Tag Archives: Advertising Services

Business

DOJ Sues Google, Seeking to Break Up Online Advertising Business

Leave a comment

The Justice Department is seeking the breakup of Google’s business brokering digital advertising across much of the internet, a major expansion of the legal challenges the company faces to its business in the U.S. and abroad.

A lawsuit filed Tuesday, the Justice Department’s second against the

Alphabet Inc.

GOOG -1.98%

unit following one filed in 2020, alleges that Google abuses its role as one of the largest brokers, suppliers and online auctioneers of ads placed on websites and mobile applications. The filing promises a protracted court battle with wide-ranging implications for the digital-advertising industry.

Filed in federal court in Virginia, the case alleges that Google abuses monopoly power in the ad-tech industry, hurting web publishers and advertisers that try to use competing products. Eight states, including California and New York, joined the Justice Department’s lawsuit.

The lawsuit asks the court to unwind Google’s “anticompetitive acquisitions,” such as its 2008 purchase of ad-serving company DoubleClick, and calls for the divestiture of its ad exchange.

“For 15 years Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, insulate itself from competition, and forced advertisers and publishers to use its tools,” Attorney General

Merrick Garland

said at a press conference Tuesday. “Google has engaged in exclusionary conduct that has severely weakened if not destroyed competition in the ad-tech industry.”

Attorney General Merrick Garland said Tuesday that the digital-advertising industry was harmed by Google’s allegedly monopolistic conduct.



Photo:

Al Drago/Bloomberg News

A Google spokesman said the lawsuit “attempts to pick winners and losers in the highly competitive advertising technology sector.”

“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” the spokesman said.

By calling for specific divestitures from Google’s ad-tech business, the Justice Department lawsuit went further in seeking a breakup than some antitrust experts had expected. Shares of Alphabet fell by about 2% in trading on Tuesday.

Though largely invisible to internet users, the ad-tech tools controlled by Google facilitate much of the buying and selling of digital ads that helps fund online publishers. Google’s business includes a tool publishers can use to offer ad space, a product for advertisers to buy those slots and an exchange that automatically links bidders with webpages as they are being loaded for individual users.

Big tech companies such as Google are under a barrage from lawmakers and regulators across multiple continents who have targeted the companies’ dominance in online markets. Justice Department officials also are investigating

Apple Inc.

The Federal Trade Commission has sued

Meta Platforms Inc.’s

Facebook unit over antitrust allegations and

Microsoft Corp.

to block its planned $75 billion acquisition of

Activision Blizzard Inc.

President Biden recently urged lawmakers from both parties to unite behind legislation seeking to rein in tech giants. The European Union also has opened cases looking at alleged anticompetitive conduct by Google, Meta and other companies.

The Justice Department’s 2020 lawsuit against Google targeted its position in online search markets, including an agreement to make Google search the default in Apple’s Safari web browser. Google is fighting the case, which is expected to go to trial this year.

Alphabet gets about 80% of its business from advertising. The Justice Department’s new suit targets the subset of that ad business that brokers the buying and selling of ads on other websites and apps. Google reported $31.7 billion in revenue in 2021 from that ad-brokering activity, or about 12% of Alphabet’s total revenue. Google distributes about 70% of that revenue to web publishers and developers.

Last year, Google offered to split off parts of its ad-tech business into a separate company under the Alphabet umbrella to fend off the most recent Justice Department investigation. DOJ officials rejected the offer and decided to pursue the lawsuit instead.

For years, Google has faced allegations from advertising- and media-industry executives, lawmakers and regulators that its presence at multiple points of the online ad-buying process harms publishers and gives it an unfair advantage over rivals. Google also operates the most popular search engine and the largest online video-streaming site, YouTube, giving rise to allegations it has tilted the market in its own favor.

Rivals say that Google’s power in digital advertising stems from a series of acquisitions Google used to build its ad-tech business, beginning with the company’s $3.1 billion purchase of DoubleClick. The FTC approved the merger in a controversial decision. Google went on to purchase a host of other startups including the mobile-advertising company AdMob.

“Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the complaint read.

Google has said it has no plans to sell or exit the ad-tech business. It has also strongly contested claims in a lawsuit filed by state attorneys general, led by Texas, containing allegations similar to the Justice Department complaint. A federal judge denied the bulk of Google’s motion to dismiss the case last year, allowing it to proceed to the discovery stage and ultimately toward trial.

