Tag Archives: Coverage
by Liz Hester
It’s not looking good for brick and mortar bookstores these days. On Thursday, Liberty Media said it would sell most of its holdings in Barnes & Noble, signaling that physical books are becoming a relic of the past.
The New York Times had this story by Michael J. de la Merced:
Liberty announced on Thursday that it would divest the vast majority of its stake in the struggling bookseller through private sales of its holdings. Liberty Media took a 17 percent stake in Barnes & Noble for $204 million in 2011. After the latest move, Liberty will have just under a 2 percent stake.
Other investors in the bookseller were much less sanguine about the move. The stock slid more than 10 percent on Thursday morning, trading at around $19.79 a share.
The sale removes one of Barnes & Noble’s major backers as the company tries to navigate the changing landscape for books and media. Its Nook business, once considered its brightest hope, has instead sputtered, with sales dropping more than 50 percent in the most recent fiscal quarter from a year ago.
The Reuters story by Phil Wahba and Siddharth Cavale pointed out that the Nook also has been performing poorly:
Prior to that deal, Liberty had been in talks to buy the whole company for $17 per share, or about $1 billion. At that time, Liberty had praised the potential of the Nook.
Instead, the Nook business has faltered, with sales down 50 percent last quarter as the company did not launch a new device for the 2013 holiday season.
Losses from the Nook have run to hundreds of millions of dollars as it tried to keep up with deep-pocketed technology rivals Amazon.com Inc and Apple Inc. Barnes & Noble will continue to develop Nook products, but only with a partner yet to be named.
Barnes & Noble’s retail business has shown much more stability in terms of sales, and profits at its bookstores and college campus stores are up.
Maggie McGrath of Forbes quoted that Liberty tried to put a positive spin on the news, but that investors were still spooked:
“Liberty Media has been a strong supporter of the company and Greg Maffei and Mark Carleton have been and continue to be tremendous partners at an important time in the Company’s history,” Leonard Riggio, Barnes & Noble chairman, said in a statement Thursday morning. “Liberty’s decision to retain a portion of its investment and have active involvement on our board underscores Liberty’s ongoing commitment to Barnes & Noble,” he said, adding that Liberty’s reduced ownership also gives his company greater flexibility to pursue various strategic options (but did not clarify what those strategic options are).
Despite these optimistic tones, other Barnes & Noble investors were not quite as satisfied with the news, sending shares of Barnes & Noble for a near-12 drop in Thursday morning trading. Shares of Liberty, meanwhile, were relatively unaffected by the news, trading for an 0.53% decline Thursday morning. Interestingly, it’s the struggling bookseller that’s had the better 2014 on the market: Liberty is down 7.7% in 2014 trading, while Barnes & Noble is up a whopping 50% for the year.
Part of the Barnes & Noble stock boost traces back to its third quarter earnings report, which was released in February and revealed that the company turned a profit despite a decrease in revenue. However, as Forbes’ Steve Schaefer reported at the time, the Nook tablet business, which was supposed to be a shining star for the company, posted a more-than 50% drop in revenue for the quarter and its profit was even worse. “Sales of the actual device and its accessories dropped 58.2% to $100 million due to both lower volumes and lower selling prices, while sales of content for the Nook fell 26.5% to $57 million,” he wrote, noting that Nook’s quarterly loss was 62 million. The silver lining? This loss was 67.5% smaller than a year earlier.
The Wall Street Journal story by Jeffrey A. Trachtenberg and Martin Peers made the point that the sale could ultimately free up Barnes & Noble for other strategic moves:
The divestiture removes a potential impediment to Barnes & Noble separating its retail stores from other parts of its businesses, an idea the company has considered in recent years. CEO Michael Huseby said in February a split was still being studied. Liberty, one of the biggest investors in the company, had the right to block the sale of any major portion of its business; it will lose that right in reducing its stake.
“Barnes & Noble will gain greater flexibility to accomplish their strategic objectives” as a result of the sale, Liberty Media Chief Executive Greg Maffei said.
One large investor pointed out that the Barnes & Noble investment was a relatively small stake for Liberty, “which has much bigger arenas in which to play.” Liberty lately has been trying to spark a consolidation of the cable-TV industry, among other efforts.
Barnes & Noble shares closed Thursday at $19.12, down $2.99, or 13.5%
Barnes & Noble’s stock rallied 66% between early February and Wednesday, when it closed at $22.11. That followed a stronger financial performance at the company. Mr. Huseby has cut costs, helping Barnes & Noble to report a profit for the third-fiscal quarter compared with a year-earlier loss and despite a 10% drop in revenue.
The retailer also reported a stronger-than-expected holiday performance at its 663 consumer bookstores. Core comparable sales, which exclude Nook-related digital products, were down only 0.5%. for the third fiscal quarter ended Jan. 25, compared to a 2.2% decline in the year-earlier quarter.
So while things aren’t looking totally dire at the retailer, it’s likely another blow to the publishing industry as another large buyer pulls back from purchases. And it doesn’t bode well for the fate of retail book stores despite the turnaround efforts.
by Liz Hester
Well, the good times at Citigroup didn’t last long. The bank had yet another public relations blow when it reported fraud was discovered in its Banamex Mexico unit.
Ben Protess and Michael Corkery reported in the New York Times that now the government is getting involved:
Just as Citigroup was putting a troubled past of taxpayer bailouts and risky investments behind it, the bank now finds itself in the government’s cross hairs again.
Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter, one of a handful of government inquiries looming over the giant bank.
The investigation, overseen by the F.B.I. and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.
The bank, which also faces a parallel civil investigation from the Securities and Exchange Commission’s enforcement unit, hired the law firm Shearman & Sterling to lead an internal inquiry into the fraud, said the people briefed on the matter, who spoke only on the condition of anonymity. At a meeting last month, the bank’s lawyers presented their initial findings to the government.
