What soothed investors’ concerns? Facebook said on its call with analysts that the average price per ad increased 43 percent in the quarter.
“The impact it has on monetization is certainly not clearly negative,” Sheryl Sandberg, Facebook’s chief operating officer, told analysts.
The stock is up 1.5 percent after hours.
Facebook tops expectations.
The social media giant reported its fourth-quarter operating profit jumped 61 percent to $7.35 billion after the close Wednesday.
$4.27 billion— The company’s profit for the quarter, including a $3.19 billion tax charge.
$12.97 billion — Facebook’s revenue for the quarter, up 47 percent from the fourth quarter of 2016.
1.4 billion — The number of daily active users, up from 1.37 billion in the third quarter.
Digging deeper, there were several impressive numbers in Facebook’s earnings. Its operating profits as a percentage of revenue, or operating margin, ballooned in the fourth quarter to 57 percent, up from 52 percent in the same period last year. Its average revenue per Facebook user increased at a 28 percent clip in the fourth quarter of 2017, compared with the same period in 2016. That year-on-year growth rate is higher than the 26 percent recorded in the third quarter.
But there were numbers that investors will keep an eye on. Changes Facebook made to its news feed reduced the “time spent on Facebook by roughly 50 million hours every day.” Daily active users in the United States and Canada actually fell to 184 million in the fourth quarter of 2017 from 185 million in the third quarter of last year. But Facebook still managed to generate a huge amount of revenue from the United States and Canada. The region accounted for $6.4 billion of revenue in the fourth quarter of last year, a 40 percent jump from the same period in 2016.
Another figure that might cause concern is the growth in capital expenditures, the money a company spends as it invests in new initiatives. Capex hit $2.26 billion in the fourth quarter of last year, a staggering 78 percent jump from the same period in 2016.
— Peter Eavis
Stocks briefly dipped into the red on hawkish Fed.
The Federal Reserve, as was widely expected, left its benchmark interest rate unchanged in a range between 1.25 percent and 1.5 percent. But the market focused on the change to the Fed’s inflation language.
Today’s statement on inflation:
“Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee’s 2 percent objective over the medium term.
The statement from the December meeting:
“Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.”
Though the market expected the Fed to raise rates at its March meeting, that language change caused stocks to briefly turn negative. The Standard & Poor’s 500 index, which had traded as high as 2839, slipped to 2817 an hour after the Fed’s statement. It recovered in the final hour of trading to finish up at 2824.
Economists at Bank of America Merrill Lynch wrote that the change to the Fed’s inflation language was “decisive” and a hawkish signal. The bank also noted: “Adding to the conviction of higher inflation, the FOMC noted that market-based measures of inflation compensation have increased in recent months but remain low. This shows that the Fed is taking notice of the recent shift in market perception about inflation.”
Ian Shepherdson, Pantheon Macroeconomics: “In short, the statement sets up the March hike, which will be followed by Jay Powell’s first press conference. We’re expecting continuity of approach, at least for a while.”
Greg McBride, Bankrate.com: “While there is a lot of continuity between Yellen and Powell, many other faces on the committee are changing, and this could mean a Fed that is more inclined to raise interest rates than what we’ve become accustomed to under Janet Yellen.”
G.E.’s troubles could cost it a 122-year honor
Analysts over at Deutsche Bank think the chances are increasing. They write:
“GE continues to face substantial challenges including earnings and cash pressure, tough global power generation markets, aggressive downsizing, shrinking its portfolio, management shake-up and SEC investigations.”
The analysts add:
“As the company’s absolute share price has continued to drop (and as the share prices of the other companies have been increasing), GE increasingly falls into the category of outlier and consequently a likely candidate for removal, in our opinion.
“The committee reportedly prefers for the Dow to incur no more than a 10:1 ratio between the component companies’ highest share price and lowest share price. Currently, the ratio between Boeing (the highest) and GE (the lowest) exceeds 20:1.”
The context: A S&P Dow Jones Indices committee meets twice a year to review the makeup the Dow industrials.
G.E. was among 12 original Dow components when the index was started in 1896 and is the only one of those companies still in the Dow. After briefly being removed twice during the Dow’s first five years, G.E. has been a member of the index for more than 110 years.
— Stephen Grocer
The C.F.P.B. setup is constitutional.
