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Alphabet: Google parent’s profits hit $9bn amid increased scrutiny

Companys earnings rebound even as justice department announces antitrust review of major tech firms

Googles parent company Alphabet rebounded from a difficult start to the year on Thursday, when it reported higher than expected revenue and earnings.

The digital advertising behemoth continues to amass extraordinary profits, with $9.18bn in the second quarter of 2019, but investors had been concerned about decelerating growth rates.

Googles share price was down 11% since 29 April, when it closed at its highest price in 2019, and up just 8.8% since the beginning of the year, compared to the S&P 500, which has grown more than 20% in the same time period.

Shares shot up more than 7% in after hours trading on the strong report, which showed 19% growth in revenue year-over-year, to $38.9bn. Among the positive results were lower than expected traffic acquisition costs and earnings per share of $14.21, compared to the $11.30 expected by analysts. The company recorded a $989m loss in its other bets division, which includes moonshot investments such as the autonomous vehicle company Waymo.

Alphabets relative slump cameamid increasing regulatory pressure in the US. On Tuesday, the US Department of Justice announced a broad antitrust review of major online platforms. The US House of Representatives has also undertaken an investigation of anti-competitive behavior among major technology firms, and the justice department has reportedly launched a specific antitrust investigation of Google.

Its not new to us, said Googles chief executive officer Sundar Pichai on a conference call with investors on Thursday, in response to a question about potential scrutiny by the justice department. We have participated in these processes before To the extent we have to answer questions we will do so, and to the extent there are concerns we will address them.

Google has been hit with serious fines by European regulators in the past, but has been left largely unmolested by US regulators to date. The Federal Trade Commission concluded an antitrust investigation of the company in 2013 without taking any legal action, against the recommendation of the agencys staff.

Political pressure will likely only increase with the 2020 US presidential election, in which big tech is certain to be a partisan punching bag. On Thursday, the longshot candidate Tulsi Gabbard, a Democratic congresswoman from Hawaii, filed a $50m federal lawsuit against Google alleging that it violated her first amendment rights by briefly suspending her campaigns advertising account.

The company also faces growing competition in the digital ad space from Amazon and Alibaba, which continue to make inroads against the Google-Facebook duopoly. An attempt to enter the Chinese market with a censored search engine was stymied by protests by Google employees. Other challenges include concerns about inappropriate content on YouTube from advertisers and ongoing activism from employees.

Investors continue to complain about a lack of transparency in Alphabets financial reporting. The company divides its financial disclosures into three categories advertising, other revenues and other bets without specifying results for specific products, such as YouTube or Google Cloud. The secrecy has long frustrated investors and analysts, who are largely left into the dark as to the true state of the companys business.

Pichai and the chief financial officer Ruth Porat provided a few breadcrumbs to those seeking more information on the investor call, asserting that YouTube was the second largest contributor of revenue growth, followed by Google Cloud. Pichai said that Cloud has an annual run rate of more than $8bn.

The company also reported a headcount of 107,646 employees, up 20% from a year ago. The headcount figure excludes a workforce of temps and contractors roughly equal in size. Porat said that the headcount will grow at a slightly higher rate than expected throughout the rest of 2019 as Google plans to bring more sub-contracted positions in house.

If Silicon Valley were a country, it would be among the richest on Earth

With $128,308 per capita in annual gross domestic product, Silicon Valley residents out-produce almost every nation on the planet

Were it real, the Sultanate of Silicon Valley would be among the worlds richest countries.

Cranking out $128,308 per capita in annual gross domestic product (GDP), residents in Californias tech belt out-produce almost every nation on the planet. The valleys output, pegged at $275bn by the federal Bureau of Economic Analysis, is higher than Finlands.

Depending on how one counts it, Qatars per-capita GDP, estimated by the World Bank at $128,647 in 2017, is the worlds highest. The per-person output from Silicon Valley more precisely, the San Jose metro area actually outpaces Qatars by some measures, and puts the valley squarely in the company of wealthy nations like Chinas casino peninsula Macau, estimated per capita GDP $115,367, and Europes sumptuously medieval Luxembourg, estimated per capita GDP $107,641.