Google’s Android operating system is the most popular in the world—you can find Android code on everything from Peloton bikes to kitchen appliances and even NASA satellites. WSJ’s Dalvin Brown explains why it is the world’s most-used OS. Illustration: Rami Abukalam

Any divestiture of parts of Google’s ad-tech business would cause big ripple effects across the online advertising industry, which has recently shown signs of weakness as consumers dial back purchases in response to worsening economic conditions.

Breaking off parts of Google’s ad-tech business from the rest of the company could take years of litigation to resolve. Depending on the outcome of the case, ad-tech executives have said the results could range from a higher share of ad dollars flowing to publishers to lower overall spending because digital ads would be less efficient without Google brokering them.

The 149-page complaint makes detailed allegations about the internal workings of Google’s ad-tech operations. The suit alleges, for instance, that Google used anticompetitive tactics to build up the market share of its own ad server, which issues requests for advertisements on behalf of websites, and then used that market power to effectively push publishers into sending their ad inventory only to Google’s in-house ad exchange, AdX.

The Justice Department argues, in part, that this conduct locked out rival ad-tech providers, increasing prices for advertisers and costs of publishers.

“Google keeps at least thirty cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools,” the lawsuit alleges. “Google’s own internal documents concede that Google would earn far less in a competitive market.”

The lawsuit also alleges that Google executives worked to kill a rival online-bidding technology called “header bidding,” which the lawsuit says the company referred to internally as an “existential threat.” As part of a plan dubbed Project Poirot, the company allegedly changed its own ad-buying tools to underbid on behalf of advertisers when they turned to outside ad exchanges that used header bidding, so those rivals would lose more auctions and “dry out,” the complaint says.

At one point, Google also approached

Amazon.com Inc.,

to ask “what it would take for Amazon to stop investing in its header bidding product,” the complaint alleges, adding that Amazon rebuffed those requests.

“Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves,” the complaint read.

The Justice Department case overlaps in some ways with the late 2020 lawsuit from the group of U.S. states led by Texas.

In Tuesday’s complaint, the Justice Department quotes some of the same internal communications as the Texas-led lawsuit, including how one Google executive compared the company’s control over ad-tech to the financial sector: “The analogy would be if Goldman or Citibank owned the NYSE,” referring to the New York Stock Exchange.

The case also shares similarities with an investigation that the EU’s top antitrust enforcer, the European Commission, opened in 2021, as well as one by the U.K.’s Competition and Markets Authority. Those probes are exploring allegations that Google favors its own ad-buying tools in the advertising auctions it runs, but also look at other elements of Google’s ad-tech business. The EU, for instance, is also looking at Google’s alleged exclusion of competitors from brokering ad-buys on its video site YouTube.

Mr. Garland said Tuesday that the Justice Department filed its own lawsuit because the federal government was harmed by Google’s allegedly monopolistic conduct. Federal agencies have since 2019 spent over $100 million on display ads, the complaint says. The government paid inflated fees and was harmed by manipulated advertising prices because of Google’s anticompetitive conduct, the lawsuit alleges.

Microsoft is deepening its partnership with OpenAI, the company behind ChatGPT and Dall-E. That has investors and analysts speculating whether Microsoft could challenge Google’s dominance in search. WSJ Heard on the Street columnist Dan Gallagher joins host Zoe Thomas to discuss how AI could affect search and at what cost.

Jonathan Kanter,

the assistant attorney general for antitrust, said while there are similarities with other lawsuits against Google, the Justice Department’s complaint is based on its own investigation that yielded “meticulous detail” about Google’s ad-tech business.

“We detail many facts, many episodes that in the individual and in the aggregate have maintained numerous monopolies,” Mr. Kanter said.

Google has attempted to settle the claims against its ad-tech business. In addition to offering to split off parts of its ad-tech business to avoid the Justice Department suit, the company last year discussed with the EU an offer to allow competitors to broker the sale of ads directly on the video service.

In 2021, the company agreed to give U.K. antitrust regulators effective veto power over elements of its plans to remove a technology called third-party cookies from its Chrome browser to settle an investigation there into the plan.

In France, Google agreed to pay a fine of 220 million euros, equivalent to about $239 million, and to improve data access to competing ad-tech companies, to not use its data in ways rivals couldn’t reproduce to settle a similar antitrust investigation in the country.

—Keach Hagey contributed to this article.