The bloom of activity stems from Citigroup’s disclosure in February that its Mexican unit, Banamex, uncovered an apparent fraud involving an oil services company.
Apparently, at least two people have lost their jobs due to the digressions, Dakin Campbell reported for Bloomberg:
Citi terminated two traders in 2013 for violating our code of conduct,” Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, said today in an e-mailed statement. “We escalated this issue to regulators and took immediate action against these individuals.”
The fixed-income traders engaged in unauthorized transactions that may have resulted in losses of as much as “tens of millions of dollars,” Reuters reported earlier today, citing two sources close to the matter.
Banamex, which Citigroup acquired in 2001, is the biggest unit in the bank’s Latin America operations, which account for about 20 percent of total revenue. Citigroup reported Feb. 28 that fraud on loans made by the unit to a Mexican oil-services firm would cut last year’s profit by $235 million.
Elinor Comlay and David Henry’s story for Reuters had much of the background on the situation, including troubles with the firm’s top executive in Mexico.
Mexico’s bank and securities regulator, the National Bank and Securities Commission, is aware of the matter, which was investigated internally by the bank, a spokesman for the regulator said.
The trading loss, even if realized, would be small in the scheme of Citigroup’s $13.7 billion of earnings for 2013. The Mexican unit, which has in the past enjoyed a good deal of autonomy, has suffered much bigger losses from bad loans to homebuilders and oil services company Oceanografia.
Some Citigroup officials are asking whether the U.S. Federal Reserve’s decision last week to veto its plan to boost dividends and buy back more shares was linked to its Mexico troubles.
Citigroup has cut the compensation for Manuel Medina-Mora, who has run Banamex for many years and is also co-president of Citigroup – a role in which he oversees global consumer banking.
Medina-Mora was paid $9.5 million in total compensation for 2013, according to a proxy statement filed by Citigroup on March 12. That was down from the $11 million he received for 2012.
The filing said a factor in his pay was control issues at Banamex USA, a unit of Banamex, which the U.S. government has faulted for not doing enough to stop money laundering by customers. Citigroup last year consented to an order from the Federal Reserve to take corrective steps.
The Times story also pointed out the most recent troubles for the firm.
The case represents another setback for the bank, which has also come under fire from regulators in Washington. Last week, the Federal Reserve rejected Citigroup’s plan to increase its dividend. The rebuke embarrassed the bank and raised questions about the reliability of its financial projections.
The scrutiny coincides with Citigroup’s recent announcement that it faces a separate, and perhaps more threatening, investigation from federal prosecutors in Massachusetts. The prosecutors, who have sent subpoenas to Citigroup, are examining whether the bank lacked proper safeguards against clients laundering money. Citigroup, the people briefed on the matter said, has hired the law firm Paul, Weiss, Rifkind, Wharton & Garrison to handle that case, which stems from the prosecutors’ suspicion that drug money was flowing through an account at the bank.
Together, the developments threaten to complicate Citigroup’s relationships with government authorities, who had previously lost faith in the bank after it required two bailouts and came to epitomize Wall Street’s role in the financial crisis. While Citigroup’s chief executive, Michael L. Corbat, has repaired ties to regulators using a blend of contrition and self-accountability, the latest investigations could test those improvements.
Corbat just can’t seem to catch a break. Ever since taking over the bank, he’s had to continually put out crises and handle inquires. It’s hard to imagine business as usual or clients being thrilled about the latest news.
by Liz Hester
In a week where much of Wall Street has been talking about Michael Lewis’ new book and high-frequency trading, on Tuesday, the news broke that Goldman Sachs might sell its New York Stock Exchange floor-trading unit.
Justin Baer and Bradley Hope had this story in the Wall Street Journal:
Goldman Sachs Group Inc. is close to selling a once-iconic trading business based on the floor of the New York Stock Exchange for a fraction of what it paid less than 15 years ago, according to people familiar with the matter.
Goldman is in talks to sell the business, once part of Spear, Leeds & Kellogg LP, to Dutch firm IMC Financial Markets, the people said.
Goldman paid $6.5 billion in 2000 for the business, which included a division that puts buyers and sellers together on the floor of the NYSE. A final deal isn’t imminent, though the companies are discussing a price of as much as $30 million, the people said, a reflection of the dramatic changes that have transformed U.S. markets since Goldman made the initial deal.
Remco Lenterman, chief executive of IMC Financial Markets, said the company doesn’t “comment on rumors or speculation.”
Bloomberg pointed out in a story by Sam Mamudi, Zeke Faux and Michael J. Moore that the NYSE’s floor traders have been shrinking and they may be purchased by IMC, a high-frequency trading firm:
The NYSE’s huddles of traders have been shrinking for years as more transactions are handled electronically, making humans less integral. Atlanta-based IntercontinentalExchange Group Inc. pledged to preserve the trading floor in lower Manhattan when it agreed to buy the exchange in 2012.
“The business has evolved away from humans on the exchange,” said Devin Ryan, an analyst at JMP Group Inc. “Only a fraction is being done on the floor with humans versus how much is being done electronically.”
IMC, which stands for International Marketmakers Combination, is a high-frequency trading firm and asset manager founded in Amsterdam in 1989. It has offices in Chicago and New York, and conducts transactions on more than 90 exchanges around the world, according to its website. Remco Lenterman, an IMC managing director, and Tiffany Galvin of New York-based Goldman Sachs said their companies don’t comment on speculation.
Selling the floor-trading business wouldn’t mean Goldman Sachs would stop making markets. The firm reaps the most revenue from equities trading among banks globally. It runs its own trading venue called Sigma X and holds a stake in exchange operator Bats Global Markets Inc.
The NYSE has long relied on traders known as designated market markers to facilitate buying and selling. The firms help run opening and closing auctions of NYSE-listed stocks. Traders wearing vented jackets labeled with their names and numbers gather around a market maker for that stock, who calls out prices. Some eat peanuts, tossing the shells on the ground.