Home to nearly 2 million, the San Jose metro area includes Stanford University in Palo Alto, Googles headquarters in Mountain View and Apple HQ in Cupertino. Half the worlds tech billionaires live in Silicon Valley; a sizable portion of the remainder live just north in the San Francisco Bay Area.

San Francisco, Oakland and their suburbs comprise Americas third-most productive metro area by GDP, generating $89,978 per capita, a number that puts it in the company of Singapore and Brunei.

Silicon Valley and the Bay Area only trail the Texas oil center Midland, a metro area with 165,000 residents generating $174,749 per capita GDP.

Speaking with the Mercury News, Silicon Valleys hometown newspaper, the Bay Area Council Economic Institute president Micah Weinberg noted that the regions GDP wouldnt be so high save for areas of California with far lower GDP figures. There really wouldnt be Silicon Valley without the Central Valley, Weinberg said, referring to Californias agricultural heartland.

Wealth hasnt been without cost. Like other US high-per capita GDP areas in south-western Connecticut, Seattle and Boston, the Bay Area and Silicon Valley have seen skyrocketing housing costs, problematic cultural shifts and political clashes tied to rising inequality. GDP, it turns out, is no way to gauge a communitys economic health.

As a measure of output how much stuff is being produced GDP tells us nothing about the distribution of income from that output, which is a much more important determinant of overall well-being in a community, Lew Daly, a senior policy analyst with the thinktank Demos and the coauthor of Beyond GDP: New Measures for a New Economy, told the Guardian.

GDP tells you nothing about how a community is growing, Daly added. If the economy is growing, that might even be a negative thing if it is growing inequitably and unsustainably. GDP doesnt even begin to answer that question.

Researchers like Daly advocate holistic gauges of economic health that capture more than consumption, investment and the other measures underpinning GDP figures. Sometimes, though, there is an overlap. By one more progressive metric, the Human Development Index, Silicon Valley is the nations most well-developed place.

Uber loses more than $1bn in first quarterly report since IPO

Company said it now had 93 million customers who are active on a monthly basis, 33% higher than the same period last year

Uber lost more than $1bn in the first three months of the year, the ride-sharing company announced on Thursday.

Releasing its first quarterly report since it became a public company, Uber said it now had 93 million customers who are active on a monthly basis, 33% higher than the same period last year. The companys revenues were $3.1bn for the three months, 20% higher but slower than the 25% annual growth Uber recorded in the prior quarter.

The results were broadly in line with analysts expectations.

The company is spending heavily as it attempts to grow its market and head off rivals including Lyft, which is also losing billions. Investors and even the company have worried that Uber may never make a profit.

Uber had clearly signaled to investors that its losses would be large over the quarter ahead of its poorly received share sale on 10 May. Ubers shares rose marginally in after-hours trading but are still well below the initial price it set for the share sale earlier this month.

Earlier this month we took the important step of becoming a public company, and we are now focused on executing our strategy to become a one-stop shop for local transportation and commerce. In the first quarter, engagement across our platform was higher than ever, with an average of 17m trips per day and an annualized gross bookings run-rate of $59bn, said Dara Khosrowshahi, Ubers chief executive officer.

Uber is expanding into food delivery, Uber Eats, and freight, Uber Freight, but faces stiff competition in those areas too. At the same time ride-sharing companies are under pressure to increase wages for drivers, who have gone on strike in many cities complaining of poverty wages.

Ubers hotly anticipated share sale got off to a miserable start. Wall Street investors seemed less than enamored of the companys years of huge losses and Uber was forced to cut the price of its initial public offering (IPO) before going public on 10 May.

The IPO itself stalled with Ubers shares recording the largest ever first day loss for a US company $655m. Its share price has recovered somewhat in recent weeks and on Thursday ended the day at $39.76, though still well below their $45 IPO price.

Ubers difficult debut had been foreshadowed by its rival, Lyft. Lyft went public at $72 a share in April, and the shares are now valued at $54.83. It too has investors worried that its huge losses may never translate into profits.

The two companies are among a batch of so-called unicorns private companies valued at more than $1bn that have attracted major investment from Silicon Valley backers and had hoped to make a splash on Wall Street.

Other loss-making unicorns including WeWork the co-working office rental company that lost close to $2bn last year are also planning IPOs in the near future.