Write to Miles Kruppa at miles.kruppa@wsj.com and Sam Schechner at Sam.Schechner@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

How Elon Musk’s Twitter Faces Mountain of Debt, Falling Revenue and Surging Costs

Leave a comment

To make the deal work, Mr. Musk has been trying to add subscription revenue and reassure advertisers about the platform’s future. Twitter was losing money before Mr. Musk bought the company, and the deal added a debt burden that requires fresh sources of cash.

It is tough to determine the state of the company. Twitter no longer has to file regular financial reports to the Securities and Exchange Commission, which are crucial tools for determining a company’s financial health.

Analysts and academics have been able to piece together a picture of the company from information Mr. Musk has offered as well as details of the deal and the company’s last regulatory filings. Bankruptcy could be one result. Mr. Musk, the world’s richest person, could also raise new funds, or buy back debt from lenders, giving Twitter a buffer to turn around its business. 

Here is a look at their assessments of Twitter’s financial situation and prospects. 

Twitter Finances, Pre-Musk

Twitter is and was a popular tool for politicians, celebrities and journalists. But as a business, it was stagnating. 

It hasn’t booked an annual profit since 2019, and posted a loss in eight years of the past decade. The company’s net loss narrowed in 2021, to $221.4 million from $1.14 billion the previous year.

Twitter has struggled to attract new users and increase revenue, which came in at about $5.1 billion last year. In its last quarterly filing as a public company, for the period ended June 30, revenue was $1.18 billion, down slightly year-over-year. 

Nearly 90% of its revenue last year came from advertising, and it traditionally has been the company’s main source of revenue. In 2021, Twitter took in $4.51 billion from advertisers, and $572 million from licensing data and other services.

The company had more than $2 billion in cash and less than $600 million in net debt before the takeover talks—very little debt for a company in the S&P 500 index. But that cash position was down 35% from a year earlier as of June 30, filings show, and Mr. Musk paid for Twitter by taking on $13 billion in debt. He paid for the rest in equity, some contributed by multiple investors. 

Twitter had a market capitalization of $37.48 billion in March, the month before Mr. Musk agreed to buy it, S&P data showed. Social-media stocks have slumped sharply since then. But now, according to

Jeffrey Davies,

a former credit analyst and founder of data provider Enersection LLC, “This thing’s probably not worth more than what the debt stack is, quite frankly, unless you put a lot of option value just on Elon.” Mr. Musk last month said he and investors were overpaying for the company in the short term. 

Revenue Under Musk

Mr. Musk said earlier this month that Twitter had suffered “a massive drop in revenue” and was losing $4 million a day. It isn’t clear if that reflects the broader downturn in the digital ad market or the pause in advertising by several companies since Mr. Musk bought the business. 

Some companies, including burrito chain

Chipotle Mexican Grill Inc.,

cereal maker

General Mills Inc.

and airline

United Airlines Holdings Inc.,

have paused their ad spending on Twitter over uncertainty around where the company is headed. The departure of several top executives from its ad department have soured relationships, The Wall Street Journal has reported.

The exodus of advertisers poses a threat for a company so reliant on that revenue stream. “As an online ad company, you’re flirting with disaster,” said

Aswath Damodaran,

a finance professor at New York University’s Stern School of Business. 

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Deal negotiations for long-term contracts that usually begin at the end of the year haven’t taken place yet or have been put on hold. Those deals comprise more than 30% of Twitter’s U.S. ad revenue, The Wall Street Journal reported.

Revenue will likely remain under pressure until advertisers fully grasp the new business model, potentially leading many of them to return to the platform, said

Brent Thill,

a senior analyst at Jefferies Group LLC, a financial-services firm. “Those advertisers will come back if they feel that the users are there and there’s an ability to monetize their advertisement,” Mr. Thill said. 

But that could take time. Mr. Thill said it could take months for advertisers to get clarity. “It’s an enigma,” he said.  

Market-research firm Insider Intelligence Inc. recently cut its annual ad-revenue revenue outlook for Twitter by nearly 40% through 2024. 

Mr. Musk wants the company to lean more on subscriptions and depend less on digital advertising. He said last Tuesday that the company’s upgraded subscription service, costing $7.99 a month, would launch Nov. 29. 

A walkway at Twitter headquarters in San Francisco. The company has aggressively cut staff to reduce expenses.