MarketWatch’s blog was one of many writing about the debate over the new world of trading highlighted by Lewis’ new book:
Twitter reaction has been fast and furious to the accusation by the author of the new book “Flash Boys: A Wall Street Revolt” that high-frequency traders have an edge over the average stock-market investor.
“High frequency traders have found ways to use their speed to gain an advantage that few understand,” said Michael Lewis, who has written a number of best-sellers about Wall Street, in an interview with “60 Minutes” that aired Sunday.
In the interview, Lewis alleges that high-frequency traders, who use complex computer algorithms, are able to “front run” orders, buying a block of stocks fractions of a second before another buyer and then selling those same shares to that buyer, because they pay for fiber-optic lines that are faster than other lines. He singled out BATS Global Markets, one of the biggest U.S. exchanges, for its role in the market.
Not surprisingly, then, the most vocal defender of HFTs on Twitter Monday was the president of BATS, William O’Brien, who uses the handle @obrienedge, tweeted: “Michael Lewis could not be more wrong when he says the stock market is not a fair or safe place for investors #FlashBoys”
The BATs president acknowledged that there are ways to improve the markets, but that it’s “unjust to accuse people simply for using technology & providing competition.”
The news comes after the Federal Bureau of Investigation is joining other regulators into looking into high frequency trading. The New York Post had this story by James Covert:
The FBI has joined state and regulatory probes of high-frequency traders to see if the firms are guilty of insider trading.
Agents, who started the probe about a year ago, are looking to see if the HFTs used information to trade ahead of large institutional orders, an FBI spokesman told a number of media outlets on Monday when news of the investigation first surfaced.
In one possible scenario, agents would look to see if a high-speed trading firm profited by jumping ahead of a huge buy order, and then quickly exited after the giant order pushed the stock higher.
One thing’s for certain, traders have never been scrutinized – by the press, the public and regulators. Many millions have been made on milliseconds and it seems that Goldman is betting that’s the way the world will go.
by Liz Hester
After her debut to mixed results, Federal Reserve Board Chair Janet Yellen worked to clarify her earlier comments on how long the Fed would continue its easy money policy.
Bloomberg had this story by Jeff Kearns and Craig Torres:
Federal Reserve Chair Janet Yellen, easing investor concern that interest rates may rise earlier than previously forecast, said the world’s biggest economy will need Fed stimulus for “some time.”
Yellen said today the Fed hasn’t done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases.
“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers,” Yellen said at a community development conference in Chicago. “The scars from the Great Recession remain, and reaching our goals will take time.”
Yellen spotlighted as evidence “real people behind the statistics,” describing how one person, Vicki Lira, lost two jobs, endured homelessness and now serves food samples part-time at a grocery store.
The Washington Post story by Ylan Q. Mui focused on Yellen’s comments about Main Street and her examples of unemployed workers, something that is out of the ordinary for a Fed:
The address amounted to an impassioned argument for continuing the Fed’s unprecedented support of the American economy in the aftermath of the 2008 financial crisis. Yellen described in detail the challenges facing unemployed workers, from exhausted savings to strained marriages. She even recounted the stories of three people by name: Dorine Poole, who was discriminated against because she is unemployed; Jermaine Brownlee, who took a job making less money than he did before he was unemployed; and Vicki Lira, who is working part-time but wants more hours.
“They are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives,” Yellen said. Though the Fed works through financial markets, “our goal is to help Main Street, not Wall Street.”
Yellen’s speech seemed tailored to help the Fed shed the cloistered reputation it earned in the decades leading up to the financial crisis. The central bank’s top officials have made transparency and communication with the public a priority since the Great Recession, and nearly every aspect of Yellen’s event was steeped in the real economy. She delivered her speech at the conference for community organizers and developers hosted by the Chicago Federal Reserve. She toured a manufacturing program at a community college in the city’s rough South Side.
“It shows that the Fed has a concrete, on-the-ground feeling for what is happening,” said Randall Kroszner, a professor at the University of Chicago’s Booth School of Business and a former Fed governor.
Writing for The New York Times, Binyamin Appelbaum’s story added the context that Yellen’s speech was designed to counter arguments from some who feel the economy is recovering:
The speech offered a rebuttal to economists, including some Fed officials, who see evidence that the central bank is approaching the limits of its ability to improve labor market conditions. It also leaned against recent indications that Fed officials might be considering a faster retreat from their economic stimulus campaign.
Ms. Yellen said that even now, almost five years after the official end of the Great Recession, it remains harder for Americans to find jobs than in the midst of a typical downturn. For those who are working, wages are rising more slowly than usual.
“There remains no doubt that the economy and the job market are not back to normal health,” Ms. Yellen said. “The recovery still feels like a recession to many Americans and it also looks that way in some economic statistics.”
She said the Fed’s commitment to economic stimulus remained “strong.”
Ms. Yellen’s predecessors, Ben S. Bernanke and Alan Greenspan, opened their Fed tenures by seeking to reassure financial markets that they were determined to minimize inflation. Mr. Bernanke made inflation the subject of his first speech as chairman in 2006. Now inflation is actually slower than the Fed would like, and Ms. Yellen mentioned it only briefly.
The Wall Street Journal story by Pedro Nicolaci da Costa and Jon Hilsenrath pointed out that investors liked her comments:
Ms. Yellen’s comments Monday helped underpin a rally in the stock market. The Dow Jones Industrial Average gained 134.60 points, or 0.8%, to 16467.66, while the Standard & Poor’s 500 rose 14.72 points, or 0.8%, to 1872.33. Those gains contrasted with a selloff spurred by her press-conference remarks.
“She doesn’t want to get the market overly concerned that she’s going to tighten anytime soon, because she’s not,” said Doug Cote, chief market strategist at ING Investment Management. “She said she has an extraordinary commitment to boost the economy in a still-struggling labor market. I think it put the market at ease.”