Alyssa Altman, transportation lead at digital consultancy Publicis Sapient, said: Uber has an easy-to-use app, a fleet of drivers and vast quantities of data, but its rise has been fueled by its investors willingness to subsidize the taxi rides that make up the bulk of the business. Last year 5.2 billion people rode an Uber. In each of those trips, the company lost an average of 58 cents. Uber continues to grow, and its fair to say it dominates the taxi-hailing market, but the companys success is built on sand. The reality is that it still hasnt made a profit.

Facebook plans to launch ‘GlobalCoin’ cryptocurrency in 2020

Mark Zuckerberg met governor of Bank of England last month to discuss decision

Facebook is planning to launch its own cryptocurrency in early 2020, allowing users to make digital payments in a dozen countries.

The currency, dubbed GlobalCoin, would enable Facebooks 2.4 billion monthly users to change dollars and other international currencies into its digital coins. The coins could then be used to buy things on the internet and in shops and other outlets, or to transfer money without needing a bank account.

Mark Zuckerberg, the founder and chief executive of Facebook, last month met the governor of the Bank of England, Mark Carney, to discuss the plans, according to the BBC.

Q&A

What is cryptocurrency?

A cryptocurrency is a form of digital asset that relies on a peer-to-peer network of users.

Sharing many of the features of traditional currencies, crypto assets can be used as a medium of exchange and a store of value for users.

Cryptocurrencies rely on so-called distributed ledger technology, which enables the authentication of transactions without them needing to be handled or guaranteed by a central authority. For that reason they are outside the control of governments and are unregulated by financial watchdogs.

If you own a crypto asset you control a secret digital key that you can use to prove to anyone on the network that a certain amount of that asset is yours.

If you spend it you tell the entire network that you have transferred ownership of it and use the same key to prove that you are telling the truth. Over time, the history of all those transactions becomes a lasting record of who owns what: that record is called the blockchain.

Bitcoin is the first and biggest cryptocurrency and has been on a wild ride since its creation in 2009, surging in value as investors piled in, drawing comparisons with the Tulip mania of the 17th century before it crashed in 2018. Sceptics warn that the lack of central control make crypto assets ideal for criminals and terrorists.

The number of crypto assets available has grown rapidly, including from several major companies. JP Morgan has built its own cryptocurrencies, while trading in traditional financial assets that track the value of cryptocurrencies such as derivatives and contracts for difference have also become available. Richard Partington

Zuckerberg has also discussed the proposal, known as Project Libra, with US Treasury officials and is in talks with money transfer firms, including Western Union, to develop cheap, safe ways for people to send and receive money. A report last year said Facebook is working on a cryptocurrency that would let users transfer money using WhatsApp, its encrypted mobile-messaging app.

Payments is one of the areas where we have an opportunity to make it a lot easier, Zuckerberg told the companys developer conference last month. I believe it should be as easy to send money to someone as it is to send a photo.

In order to try to stabilise the digital currency the company is looking to peg its value to a basket of established currencies, including the US dollar, the euro and the Japanese yen.

Facebook is also looking at paying users fractions of a coin for activities such as viewing ads and interacting with content related to online shopping, similar to loyalty schemes run by retailers.

However, experts believe that regulatory issues and Facebooks poor track record on data privacy and protection are likely to prove to be the biggest hurdles to making the currency a success.

Facebook is not regulated in the same way as banks are, and the cryptocurrency industry is, by definition almost, unregulated, said Rebecca Harding, chief executive of banking trade data analytics firm Coriolis Technologies.

In the UK, for example, there are no formal laws that govern this market because cryptocurrencies are not legal tender. Facebook has also had issues with protecting user data in the past few years and this may well be an issue for it as it tries to provide guarantees to users that their financial information is safe.

Following an Observer investigation last year, it emerged that the data of up to 87 million Facebook users had been used improperly by Cambridge Analytica to target ads for Donald Trump in the 2016 US presidential election.

Earlier this month the US Senate committee on banking wrote an open letter to Zuckerberg asking how the currency would work, what consumer protection would be offered and how data would be secured.