Photo:

George nikitin/Shutterstock

Reducing Costs

The company has moved quickly to slash costs, including cutting its staff by half. Salaries and other compensation make up a large chunk of overall expenses. The company had 7,500 full-time employees at the end of 2021, up from 5,500 a year earlier, filings show.

The layoffs of roughly 3,700 people could save the company roughly $860 million a year, if the employees that are leaving made an average of about $233,000 annually—the company’s most recently disclosed median pay figure. The estimated savings would represent about 15% of Twitter’s $5.57 billion in costs and expenses last year. Its costs and expenses climbed 51% from the previous year, as hiring drove up its payroll.

More employees left the company last week, rejecting Mr. Musk’s demand that they commit to working “long hours at high intensity” to stay.

Debt Mountain 

Before Mr. Musk’s acquisition, net debt totaled $596.5 million as of June 30, according to S&P Global Market Intelligence, a data provider. That compares with a negative balance of $2.18 billion the prior-year period, indicating a cash surplus.

Twitter paid $23.3 million in interest expense in the quarter ended June 30, according to a filing. 

Now, the company will have to pay at least $9 billion in interest to banks and hedge funds over the next seven to eight years, when the $13 billion in debt matures, according to a review of Twitter’s loans by Mr. Davies, the former credit analyst.

The interest payments are substantial for a company that reported $6.3 billion in total operating cash flow over the past eight years, he said. 

What’s more, the company’s debt stack now includes floating-rate debt, meaning that interest costs are set to rise as the Federal Reserve continues to increase interest rates. Twitter’s debt was entirely fixed rate before the deal. 

Twitter’s credit ratings, which were below investment grade before the transaction with Mr. Musk, have deteriorated further.

Moody’s

Investors Service on Oct. 31 downgraded Twitter’s rating to B1 from Ba2, a two-notch drop, and S&P Global Ratings on Nov. 1 downgraded it to B- from BB+, a five-notch drop. 

If Twitter files for bankruptcy, Elon Musk’s $27 billion investment would likely be wiped out.



Photo:

Susan Walsh/Associated Press

Financial Prospects 

Twitter’s financial challenges could result in the company filing for bankruptcy, raising equity or buying back some debt from its lenders, analysts and academics said. 

If Twitter files for bankruptcy, as Mr. Musk warned was possible in an all-hands meeting earlier this month, his $27 billion investment would likely be wiped out because equity holders are the last to be paid when a company restructures.

Buying back debt from lenders at a steep discount would help the company reduce its debt load and interest costs as well as its valuation, which would be beneficial in the long run, Mr. Davies said. 

“I don’t think they can issue any more debt,” Mr. Davies said. “It’s a really, really tough structure.” 

The company could also replace some of the debt with equity, both from Mr. Musk and from outside investors, said

David Kass,

a finance professor at the University of Maryland’s

Robert H. Smith

School of Business. For that, Mr. Musk would need to persuade potential investors that he has a viable long-term business plan, he said. Replacing debt could enable the company to generate cash. Mr. Musk has said some of his latest

Tesla Inc.

stock sale, yielding almost $4 billion in cash, was because of Twitter. 

If successful, the company could generate positive free cash flow in two or three years, which it could use to pay down the residual debt and eventually go public again, Mr. Kass said. “The prospect of an eventual IPO within three to five years would be a very attractive enticement for large funds,” he said. 

—Theo Francis and Jennifer Williams-Alvarez contributed to this article.

Write to Mark Maurer at mark.maurer@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Elon Musk Says Twitter Has Had Massive Revenue Drop as Layoffs Begin

Leave a comment

Twitter Inc. has suffered “a massive drop in revenue” because of advertisers cutting back on using the social-media platform, new owner

Elon Musk

said Friday, as the company started sweeping layoffs just over a week after the billionaire took it over.

Mr. Musk, in a tweet Friday, blamed the cutback in advertising on “activist groups pressuring advertisers.” He said that the company hadn’t changed content moderation and had tried to address activists’ concerns. “Extremely messed up!” he said, casting the pullback as an assault on free speech.

Mr. Musk’s remarks came after several big-name advertisers, including food company

General Mills Inc.,

GIS -0.63%

Oreo maker

Mondelez International Inc.,

MDLZ 0.44%

and

Pfizer Inc.

PFE 0.74%

and others have temporarily paused their Twitter advertising in the wake of the takeover of the company by Mr. Musk, The Wall Street Journal has reported. German car-making giant

Volkswagen AG

said it had recommended to its various brands they pause advertising on Twitter to assess any revisions the company makes to its brand safety guidelines.