A federal appeals court ruled on Wednesday that the Consumer Financial Protection Bureau’s director can only be fired by the president for cause. The NYT’s Stacy Cowley reports:
When Congress created the bureau seven years ago, it specified that the director —after being nominated by the president to a five-year term and confirmed by the Senate — could only be removed for “inefficiency, neglect of duty or malfeasance.” That is different than the structure of most other federal agencies, whose leaders can typically be removed at will by a president.
Last year, a three-judge appeals court panel found that setup unconstitutional. On Wednesday, the full court issued a new ruling vacating the previous decision and upholding the constitutionality of the agency’s structure.
Tensions grow between Britain and the E.U. over finance
The European Union appears to be leaning against striking a special deal for London, instead giving the financial center more limited access to the European single market.
More from Jim Brunsden of the FT, who first reported on the news, citing unnamed sources:
Ensuring that financial services are not badly hit by Brexit is a top priority for the UK, since the sector is Britain’s biggest source of exports and tax revenue.
Theresa May’s government has also argued that if the City is damaged it would adversely affect financial stability and EU groups’ cost of financing, while contributing to the fragmentation of the sector.
But participants said that in the EU27 meeting the European Commission played down the risks of cutting off the City to EU businesses, saying the financial sector was mobile enough to adapt.
— Michael J. de la Merced
JPMorgan’s former top lawyer is heading to Simpson Thacher
Stephen Cutler, who until the end of 2015 was the bank’s general counsel, will become a litigation partner at Simpson Thacher & Bartlett, according to the WSJ.
Since then, he has been a vice chairman of the firm. Before joining JPMorgan in 2006, he worked as the head of enforcement at the S.E.C. and as a top securities lawyer at what was then Wilmer Cutler Pickering Hale and Dorr.
More from Sara Randazzo of the WSJ:
Mr. Cutler said he is looking forward to returning to the practice of law, something he has done less of in recent years. He said he started talking to Simpson about joining after a conversation over breakfast with a partner there late last fall. He will continue to teach a course at Columbia Law School on the role of the in-house counsel.
— Michael J. de la Merced
Meet the boutique that helped craft the Thomson Reuters deal
It’s Canson Capital Partners, which wasn’t even licensed to operate until three months ago. Its founders:
• Matteo Canonco, a former global head of financial sponsors at HSBC
• James Simpson, a former co-head of advisory for Europe at HSBC
More from Dinesh Nair of Bloomberg, who interviewed Mr. Canonaco:
Canonaco’s ties to senior Blackstone executives may have helped the three-man shop in London’s posh Mayfair neighborhood secure the mandate on one of the three largest takeovers of the year. The newcomer’s win mirrors the success enjoyed by smaller boutique advisers including Robey Warshaw LLP and Evercore Inc. as well as rainmakers such as Michael Klein in landing key roles — with juicy fees — on some large transactions in recent years.
— Michael J. de la Merced
Boeing is powering the Dow again
Shares of Boeing are up 6.3 percent after the company’s earnings easily beat expectations.
The aerospace company reported a profit of $3.06 a share excluding the tax gain. Analysts had expected $2.90 a share. Revenue jumped 8.9 percent to $25.4 billion. Analysts had forecast $24.7 billion in sales.
Boeing’s rally Wednesday has accounted for about 50 percent of the Dow Jones industrial average’s 250 point gain in early trading.
Boeing’s 12 percent rally over the past year has powered the Dow’s run to record highs. Earlier this month when the Dow surpassed 26000 just eight days after topping 25000, Boeing accounted for about a third of the index’s 1,000-point gain.
— Stephen Grocer
Trump wants action on infrastructure
At least, that’s what the president said in last night’s State of the Union address. But how much progress can he make on either front?
More from Julie Davis and Michael Shear of the NYT:
He said he would bring Republicans and Democrats together around a $1.5 trillion infrastructure plan to “give us the safe, fast, reliable and modern infrastructure our economy needs and our people deserve.”
Mr. Trump offered few details on his infrastructure proposal. A report by McKinsey & Company says that a comprehensive fix would cost $1.8 trillion, while the American Society of Civil Engineers put the price tag at $2 trillion.
All but $200 billion is supposed to come from private investors, but lawmakers are skeptical. Senator John Cornyn, Republican of Texas, told reporters, “You tell me how we pay for it, and I’ll tell you what we can do.”