While Ms. Yellen’s underlying message on Fed policy was unchanged, her delivery was striking. Central bankers tend to speak in terms of economic theory and statistics, in jargon better understood by investors and other economists than the broader public. Ms. Yellen instead exhibited a personal touch Monday by coloring her comments with experiences of three people who had struggled to gain full-time work.
What is certainly true about Yellen is that she is making her own path as head of the Fed. Invoking “real” stories and concrete examples hints of politics and a much different presentation strategy than past chairs. While she may not have made a slight gaffe during her first speech, she’s making up for it now with a much different tactic.
by Liz Hester
General Motors Co. announced yet another recall, adding to the totals this year as new Chief Executive Mary Barra works to stem the bad press from the company’s handling of problems. The move comes before Barra testifies in front of Congress this week, giving lawmakers even more ammunition in questioning her.
Jeff Bennett had this story in the Wall Street Journal:
General Motors Co. recalled another 1.6 million vehicles Friday, expanding an earlier ignition-switch recall and disclosing other problems with newer cars and recently launched pickup trucks and sport utilities.
GM has now recalled about 4.8 million vehicles world-wide since early February, when it announced the first recall of 2005-2007 Chevrolet Cobalts and several related small cars to fix an ignition-switch defect linked to 13 deaths.
GM’s latest recalls came just days before the auto maker’s chief executive, Mary Barra, is set to be grilled by lawmakers over the company’s handling of safety defects. House and Senate subcommittees have hearings scheduled Tuesday and Wednesday for their investigations into why GM waited nearly a decade after its engineers discovered the ignition-switch defect to order repairs for vehicles on the road. Lawmakers say they also want to know why the federal agency that regulates auto safety didn’t act more quickly on the problem.
The New York Times story by Christopher Jensen pointed out that the number of vehicles being recalled in such a short period is derailing the good will that marked the beginning of the year for GM:
Having so many recalls, particularly in such a short period of time, is a problem for General Motors, which is still trying rebuild its reputation and is more vulnerable than an automaker like Toyota, said Kevin Lane Keller, a professor of marketing at Dartmouth’s Tuck School of Business.
“One of the advantages of having a strong brand is that it helps you weather a crisis more easily,” he said.
G.M. has recalled about 2.5 million of its small cars, including 2.2 million in the United States. The automaker has acknowledged that it knew about the defective ignition switches for more than a decade but did not recall the vehicles. That has prompted governmental investigations, including a congressional inquiry that will start on Tuesday with Ms. Barra scheduled to testify.
On Friday, the automaker also said it was aware of a 13th death related to the faulty ignition switches. It said the crash involved a 2007 Cobalt and occurred in Quebec, Canada.
G.M. recalled about 758,000 vehicles in the United States in 2013, ninth among automakers, according to the National Highway Traffic Safety Administration. Toyota was first, with about 5.3 million vehicles, followed by Chrysler with 4.7 million and Honda with almost 2.8 million.
Writing for Automotive News, Mike Colias and Nick Bunkley reported earlier this week that some of GM’s problems were caused by not giving a new part number to a redesigned switch, something one of their sources called a “cardinal sin”:
Stung by rising warranty costs, General Motors decided in the mid-1990s to pull design work for ignition and turn-signal switches from suppliers and put its own employees in charge. One of the first projects for the in-house team was the ignition switch for the Saturn Ion and Chevrolet Cobalt.
“We wanted to have control over the design,” Ray DeGiorgio, the lead design engineer for the Ion and Cobalt ignition switch, said in an April 2013 deposition obtained by Automotive News. “So we brought them in-house.”
That part has now been linked to at least 34 crashes and 12 deaths over the past decade. It’s also at the center of a deepening mystery in the wake of GM’s recall of 1.6 million 2003-07 vehicles fitted with the defective ignition switch:
Why did GM authorize a redesign of the part in 2006, eight years before the recall? And why was the change made so discreetly — without a new part number — that employees investigating complaints of Ions and Cobalts stalling didn’t know about it until late last year?
These questions, among many that will be posed by lawmakers and federal safety regulators looking into GM’s handling of the recall, have confounded some former GM engineers, who say the company’s reports to regulators describe a sequence of events that was fundamentally at odds with standard operating procedure.
Not assigning the new part number would have been highly unusual, according to three people who worked as high-level GM engineers at the time. None of the engineers was involved in the handling of the ignition switch; all asked that their names not be used because of the sensitivity of the matter.
“Changing the fit, form or function of a part without making a part number change is a cardinal sin,” said one of the engineers. “It would have been an extraordinary violation of internal processes.”
That raises some difficult questions for Barra as she gets ready to speak to Congress. Ben Klayman and Richard Cowan had this in a story for Reuters:
GM built a system to deliberately keep senior executives out of the recall process. Instead, two small groups of employees in the vast GM bureaucracy were tasked with making recall decisions, a system GM says was meant to bring objective decisions.
It means that lawmakers may also focus on asking who is responsible for a system that failed so badly that there weren’t red flags raised for those higher up the food chain.
“In this day and age, to think that stuff like this can be kept quiet or forgotten is ridiculous,” independent auto analyst and author Maryann Keller said. “The right question to ask is who knew, when did they know and why was this not brought forth to be dealt with. Did they hope that it was just going to go away?”
The company has recalled 1.6 million cars for a problem first noted in 2001, spurring the congressional enquiries as well as investigations by federal safety regulators, who will also testify, the Justice Department, and GM itself.
GM has said Barra and other top executives did not learn of the defective switches until January 31, explaining that smaller groups of lower-level company executives are responsible for leading a recall. Some executives who might use this argument include former CEO Rick Wagoner and his immediate successor Fritz Henderson, who have not discussed the matter publicly.