Mr. Musk’s tweet comes after Twitter, in a message sent to staff Thursday, said staffers would be notified by 9 a.m. Friday if they had lost their position or were still employed, the Journal reported.

Twitter by early Friday began notifying employees who had been laid off, according to documents viewed by the Journal.

Roughly 50% of Twitter’s workforce has been hit with layoffs, according to an email sent overnight to one of those affected in the U.S. that was viewed by the Journal. It didn’t specify what departments the terminated employees worked in.

Twitter had more than 7,500 employees at the start of this year, according to a regulatory filing.

The staff reductions were intended “to place Twitter on a healthy path,” according to the company’s Thursday email. “We recognize that this will impact a number of individuals who have made valuable contributions to Twitter, but this action is unfortunately necessary to ensure the company’s success moving forward,” the company added.

In the layoff emails, Twitter said employees assigned “nonworking” status would continue to receive compensation and benefits through a separation date, which for one person was designated as early February and for another early January. It said to expect to receive one month’s base pay in severance approximately 45 days after the termination date, in addition to providing instructions for returning company property such as laptops.

Twitter didn’t say whether employees should expect to receive year-end bonuses, which historically have been based on individual and company performance. The company also didn’t mention whether employees would receive equity payments during the nonworking period.

Some employees said they had lost access to Twitter communication tools overnight. An email sent to an employee in Canada and seen by the Journal said that suspended access to the company’s systems didn’t mean the person’s employment has been terminated.

The layoffs cap a tumultuous period for Twitter staff that began in April, when the company disclosed Mr. Musk had become its largest individual shareholder. Mr. Musk then agreed to join Twitter’s board, before deciding not to. He launched a bid for the company that Twitter eventually accepted. Weeks later Mr. Musk raised questions about the deal, then tried to abandon it, before reversing course again last month and saying he would go ahead with the transaction. Along the way, he at times criticized the company and its executives.

The Thursday email said Twitter’s offices would be temporarily closed to ensure the safety of employees, the company’s systems and customer data. Employees who were in an office or on their way to one were asked to go home, according to the email.

Twitter employees have been bracing for job cuts. The Journal previously reported that the company was drafting plans for broad layoffs, with one investor saying up to 50% of staff could be cut and that employees would be evaluated to determine the scope of the firings.

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Signs of pushback against Twitter’s actions emerged in the wake of the apparent dismissals. In a federal lawsuit dated Thursday, a handful of Twitter employees accused the company of violating federal and California law in failing to provide enough warning of a mass layoff.

The lawsuit, filed in California federal court by five former employees of Twitter who said they were terminated this week, said the company’s layoffs violated the federal Worker Adjustment and Retraining Notification Act and its California equivalent, which require giving 60 days of advance written warning of dismissing a large number of employees of a company at once. The lawsuit asked the court to issue an order blocking Twitter from its alleged violations of the acts. Twitter didn’t immediately respond to a request for comment.

In April, as Mr. Musk was moving to buy Twitter, entrepreneur

Jason Calacanis,

a close ally, suggested cutting the number of Twitter employees to roughly 3,000, according to messages between the two, which were released as part of litigation around the transaction.

A staff of 3,000 would represent the lowest level since 2013, the year Twitter went public, when the platform had about 2,700 employees and its revenue was roughly 13% of its level last year.

Twitter’s employee numbers began climbing in 2019, after ranging between approximately 3,000 and 4,000 for several years. Twitter has said that the increase in recent years was driven by investments in engineering, product, design and research.

Even before officially taking control at Twitter, Mr. Musk had indicated that he was concerned about the company’s expenses. Twitter has posted a loss in eight of its past 10 fiscal years, according to FactSet.

Mr. Musk moved quickly to make personnel changes at the top of the company. Last week, on the same day he closed the deal, he fired Twitter Chief Executive

Parag Agrawal

and three other top executives. Mr. Musk fired the executives for cause and is saying he isn’t required to pay them multimillion-dollar severance packages, the Journal reported. Other executives have departed since.

Mr. Musk has leveraged other parts of his business empire to try to put his imprint on Twitter. He brought in some

Tesla

engineers to begin working on reshaping the social-media platform, the Journal reported. Also added to an internal company directory were some people who appeared to work for the Boring Co., a tunneling business Mr. Musk founded.