It has also emerged that Zuckerberg held talks with the billionaire Winklevoss twins, Cameron and Tyler, whose bitter legal battle over the origins of Facebook was chronicled in the film The Social Network. The twins, who went to Harvard with Zuckerberg and later sued him for stealing their idea for a social network, founded the cryptocurrency exchange, Gemini, in 2014.

In the highly unregulated world of cryptocurrencies Gemini is notable as being one of the first two companies to win regulatory approval to launch a digital currency pegged to the US dollar, the Gemini dollar.

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It emerged last month that Facebook is looking for $1bn (790m) in funding to support the project, and has held talks with payments giants including Visa and Mastercard.

Facebook has been long expected to make a move in financial services, having hired the former PayPal president David Marcus to run its messaging app in 2014. Marcus, a board member of crypto exchange Coinbase, runs Facebooks blockchain initiatives, the technology on which cryptocurrencies run.

In February JP Morgan became the first major US bank to create its own cryptocurrency, JPM Coin, as a way for its clients to settle payments.

Spotify reaches 100m paying subscribers worldwide

Streaming service boosted by better-than-expected performance in US and Canada

Spotify has reached 100 million paying subscribers, in a landmark for the music streaming service as it faces competition from major tech firms.

The number of users willing to pay for the service soared 32% in the first three months of 2019 compared with a year earlier, Spotify said on Monday.

The Swedish company, which listed on the New York Stock Exchange just over a year ago, said it was bolstered by a better-than-expected performance in North America, its second biggest market.

Spotify is in the middle of a battle for market share with music streaming competitors with deep pockets, including Googles Play Music, YouTube Music, Amazon and Tidal, the service owned by Jay-Z, Beyonc and other stars. Last month, Spotify filed a complaint against Apple with European regulators, alleging that the US tech firm limits choice and competition in its app store, giving its own music streaming service an unfair advantage over rivals.

The Swedish company, whose market value of about $25bn (19bn) makes it one of Europes few large tech successes, has invested heavily in acquiring new users.

In March it agreed a deal with Samsung, the worlds largest phone producer, to pre-install its app on devices. Spotify has also gained 2 million users in India after launching there in February.

Free users, who listen to adverts between songs, still outnumbered paying subscribers at the end of the quarter, but the premium tier provides more than 90% of Spotifys earnings.

In total, Spotify rang up revenues of 1.5bn (1.3bn) in the first three months of the year, an increase of a third year on year. However, despite the increasing revenues, Spotify swung back into the red, with an operating loss of 47m for the quarter after making a profit of 94m in the final three months of 2018.

India is one of the fastest-growing music markets and Spotify launched with an ad-supported option and a $1.67 monthly subscription, the cheapest rate offered by the music streaming servicein the 79 countries where it operates. Spotify charges $9.99 in the US and 9.99 in the UK.

On Monday, the company said more than one million users in India had signed up in its launch week and that figure had now more than doubled.

Observers highlighted the importance of the Indian market. Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said: With customers outside Europe and the Americas accounting for just 10% of subscribers, the potential in cracking such a populous and potentially high-growth country would be huge.

With rivals of the calibre of Amazon and Apple, Spotify cant afford to rest on its laurels, but so far the group seems to be more than capable of holding its own.

However, Spotify is about to lose 120,000 songs from Indian artists and Bollywood film soundtracks after failed negotiations with Saregama India, Indias oldest record label, whose catalogue generates more than 1bn streams worldwide each quarter.

So far this year Spotify has spent more than $300m buying three podcast firms: the true crime podcast maker Parcast; Gimlet, the firm behind Homecoming, which was made into an Amazon TV series starring Julia Roberts; and the podcast platform Anchor. Spotify says it plans to spend up to $500m in total this year outside music streaming.

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The companys founder, Daniel Ek, believes that in the future up to 20% of all listening on the service will be non-music content. It is also a strategy to help move away from the dependence on music licensing deals, which are low-margin with the majority of revenues paid out in royalties to music companies.

The streaming revolution has helped the beleaguered music industry to get back on its feet after years of digital piracy, and the continuing demise of the CD.

In 2018, global music revenues grew at the fastest rate in more than two decades to $19.1bn, the highest level of income since 2006, when CD sales accounted for more than 80% of its worldwide revenues.

Music streaming services generated more than half of the income earned by record labels in the UK for the first time last year.

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