“Leveraging private dollars is a good start,” he added, “but we got a lot of work to do.”
Don’t forget immigration
Congress has until Feb. 8 to agree on government funding, and Democrats say they still want a deal to protect the young immigrants known as Dreamers. The White House’s immigration proposal isn’t sitting well with them — nor with some House Republicans. Meanwhile, businesses are preparing for the worst if legal protections for the Dreamers expire in March.
The Washington flyaround
• As the national deficit approaches $1 trillion, both parties are expressing concern — while pushing to increase spending. (NYT)
• The Justice Department and the F.B.I. are bracing for the release of a secret memo alleging improprieties in the surveillance of a Trump campaign aide. (NYT)
• What companies are doing with their tax savings. (NYT)
• The head of the C.D.C., Brenda Fitzgerald, bought shares in Japan Tobacco despite leading an agency charged with reducing tobacco use. (Politico)
• Expect populist politics to stick around, Eduardo Porter writes in his latest Economic Scene column. (NYT)
• Todd Ricketts, the Chicago billionaire, will replace Steve Wynn as the Republican National Committee’s finance chairman. (WaPo)
• The Treasury Department’s list of Russian oligarchs was compiled primarily from Forbes’s list of global billionaires. (Forbes)
What companies are doing with their tax windfall.
President Trump also touted the trickle-down effect of the tax overhaul during Tuesday’s State of the Union address:
“Since we passed tax cuts, roughly three million workers have already gotten tax cut bonuses — many of them thousands of dollars per worker.”
The tax law indeed has prompted hundreds of employers, including at least 40 members of the Standard & Poor’s 500-stock index, to pass on savings to workers.
Much of those perks have come in the form of one-time bonuses. Many companies have also said they would increase base wages, expand benefits and raise charitable donations.
Here’s a closer look at what companies are doing:
Can Buffett, Bezos and Dimon transform health care?
Warren Buffett has called the U.S. health care system “a hungry tapeworm on the American economy” because of its ever-growing costs. So his Berkshire Hathaway has teamed up with Amazon and JPMorgan Chase to create a new — and as of now largely undefined — health care provider.
Our colleague Peter Eavis had four questions about the initiative:
• What is it, beyond the thin description of an independent company “free from profit-making incentives and constraints”?
• How big will it be?
• What expertise will these companies bring?
• How will this venture cut costs?
The numbers that matter
• $18,764: the average premium for family coverage for employees nationwide, according to the Kaiser Family Foundation.
• 30 percent: the current amount of the premium paid for by workers.
• 5 percent and 7 percent: how much the shares of Anthem and Cigna fell yesterday. (Insurers and prescription benefits managers as a whole took a hit on the news.)
• Margot Sanger-Katz and Reed Abelson offer reasons to temper expectations. (Upshot)
• Robert Cyran writes, “Amazon is already perceived as a potential threat to many U.S. businesses. Add other big employers, and the threat is multiplied.” (Breakingviews)
Xerox’s deal is the end of an era
One of the icons of 20th-century corporate America, the long-struggling company will now be controlled by Fujifilm Holdings of Japan.
It’s a complicated transaction
• Xerox will be folded into an existing 55-year-old joint venture.
• Xerox investors will receive a special cash dividend of $9.80 a share and will own 49.9 percent of the combined business, which will be publicly traded.
• The move is expected to save at least $1.7 billion in costs, though Fujifilm will cut 10,000 jobs.
The context: Xerox has struggled over the years with a decline in corporate printing, and it spun out its business services unit last year. Two of its biggest investors, Carl Icahn and Darwin Deason, have pressured the company to explore a deal — including revising or ending the Fujifilm joint venture.
Behind the deal: Fujifilm relied on Mitsubishi UFJ, Morgan Stanley and the law firm Morrison & Foerster. (It is also borrowing from Citigroup and Morgan Stanley.) Xerox took advice from Centerview Partners and the law firm Paul, Weiss, Rifkind, Wharton & Garrison.
Thomson Reuters is a huge post-crisis L.B.O.
Blackstone’s $20 billion deal (including debt) for control of the company’s financial and risk division highlights the growing ambitions of private equity firms — and how they need to spend nearly $1 trillion in uninvested capital.
Behind the deal
Blackstone believes that the financial and risk division, which includes Thomson Reuters’s Eikon terminal service, can continue to grow. “We are excited to partner with Thomson Reuters — one of the most trusted companies in financial technology,” Martin Brand of Blackstone said in a statement.