Broadly, the social-media industry is struggling with weaker revenue from digital advertisers. Such advertising has slowed due to several factors, including rising inflation, the war in Ukraine, and

Apple

privacy changes that have made it harder to track the performance of ads. Twitter rival Snap Inc. this year said it was letting 20% of staff go.

Facebook

parent Meta Platforms Inc. also has indicated it was trimming ranks.

Tech companies beyond social media also have embarked on belt tightening that is leading to job losses and hiring freezes. On Thursday, ride-hailing company

Lyft Inc.

and payments company Stripe Inc. announced major layoffs, and

Amazon.com Inc.

said it would freeze corporate hiring for months.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Alexa Corse at alexa.corse@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Elon Musk Says Twitter Won’t Be ‘Free-for-All Hellscape,’ Addressing Advertisers’ Concerns

Leave a comment

Advertisers are concerned about the billionaire’s plans to soften content moderation and what they say are potential conflicts of interest in auto advertising, given that he is chief executive of

Tesla Inc.,

say people familiar with the situation.

Mr. Musk said this spring that as owner of Twitter he would reinstate former President

Donald Trump’s

account, which the platform suspended indefinitely after linking Mr. Trump’s comments to the Jan. 6 Capitol riot. That would be a red line for some brands, said Kieley Taylor, global head of partnerships at GroupM, a leading ad-buying agency that represents blue-chip brands.

About a dozen of GroupM’s clients, which own an array of well-known consumer brands, have told the agency to pause all their ads on Twitter if Mr. Trump’s account is reinstated, Ms. Taylor said. Others are in wait-and-see mode. Ms. Taylor said she expects to hear from many more clients if Mr. Trump’s account returns.

“That doesn’t mean that we won’t be entertaining lots of emails and phone calls as soon as a transaction goes through,” Ms. Taylor said. “I anticipate we’ll be busy.”

In a message to advertisers on Twitter on Thursday, Mr. Musk said he was buying the company to “have a common digital town square, where a wide range of beliefs can be debated in a healthy manner.” He said Twitter “cannot become a free-for-all hellscape, where anything can be said with no consequences!” Mr. Musk said in addition to following laws, Twitter must be “warm and welcoming to all.”

He said Twitter aims to be a platform that “strengthens your brand and grows your enterprise.”

Twitter’s chief customer officer, Sarah Personette, tweeted that she had a discussion with Mr. Musk on Wednesday evening. “Our continued commitment to brand safety for advertisers remains unchanged,” she wrote. “Looking forward to the future!”

Mr. Trump has said he wouldn’t rejoin Twitter even if allowed. Representatives for Tesla and Mr. Trump didn’t respond to a request for comment.

Mr. Musk has completed the acquisition of Twitter, according to people familiar with the matter, after a monthslong legal battle in which he tried to back out of the $44 billion deal he agreed to in April. The judge overseeing the legal fight had said if the deal didn’t close by Friday she would schedule a November trial.

Twitter sent an email to some ad buyers earlier this week letting them know that the company is working with “the buyer” to close the acquisition by Friday and to acknowledge that Twitter is aware that advertisers have a lot of questions, according to the email, which was reviewed by The Wall Street Journal. The email, which didn’t name Mr. Musk, said Twitter would work “with the potential buyer to answer quickly.”

Advertising provided 89% of Twitter’s $5.08 billion revenue in 2021. Mr. Musk has said he hates advertising. In a series of tweets earlier this year, he suggested Twitter should move toward subscriptions and remove ads from Twitter Blue, a premium program that gives users additional features. 

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Musk to make changes to the site. WSJ’s Dan Gallagher explains Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

Mr. Musk describes himself as a “free speech absolutist” and has said Twitter should be more cautious about removing tweets or banning users.

Mr. Musk may have reasons to avoid any drastic changes to Twitter’s ad business. Twitter will take on $13 billion in debt in the deal. The online-ad markets already are shaky, amid concerns about the economy, with

Snap Inc.

and

Alphabet Inc.

posting lower-than-expected revenue results for the September quarter.

Like other ad-supported social-media platforms, Twitter provides advertisers with adjacency controls, tools that are meant to ensure ads don’t appear next to certain content the brands deem objectionable.

Ask WSJ

The Musk-Twitter Deal

WSJ Financial Editor Charles Forelle sits down with Alexa Corse, WSJ reporter covering Twitter, at 1 p.m. ET Oct. 28 to discuss Elon Musk’s takeover of Twitter. What does the future hold for the platform? And what does this deal mean for Mr. Musk’s business empire?