The more people dig into the internal processes behind the recalls, the worse it seems. Not alerting top executives makes it harder to gain traction for spending money to fix problems. It also shows a lack of oversight, which is alarming, particularly when you think about how many of these vehicles are produced. The questions continue to mount and how Barra handles them will be a true test of her ability.
by Liz Hester
Watch out Netflix. Amazon is moving in, putting more pressure on the streaming movie and television service.
Greg Bensinger had this scoop for the Wall Street Journal:
Amazon.com Inc. plans a free, advertising-supported streaming television and music-video service, a departure from its strategy of offering video only to members of its $99-a-year Prime service, according to people familiar with the matter.
The new service, which could launch in the coming months, likely will feature original series and may include licensed programming, these people said. As part of the project, Amazon has held talks with the creators of “Betas,” a series about a Silicon Valley startup that Amazon produced last year for Prime, these people said.
Amazon also plans to offer free music videos with advertising to people visiting its retail website, two of the people said. A search for Bruce Springsteen CDs, for example, might yield an option to watch the “Born in the U.S.A.” video.
An Amazon spokeswoman had no immediate comment.
The new project is part of a broader push by Amazon to transform itself from a retailer into a multimedia power. The company dominates e-commerce, but it has seen rivals like Google Inc.’s YouTube and Netflix Inc. leap ahead in streaming music and video.
Many have speculated that Amazon’s April 2 press conference will be a debut for a device to stream content. Writing for CNet, David Carnoy had this quick report:
For months, Amazon has been rumored to have a video set-top box in the works to rival the Google Chromecast, Roku, and Apple TV. Well, we may finally get to see it on April 2, as the company has sent out a press invite for an event in New York, where it will discuss “an update to our video business.”
At many of Amazon’s larger press events, CEO Jeff Bezos delivers the presentation, but in this case it appears that Peter Larsen, a vice president in Amazon’s Kindle division, will do the honors.
At this point, it’s unclear what exactly the new device is, though rumors suggest that it will be shaped like a dongle — similar to Google’s Chromecast and Roku’s new Streaming Stick – and be very affordable, with a possible discount for Amazon Prime members.
But Thursday also brought other news for consumers. The New York Times reported in a story by Nick Wingfield that Microsoft was finally going to allow its Office suite on iPads:
One of the most lucrative software franchises in history, Microsoft Office, has finally come to the most influential computing device of the last few years, the iPad.
Microsoft’s new chief executive, Satya Nadella, announced the product at a news conference in San Francisco on Thursday.
At the conference, Mr. Nadella said Microsoft intends to make sure its Office software can work on all major computing devices, including those made by its competitors.
“What motivates us is the reality of our customers,” he said.
Microsoft’s decision to bring Office to the Apple device comes after years of wavering by the company as it mulled over the product’s implications for its own efforts to make a tablet computer. To many people, the move is a refreshing sign of a new Microsoft, one slowly unshackling itself from an era when all of its major decisions were made in deference to Windows, Microsoft’s operating system.
But to skeptics, Office for the iPad is arriving dangerously late.
That’s because the delay has given people who use iPads, especially business professionals, years to get used to using the tablet without Office, a suite of programs that includes Word, Excel and PowerPoint. Start-ups like Evernote, Quip, Smartsheet and Haiku Deck, along with Apple’s own iWork suite of applications, have filled the void left by Microsoft with productivity applications that work on tablets and other devices.
For both of these companies, it’s a story of being left out and playing catch-up in offering various services in high demand for customers. The move by Amazon to an ad-supported model may also be attractive for marketers looking to engage customers, particularly those giving up TV for on-demand content.
Jordan Crook wrote for TechCrunch that Amazon’s plans will be made clear on April 2, but that it has a good chance of capturing the market:
But in a world where everyone is hooked on binge-viewing and on-demand content, Amazon has a good opportunity to push people toward its own video content.
As it stands now, Amazon Instant video is included with your Prime package as a last ditch effort to get you to sign into the Amazon Video app on your Roku or Apple TV, instead of the much more prominent and popular apps like Netflix, HBO Go, and Hulu.
With it’s own Box, Amazon could offer all the same channels as its competitors and give more prominent placement to its own original and licensed content. Or, if they don’t want to tell any of these new devices, they could exclude other content sources and just focus on Amazon Instant Video offerings.
It’s an interesting move for a retailer to move into content. But what’s clear is that consumers are the big winners in both the Microsoft and Amazon moves. More available content will likely drive down prices, while having access to business tools on mobile devices will only make people more productive where they want to be.
by Liz Hester
Wednesday wasn’t the best for Citigroup or its shareholders. The Federal Reserve Board again said the bank wasn’t ready to deal with financially stressful situations and rejected plans for stock buybacks.
Writing for Reuters, Emily Stephenson and David Henry had this story:
The Federal Reserve said Citigroup Inc’s ability to plan to cope with stressful scenarios is still not sufficient, and it nixed the bank’s plans to return more capital to shareholders, dealing a blow to a bank still fixing itself after the financial crisis.
The decision marks the second time in three years that the bank has failed to win the Fed’s approval for plan to return money to shareholders, known as the “capital plan.” The bank’s ability to return money to shareholders through buying back shares is critical for its meeting a key target for profitability.
Shares of Citi fell 4.5 percent to $47.90 in after-hours trading on Wednesday.
Winning regulatory approval for the bank’s capital plan is crucial for the credibility of Citigroup Chief Executive Michael Corbat, who was charged with improving the bank’s relationship with regulators when he took over as CEO in October 2012.
On Wednesday, the Fed said that Citigroup has improved its risk management practices in recent years, but the bank cannot determine well enough how its revenue and income would be hurt under stressful scenarios around the world. The bank’s internal examination process does not sufficiently consider how global crises could influence its broad number of businesses, the Fed added.
