck Group International, a power plant consultant. “But if they don’t panic, it will come back.”

“By 2022,” he added, “whoever is leading the G.E. power business might well be a hero.”

The shipping company said yesterday that it had shut down a discount program for members of the National Rifle Association. FedEx said it wasn’t a response to the Pittsburgh synagogue shooting, but because the partnership didn’t bring in enough business.

Tiffany Hsu of the NYT notes that FedEx had resisted cutting ties to the gun industry:

The company had faced pressure from gun-control activists to end the program, in particular after a gunman killed 17 people at a high school in Parkland, Fla., in February. At the time, companies including Delta, United Airlines, MetLife and several car-rental outlets dropped deals with the N.R.A.

But FedEx had refused to do so. In February, the company said that while it opposed civilian ownership of assault rifles, it “does not and will not deny service or discriminate against any legal entity regardless of their policy positions or political views.”

A snapshot of the labor market. Automatic Data Processing will release its latest national employment report. Analysts expect it to show a rise in private payrolls of 189,000 in October, after an increase of 230,000 in September. The Employment Cost Index, which measures labor costs, is also expected to increase slightly.

Brazil’s central bank updates its monetary policy. Analysts expect it to hold its benchmark interest rate steady at 6.5 percent.

A single number could unsettle China’s economy in the coming weeks. If Beijing lets the renminbi’s value weaken past 7 to the dollar, it could intensify a trade battle with the U.S. — bringing benefits, but the risk of damage, too.

Keith Bradsher of the NYT walks through the effects a weaker currency would have. China would benefit, in large part because a weaker renminbi would help undercut American tariffs on its exports. But when the country devalued its currency in the past, investors moved money out of the country just when it was needed the most, weakening the Chinese economy.

For now, the country is trying to prop up the currency. It sees 7 to the dollar as a big psychological barrier, and Beijing has struck a defiant tone against speculators betting against the renminbi.

Richard DeVaul, a director at the X unit of Google’s parent company, Alphabet, resigned yesterday. He had been accused in an NYT investigation of sexually harassing a female job applicant.

Many employees at Google have expressed anger and disappointment about the way the company has handled cases of sexual misconduct, and more than 1,000 plan to walk out of the company’s offices tomorrow in protest.

Sundar Pichai, Google’s C.E.O., said in an email to employees yesterday that the company’s apology in the wake of the NYT report “wasn’t enough.” He vowed to “take a much harder line on inappropriate behavior.”

More workplace news: Barnes & Noble has described the sexual harassment accusations against its former C.E.O., Demos Parneros, before he was fired. And the defense contractor L3 Technologies has been accused of discriminating against reservists because of their service obligations.

The 11-country trade agreement became a done deal yesterday when Australia ratified the pact. TPP, as the deal is known in policy circles, will go into effect late this year to create one of the world’s biggest free-trade zones.

As the WSJ points out, the deal will eliminate tariffs on around 95 percent of goods traded among the pact’s members, who together have a G.D.P. of about $10 trillion.

Not part of the agreement: the U.S., as President Trump withdrew from negotiations nearly two years ago, saying that TPP would be a bad deal for America. While he has floated the idea of rejoining, that seems unlikely: Mr. Trump said he wants substantially more-favorable terms, which would be difficult to negotiate.

SoftBank hired Gary Ginsberg, a former adviser to Rupert Murdoch and to the former Time Warner C.E.O. Jeff Bewkes, as its global head of communications.

Evernote, the note-taking software company, hired Ian Small as its C.E.O.

Deals

• Apollo Global Management is reportedly closing in on a deal to buy Arconic, the metal products company. (Reuters)

• The commodity trader Bunge is reportedly nearing a settlement with activist investors that could help it sell itself. (WSJ)

• The banks advising on the forthcoming I.P.O. of SoftBank’s mobile phone business are said to have accepted an underwriting fee of just 1.5 percent. (FT)

• Potential buyers of the 22 regional sports networks that 21st Century Fox is selling include private equity firms, Sinclair Broadcasting — and the Murdoch family’s new Fox company. (WSJ)

• Coinbase, the big cryptocurrency exchange, raised $300 million at an $8 billion valuation. (Fortune)

• Monzo, a British banking start-up, raised $108 million at a $1.2 billion valuation. (Yahoo Finance)

Politics and policy

• The economy isn’t helping Republican candidates in the midterms, even in battleground districts that are prospering. (NYT)

• Corporate America still largely supports Republican candidates, despite President Trump’s tariffs. (Facebook employees overwhelmingly back Democrats.)

• The dairy titan Land O’Lakes cut ties with Representative Steve King of Iowa over the Republican’s comments on race. The chairman of the National Republican Congressional Committee also rebuked Mr. King.

• A plot to smear Robert Mueller with false accusations of sexual misconduct has unraveled. (NYT)

• Legal experts say Mr. Trump’s proposal to end birthright citizenship would struggle in court challenges. (NYT)

Trade

• China’s desire to unseat America as the world’s leader is drawing a backlash at home and abroad. (WSJ op-ed)

• And it might be time for Washington and Beijing to check whether they are prepared for an all-out conflict. (Bloomberg Opinion)

• Banks still have plenty to worry about in the event of a no-deal Brexit. (FT)

Tech

• Apple unveiled a new iPad and computers yesterday. (NYT)

• Elon Musk bought $10 million worth of Tesla shares on Monday, and plans to buy another $20 million worth. (WSJ)

• Federal prosecutors charged 10 Chinese intelligence officers with hacking secrets from aerospace companies. (NYT)

• The chip maker Super Micro told lawmakers that it had found no spying hardware in its products. (Bloomberg)

• Samsung reported record profits — but that might not last. (NYT)

• More than 40 percent of British companies think that A.I. could undermine their business models in the next five years. (CNBC)

• Two NYT Op-Eds: Kara Swisher reflects on how the web should stop hate, not spread it, while Frank Bruni considers how it “gives prejudices the shimmer of ideals.”

Best of the rest

• Jamie Dimon of JPMorgan Chase said skipping Saudi Arabia’s big investment conference accomplished “nothing.” (Bloomberg)

• The $110 billion arms deal that President Trump negotiated with Saudi Arabia last year could yield far fewer new American jobs than anticipated. (Reuters)

• It’s not your imagination: Prices are going up. (WSJ)

• Economic growth in the eurozone has fallen to its slowest pace in more than four years. (NYT)

• U.S. stock markets bounced back from Monday’s rout, but remain on track for their worst month in three years. (WSJ)

Thanks for reading. We’ll see you tomorrow. Happy Halloween!

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