Some ad buyers said Twitter lags behind its competitors in providing so-called brand safety features. Joshua Lowcock, global chief media officer at UM Worldwide, an ad agency owned by Interpublic Group of Cos., called Twitter’s adjacency controls inadequate and “poorly thought through.”

Ad agency

Omnicom Media Group

evaluates the major social-media platforms’ progress on brand-safety tools every quarter. In July, Omnicom rated Twitter’s progress behind that of YouTube,

Facebook,

Instagram, TikTok and Reddit, according to a document reviewed by the Journal. Robert Pearsall, managing director of social activation at Omnicom Media Group, said Twitter has made agreements to improve its brand-safety controls to meet Omnicom’s standards, but it hasn’t introduced those changes to the market yet.

“There are significant concerns about the implications of a possible change to content moderation policy,” he said. Twitter has said it is working on tools to give advertisers a better idea of where their ads appear.

Advertising provided 89% of Twitter’s $5.08 billion revenue last year.



Photo:

Justin Sullivan/Getty Images

Automotive manufacturers have expressed concerns about advertising on Twitter under Mr. Musk’s ownership, given his role at electric-vehicle juggernaut Tesla, some ad buyers said. Advertisers often share data with Twitter and other platforms—on their own customers or people that are in the market for a car—to help target their ads at the right people. Some auto companies will be wary of doing so, out of concern that data may leak to Tesla, the buyers said.

Though Twitter relies on ad dollars, it isn’t one of the biggest players in the digital-ad economy. The company gets about 1.1% of U.S. digital-ad spending, according to Insider Intelligence, a much smaller slice than Google, Meta Platforms Inc. or

Amazon.com Inc.

Already, there have been signs of anxiety on Madison Avenue about Mr. Musk’s takeover of Twitter. In July, the company reported a 1% decrease in second-quarter revenue, which it blamed on uncertainty over the deal as well as broader pressures in the digital ad market.

Given Mr. Musk’s past remarks on advertising, some advertisers wonder if Mr. Musk may exit the ad business entirely.

“The question we keep getting asked is: Do we think Musk will turn off ads completely?” said UM Worldwide’s Mr. Lowcock.

Write to Patience Haggin at patience.haggin@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



Read original article here

Business

Elon Musk’s Twitter Reversal Revives Takeover Bid for a Now-Weaker Firm

Leave a comment

Elon Musk’s

latest about-face over his $44 billion deal to buy

Twitter Inc.

TWTR -1.35%

has him poised to take over a company that is weaker than it was before he tried to abandon the agreement—thanks in part to his own actions.

Broad economic concerns have intensified since July 8, when Mr. Musk made public his intention to terminate the deal. The Federal Reserve has raised interest rates by 0.75 percentage point at a second and third straight meeting, the Dow Jones Industrial Average last week fell into what investors call a bear market, and Twitter’s social-media rival

Snap Inc.

is slashing jobs.

While Twitter’s stock price has held up because of Mr. Musk’s potential acquisition, its performance has declined. The company reported a surprising decline in revenue in the second quarter that it blamed on weakness in the advertising industry and uncertainty related to Mr. Musk’s acquisition.

Twitter this year is expected by analysts to report one of its slowest annual rates of sales growth ever as a public company, at 4.5%. In 2021, revenue rose 37%.

Mr. Musk has given few specific details about his plans for Twitter, but the billionaire chief executive of

Tesla Inc.

has said he wants to transform Twitter as a private company and unlock what he called its extraordinary potential as a platform for free speech.

He has talked about modifying Twitter’s rules around content moderation, reducing its reliance on advertising—which provided more than 90% of its revenue in this year’s second quarter—and making Twitter’s algorithms open source, which would allow others to view and recommend changes. Mr. Musk also has proposed “defeating the spam bots and authenticating all humans.”

In texts released last week as part of the litigation between Twitter and Mr. Musk over his effort to abandon the deal, Mr. Musk said in April that his biggest concerns were Twitter’s head count and expense growth. He also said he wanted to oversee software development at Twitter and works better with engineers than people with business degrees.

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Mr. Musk to make changes to the site. WSJ’s Dan Gallagher explains Mr. Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

There are no guarantees that Mr. Musk will follow through with his proposal and close the transaction. Mr. Musk and Twitter are scheduled to go to trial Oct. 17 in Delaware over his effort to abandon the deal, and that could still go forward.