But despite being the headline on all the stories, Citigroup wasn’t alone in their rejection, according to The Wall Street Journal story by Stephanie Armour and Ryan Tracy:
The five institutions that didn’t get approval—Citigroup, Zions Bancorp, and the U.S. units of HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Banco Santander —must submit revised capital plans and must suspend any increased dividend payments unless they get the Fed’s approval in writing. The foreign banks that didn’t pass muster with the Fed are restricted from paying increased dividends to their parent firm. The five banks that failed to get their plans approved can continue to pay dividends at last year’s level.
The Fed approved the shareholder-reward plans for Bank of America Corp. and Goldman Sachs Group Inc. only after the two banks adjusted their requests. Both of the banks initially fell below minimum capital levels in the Fed’s ‘severely adverse’ stress testing scenario and resubmitted their plans last week.
The Fed’s annual “stress” tests are designed to ensure that large banks can handle a deep slump like the 2008 financial crisis and continue lending without needing a government rescue. A first round of tests last week concluded that 29 of the banks had adequate capital buffers to withstand a severe drop in housing prices and surging unemployment.
Michael Corkery wrote for The New York Times that overall health of U.S. banking operations is improving, but this is a blow for Citi:
Over all, the results of the annual test showed that most of the banking system has healed substantially since the financial crisis. The Fed used the annual test to review the capital plans of 30 large banks under a series of stressful scenarios.
Citigroup’s failure is a setback for a bank that has aggressively tried to shed risks and cut costs after receiving a taxpayer rescue five years ago. The Fed also rejected the bank’s plans in 2012. Shares of the bank fell as much as 5 percent in after-hours trading.
In its report, the Fed said there were “sufficient concerns regarding the overall reliability of Citigroup’s capital planning process.” The central bank said that while Citigroup had made progress in the areas of “risk-management and control practices” its capital planning process “reflected a number of deficiencies.”
Citigroup, the Fed said, had failed to make “sufficient improvement” in certain areas that supervisors had previously identified as “requiring attention.”
Specifically, the Fed questioned the sprawling bank’s “ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations, and its ability to project revenue and losses under a stressful scenario.”
One of the big winners today, according to Bloomberg’s Michael J. Moore and Elizabeth Dexheimer, was Bank of America:
Bank of America, ranked second by assets, raised its quarterly payout to 5 cents from 1 cent after the Fed’s decision and authorized a new $4 billion stock buyback. The increase is a victory for Bank of America Chief Executive Officer Brian T. Moynihan, who has pressed to raise the payout from the token level that prevailed since the financial crisis.
The Fed blocked plans in 2011 for an increase by the Charlotte, North Carolina-based company, which didn’t ask for anything the following year and won permission for a $5 billion stock buyback last year.
JPMorgan Chase & Co., which won approval last year while still having to resubmit to address qualitative weaknesses, had its capital plan ratified as it maintained a Tier 1 common ratio of 5.5 percent, a half-point above the minimum. The quarterly dividend will rise to 40 cents a share from 38 cents, and the company authorized a $6.5 billion stock buyback, according to statement from the New York-based lender, ranked first by assets.
The ratio at Wells Fargo & Co., the biggest U.S. home lender, was 6.1 percent, while Morgan Stanley’s was 5.9 percent.
After the 2008 financial crisis, regulators began looking at the health of the nation’s largest lenders in an attempt to reassure the public they could survive another stressful situation. It’s likely been a slight drag on bank stocks, however, as the government is able to accept or reject companies’ plans for using capital. It looks like it’s back to the planning stages for Citigroup, leaving the bank behind peers.
by Liz Hester
King Digital Entertainment sold shares to the public in the middle of its stated price range, indicating that investors willing to invest, just not the soaring amounts that other tech companies have garnered recently.
The New York Times had this story by Michael J. de la Merced and Mark Scott which points out that now King must convince investors it’s more than just a one-game wonder:
Perhaps virtual candy is not as enticing as once thought.
King Digital Entertainment, the maker of the hit puzzle game Candy Crush Saga, priced its offering at $22.50 a share on Tuesday, according to a person briefed on the matter. That was the midpoint of an expected price range. Still, that values the company at just over $7 billion in one of the biggest initial public offerings so far this year.
Now King must convince its new investors that it can come up with new hits to replace its aging cash cow, avoiding the missteps of other game makers that failed to duplicate previous successes.
Its much-anticipated arrival on the public markets signals the continued hot streak of the I.P.O. market, as companies hope to seize on buoyant stock markets and eager stock buyers. Issuers have raised $31.2 billion in proceeds to date, up nearly 70 percent from the same time last year, according to data from Renaissance Capital.
Much of potential buyers’ attention has revolved around fast-growing digital companies like Twitter, whose initial stock sale raised $1.8 billion.
Drawing almost as much scrutiny is King, an 11-year-old multinational company that has posted huge growth thanks to its one monster hit, Candy Crush. A version of a classic “match-three” game in which players line up three or more same-color candies, the title became a global cultural phenomenon.
Nearly 100 million users play Candy Crush every day, drawn, in part, by a seemingly endless supply of new levels and features. Its success has overshadowed King’s other titles, including Farm Heroes Saga and Pet Rescue Saga.
Bloomberg’s Leslie Picker and Cliff Edwards reported that investors may have been scared after other IPOs with similar business models:
King’s discount may reflect lessons investors learned following Zynga’s debut. The maker of “FarmVille” went public in December 2011, dropped 5 percent in its debut and slumped almost 80 percent in the subsequent year. Zynga’s revenue, like King’s, was concentrated in one major source at the time of its IPO: more than 90 percent of its sales came from Facebook Inc. Shares continued to slide as Zynga’s users started defecting to “Candy Crush.”
Unlike Zynga, which hasn’t posted an annual profit since it went public, King’s after-tax profit margins were 30 percent last year, its prospectus shows.
King’s shares will start trading tomorrow, listed on the New York Stock Exchange under the symbol KING. JPMorgan Chase & Co., Credit Suisse Group AG and Bank of America Corp. managed the offering.