Meanwhile, Thomson Reuters gets a cash infusion as it competes against Bloomberg LP and tries to deal with customers spending less on financial data. Bloomberg pointed out that the company’s controlling Thomson family is essentially retreating to the news business.
• Gillian Tan writes, “Despite the $20 billion price tag, the deal seems like a bargain.” (Gadfly)
• Lex writes, “Any spinoff would put paid to the Thomson family’s decade-long hopes for combining a media business with financial services.” (Lex)
The tech flyaround
• The trial in Waymo’s lawsuit accusing Uber of stealing its driverless car technology is set to start today. (NYT)
• The Justice Department and the S.E.C. are investigating whether Apple violated securities laws concerning its disclosures about a software update that slowed older iPhone models, according to unidentified sources. (Bloomberg)
• Google’s rivals have complained to European regulators that the search giant is still stymying competition in online shopping, despite an order to change its behavior. (WSJ)
• An app that inadvertently revealed the locations of military personnel is the latest sign that we need better control over our data, writes Zeynep Tufekci, a professor at the School of Information and Library Science at the University of North Carolina. (NYT)
• SoftBank’s Vision Fund finally struck a deal to invest $300 million in Wag, the dog-walking start-up. (NYT)
Bitcoin keeps on falling
January has been the worst month for the virtual currency in three years, with its price down 30 percent. And it’s because of the very thing that Bitcoin and other digital currencies were supposed to be free from: central authorities and regulators.
• The S.E.C. froze a $600 million initial coin offering yesterday run by AriseBank.
• China has continued to clamp down on Bitcoin mining.
• South Korea is still weighing legal checks on virtual currency trading.
Add in Facebook’s banning of ads for digital money, and mining or trading virtual currencies has become a lot harder.
But not everyone has gotten the memo: The Japanese messaging service Line has plans to open its own virtual currency exchange, while the embattled publisher of Penthouse magazine wants to promote its own adult-entertainment-focused token.
Can Wynn’s board be trusted to investigate its chairman?
As Steve Wynn faces allegations of sexual assault and other misconduct, the board of his casino empire is increasingly coming under scrutiny, too.
The proxy adviser ISS has long criticized the compensation of Mr. Wynn over the years, going so far as to say that the company had an “overall corporate governance profile that ranks among the worst, not the best, of U.S. companies.”
The board said that it was setting up an independent committee to look into the allegations. It will be led by Patricia Mulroy, Wynn’s only female director and a former official at Nevada’s gaming commission.
Meanwhile, investigating Wynn are gaming regulators for Nevada, Massachusetts and Macau.
The misconduct flyaround
• Vice said that its chief digital officer, Mike Germano, would not return to the company after sexual harassment allegations against him prompted an internal investigation. (NYT)
• #MeToo has put pressure on companies, especially financial firms, to disclose information on their work force diversity. (Reuters)
• Hillary Clinton said that she should have fired a 2008 campaign aide after he was accused of sexual harassment. (Facebook)
• Och-Ziff Capital Management has named Rob Shafir, previously the head of Credit Suisse’s American operations, as the successor to Daniel Och, laying to rest questions about its leadership planning. (Och-Ziff)
The Speed Read
• Volkswagen suspended its chief lobbyist on Tuesday amid a growing furor over experiments on monkeys that were meant to promote the virtues of diesel-powered vehicles. (NYT)
• A California woman is suing Walmart, accusing it of racial discrimination because her local store keeps African-American personal care products locked up in a glass case. (NYT)
• David Cameron, the former British prime minister, has courted China’s sovereign wealth fund as a potential investor for his $1 trillion infrastructure fund. (FT)
• Carlos Slim is increasingly at odds with his onetime mentee, AT&T C.E.O. Randall Stephenson. (WSJ)
• Exxon Mobil said that it would triple its oil and gas production in the Permian Basin, which straddles West Texas and New Mexico. (NYT)
• ISS has become the kingmaker in proxy contests between hedge fund activists and their multibillion-dollar prey — an astonishing fact given that ISS is worth less than $1 billion and that it started out as a back-office support system. (Institutional Investor)
• Lex examines whether share buybacks undermine companies’ financial health, juice bonuses and threaten the real economy. (FT)
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