But as Matt Jarzemsky points out in his story for the Wall Street Journal, the company’s $7 billion valuation is hardly indicative of a company without prospects:
The standard term that people use to describe this kind of [business] is hit-driven,” said Rett Wallace, chief executive of private-company research and data provider Triton Research LLC.
“For all of the claims that Zynga made—and King makes the claim too—that they have a scalable, repeatable process, it just turns out that the alchemy of figuring out a thing that billions of people are going to use all the time is really hard,” Mr. Wallace said.
However, King is seeking a relatively modest valuation versus some of its peers, some analysts say. Sterne Agee & Leach Inc. analyst Arvind Bhatia estimates the company’s revenue will grow to $2.49 billion this year. At the IPO price, it would be trading at 3 times his sales estimate. Zynga trades at 5.5 times analysts’ average 2014 sales forecast.
On a price-to-earnings basis, King would also be valued at a discount to established videogame companies like Activision Blizzard Inc. ATVI +0.48% and Electronic Arts Inc.,EA +1.00% according to Mr. Bhatia.
“They’re being honest with investors regarding their slowing growth rate, which I think is helpful,” said Rob Romero, portfolio manager at Connective Capital Management LLC, a Palo Alto hedge-fund firm with $120 million under management. He said in an interview before the pricing that he planned to try to buy shares in the deal.
“They need to be able to generate new games and successfully develop and market their new-game pipeline to replace the revenue that will inevitably be lost when Candy Crush begins to decline,” Mr. Romero said. “And they have such a pipeline.”
Matt Krantz of USA Today called the deal “pivotal” since it’s likely to forecast the direction of the IPO market:
It’s a pivotal deal for the IPO market, which is in a boom that is shaping up to be the biggest since the dot-com frenzy. Yet so far, young tech companies haven’t been a big factor in IPOs, but that could quickly change if deals like King work out. “The market is getting hotter for tech,” says Francis Gaskins, director of research for Equities.com.
The King IPO is more than just child’s play for investors. That’s clear in the:
• Resurgence in the role of tech. Young tech companies such as King are traditionally the soul of a robust IPO market. But the number of tech IPOs lagged behind health care, specifically biotech, all year. Just nine of the year’s 53 IPOs so far have been in tech, says Renaissance Capital. A vast majority, 29, have been health care.
• Return of young companies. Thanks to young companies such as King, the average age of companies with IPOs this year is 13 years, Renaissance says. That’s down from 16 in 2013 and 20 in 2012. The return of younger firms to the IPO market underscores the viability of IPOs to executives vs. other ways to cashing out, including selling out to competitors.
While King didn’t max out it’s price initially, it may prove to be a good investment for those buying at the offer. Because demand didn’t push the price too high, it may see a nice pop. Or, obviously, it could fall flat.
by Liz Hester
Streaming television is getting a new competitor. The Wall Street Journal had the internet abuzz Sunday night with a report that Apple is talking to Comcast about a TV service that would bypass the web, giving it priority over other services.
The Wall Street Journal story by Shalini Ramachandran, Daisuke Wakabayashi and Amol Sharma outlined these details:
Apple Inc. is in talks with Comcast Corp. about teaming up for a streaming-television service that would use an Apple set-top box and get special treatment on Comcast’s cables to ensure it bypasses congestion on the Web, people familiar with the matter say.
The discussions between the world’s most valuable company and the nation’s largest cable provider are still in early stages and many hurdles remain. But the deal, if sealed, would mark a new level of cooperation and integration between a technology company and a cable provider to modernize TV viewing.
Apple’s intention is to allow users to stream live and on-demand TV programming and digital-video recordings stored in the “cloud,” effectively taking the place of a traditional cable set-top box.
Apple would benefit from a cable-company partner because it wants the new TV service’s traffic to be separated from public Internet traffic over the “last mile”—the portion of a cable operator’s pipes that connect to customers’ homes, the people familiar with the matter say. That stretch of the Internet tends to get clogged when too many users in a region try to access too much bandwidth at the same time.
Apple’s goal would be to ensure users don’t see hiccups in the service or buffering that can take place while streaming Web video, making its video the same quality as Comcast’s TV transmissions to normal set-top boxes.
While devices such as Microsoft Corp.’s Xbox gaming console and Roku Inc.’s set-top box have made some inroads in the TV industry, none offer the kind of fully formed TV service, with the guarantee of network quality, that Apple desires.
Apple has spent several years exploring various avenues to enter TV, but it has been unable thus far to find business models that media companies and cable providers find appealing.
Writing for Business Insider, Jay Yarrow outlined how the service might work:
Apple appears to have a vision for how to deliver an Internet-based TV service. It would store content in the cloud. It would be live, and on-demand. Presumably, it would have a simple, gorgeous interface that’s easy to use.
But Apple, even with $146 billion in cash, can’t just go out and do this on its own. It has to work with Comcast because Comcast delivers Internet and TV to millions of people in the U.S.
Say Apple wanted to pay TV networks for rights to shows, just like Comcast pays TV networks. Apple would still have to run its Internet-based TV service through Comcast’s Internet service. That could lead to choppy service if Apple didn’t pay Comcast extra, just like Netflix recently paid Comcast.
That means Apple has to pay a ton of money to get TV rights, then more money to Comcast, then it has to charge users, and it ends up as a low-margin, pain-in-the-rear business for Apple.
TechCrunch reported in a story by Ryan Lawler that Comcast has already invested in its own delivery network:
Already, Comcast has introduced a managed service for streaming videos that it delivers through its streaming Xbox Live app. That means that those streams don’t travel over the broader Internet, but to work they require a subscriber to be a Comcast broadband subscriber as well as a TV subscriber.
All of which is to say, the type of deal that Apple and Comcast are talking about isn’t without precedent. And a whole lot of how it is delivered will be dependent on who exactly owns the customer relationship and what the service entails.
This is where the WSJ report gets a little iffy, but most of whether or not a deal gets done will depend on the details. The devil is in the details. And the report acknowledges that Comcast and Apple aren’t exactly “close to an agreement.”
On the one hand, Apple wants to create a service in which users would log on with their Apple IDs and control customer data. It would also ask for a cut of the subscription cost, according to the report. Meanwhile, Comcast would want to “retain significant control over the relationship with customers and the data.”
It’s difficult to imagine a world in which Comcast would give up its network and control of customers that are streaming data through such a service.
Then there’s the part about content rights. The report claims that Apple would need to acquire content rights, but that Comcast “would want to ensure that the price Apple has to pay to acquire rights wouldn’t cause the service to be priced higher than traditional pay-TV service,” according to one person.
While it’s a good scoop that will have many talking for the next few days, it’s hard to believe that Apple and Comcast will actually come to an agreement. Between the need to innovate and Comcast’s control over distribution there are many, many details that need to be worked out before papers are signed.
by Liz Hester
Earning a piece of travelers’ wallets is big business, and Airbnb is proving just how lucrative it can be. The company is close to closing funding valuing it at more than $10 billion.
Michael J. de la Merced had this story for the New York Times:
Airbnb is close to joining a rarefied group of start-ups: the 11-digit valuation club.
The couch-surfing company is close to raising more than $400 million in a new round of financing, a person briefed on the matter said on Thursday. The fund-raising effort would value the six-year-old Airbnb at more than $10 billion.
Leading the round is TPG, which has already taken stakes in other Silicon Valley darlings like the car-ride service Uber.
Airbnb’s fund-raising round is the latest sign of exuberance in the technology world, as the new generation of start-ups fetches eye-popping valuations. Companies like the online storage provider Dropbox have been appraised at about $10 billion, while Facebook – itself worth more than $172 billion – bought the messaging application WhatsApp for $16 billion last month.
The Financial Times story by Tim Bradshaw added this background about the company’s roots and what they plan to do with the cash:
Airbnb’s rise has been meteoric. Founded in 2008 by roommates who rented out beds to help pay for their San Francisco loft, the company said at the end of last year that it has hosted more than 11m guests in 34,000 cities around the world.
As well as joining that elite group of private technology companies in the US to attain an 11-figure valuation, Airbnb is the latest to seek private equity funding thta will allow it to delay an initial public offering. The deal was earlier reported by the Wall Street Journal.
The company is raising more than $400m to help expand its peer-to-peer home renting marketplace into a broader offering of “hospitality”, including transport or cleaning services, said co-founder Brian Chesky, now chief executive.
TPG, the private equity group that also led sharing-economy rival Uber’s fundraising last year, will lead the Airbnb investment, according to sources close to the discussions. Airbnb declined to comment and TPG did not immediately respond to a request for comment.
The Wall Street Journal pointed out in an article by Evelyn M. Rusli and Douglas MacMillan that regulators have looked into the business model:
The service has become a cheap alternative to hotels for millions of tourists, a source of income for homeowners and a target for regulators wary about safety, oversight and tax collections.
Last October, New York Attorney General Eric Schneiderman subpoenaed Airbnb for information on its 15,000 hosts in the state, to determine if any are violating a 2010 state law that prohibits renters from subletting their homes for less than 30 days if they’re not present. The company is contesting the order in court. Hotel operators argue that the rentals unfairly skirt lodging taxes.
Airbnb is benefiting from soaring investor interest in mobile and Internet-based business models, which is propelling a wave of initial public offerings and eye-popping valuations for private companies. Facebook Inc. FB -0.12% recently agreed to acquire closely held text-messaging service WhatsApp for $19 billion.
In the past 12 months, at least 21 companies have raised new funds that valued them at $1 billion or more. At the top of that list, online-storage provider Dropbox Inc. and Chinese mobile-phone maker Xiaomi notched $10 billion valuations, while data-mining specialist Palantir Technologies Inc. was valued at $9 billion. Uber Inc., an on-demand car service, is valued at $3.8 billion, following an investment last year led by Google Ventures, with TPG participating.
Airbnb and Uber are part of the so-called sharing economy, in which people offer resources or services, such as cars, spare bedrooms, or extra time, to others for a fee. The companies need investments to expand into new regions, staff international offices and ward off competitors. One of Airbnb’s largest competitors is vacation-rental service HomeAway Inc., a public company valued at $3.9 billion.
Ryan Lawler wrote for TechCrunch that much of Airbnb’s growth is coming from Europe, which bodes well for tapping various markets:
With that report as a backdrop, Airbnb has shared some stats this morning that show its guests increasingly are traveling to, from, or in-between nations in Europe. In a blog post today, the company said that 50 percent of its guests over the last year were from Europe, and that number is only expected to grow over time.
Airbnb said that more than a million guests each from the U.K. and France have booked stays through its platform. Meanwhile, more than a million guests have stayed at places listed on Airbnb in both Italy and Spain. It’s likely that those guests and stays overlapped quite a bit — according to the company, more than 80 percent of European guests staying with Airbnb traveled to other destinations within Europe.
The growth comes as Airbnb has been investing in the continent over recent years — in 2012, the company opened offices in London, Paris, Barcelona, and Milan, among other European cities.
Airbnb has had a particularly international audience for a while, with three-quarters of all stays involving a stay by an international guest or a guest staying in an international listing. But this announcement marks a serious shift in the makeup of Airbnb guests. Back in 2011, about half of all guests were from the U.S., but that’s dropped to below 30 percent.
Airbnb is smartly raising money while the notion of the “sharing economy” is hot and people are flocking to its site. Many travelers are searching for a more personalized or authentic experience than hotels and finding it by staying with others. Some are using the site to pay the rent. No matter the reason, it is obviously filling a gap. But is the gap $10 billion wide? Only time will tell.