On Wednesday, the Delaware Chancery Court judge presiding over the legal battle said she is pressing ahead with preparing for the trial and issued a ruling that asked Mr. Musk’s legal team to produce more of his text messages to the extent they haven’t done so already.

Should a deal occur and avert a trial, the resolution could ease some of the uncertainty surrounding the company’s future.

“Assuming the deal closes, it’s a good price for shareholders,” said Jason Goldman, former Twitter product chief and board member. “But it’s a bad outcome for everyone else,” including employees who have labored under the uncertainty and users who rely on the product, he said. Mr. Goldman said he didn’t think Mr. Musk has presented serious ideas about how he would lead such an influential platform.

Mr. Musk has proven doubters wrong before in becoming the world’s wealthiest person. He has turned Tesla into the world’s most valuable car company and a leader in electric vehicles, and his SpaceX company is the world’s busiest rocket-launch operation.

Mr. Musk’s legal team declined to comment Tuesday about his proposal. Twitter on Tuesday confirmed receipt of Mr. Musk’s letter and said it intends to close the transaction at the original price of $54.20 a share.

The outlook for the social-media industry has darkened in recent weeks.

Snap Inc.

in August said it was slashing one-fifth of its workforce and curbing investment in a range of areas after a slowdown in its business. Facebook parent

Meta Platforms Inc.

last week told employees it was implementing a hiring freeze and looking for other ways to cut costs.

In July, Twitter said in a regulatory filing that attrition was slightly higher than in normal economic times, but remained in line with current industry trends. Twitter said Tuesday that it had anticipated higher attrition this year even before the merger agreement.

In addition, Twitter’s former head of security,

Peiter Zatko,

emerged in August with a whistleblower complaint listing a litany of criticisms about the company’s management of security and privacy issues. That complaint prompted new scrutiny from Washington lawmakers. Twitter CEO

Parag Agrawal

told employees in a memo at the time that the spotlight on Twitter would “only make our work harder.” Twitter also said that Mr. Zatko’s claims were inaccurate.

SHARE YOUR THOUGHTS

If the deal goes through, how do you think Elon Musk might change Twitter? Join the conversation below.

Despite the industry’s challenges, Twitter said in July that its audience has grown, reporting a second-quarter average of 237.8 million monetizable daily active users, up 17% from the same period a year earlier. Advertising revenue increased 2% in the second quarter compared with the year-earlier period.

Mr. Musk, when he met with Twitter employees in June, was asked about what he would consider successful for Twitter five to 10 years from now, and said a substantial increase in daily active users to over a billion, according to people familiar with the meeting. He also said during the meeting that Twitter should be entertaining, like TikTok, and that he admired the Chinese app

WeChat,

which is used heavily in China for a range of purposes including e-commerce and social networking.

Asked about his stance on free speech, Mr. Musk drew a distinction between freedom of speech and freedom of reach, according to attendees. He said that meant people should be allowed to say pretty outrageous things within the law but didn’t necessarily deserve to have their tweets amplified and spread virally across Twitter.

In the texts released last week, Mr. Musk said in April, “Twitter is obviously not going to be turned into some right wing nuthouse. Aiming to be as broadly inclusive as possible.”

Accomplishing that balance will be a challenge, content-moderation analysts said Tuesday.

“Elon Musk and his new leadership are about to get a crash course in the complexities of moderating harmful content,” said Eddie Perez, a former Twitter employee who worked on civic integrity and misleading information and is a board member at the OSET Institute, a nonpartisan election-technology group.

Write to Alexa Corse at alexa.corse@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Google Loses Most of Appeal of EU Android Decision

Leave a comment

BRUSSELS—

Alphabet Inc.’s

GOOG 0.57%

Google suffered legal blows on two continents this week, a significant setback in the company’s efforts to fight allegations that it is abusing its dominance in digital advertising and on mobile phones.

The EU’s General Court in Luxembourg on Wednesday largely upheld a 2018 decision by the EU competition regulator that fined Google $4.33 billion for allegedly abusing the market dominance of its Android operating system for mobile phones to promote and entrench its Google search engine and Chrome browser on mobile devices.

The decision came shortly after a federal judge in the United States District Court for the Southern District of New York on Tuesday denied the bulk of Google’s motion to dismiss the claims brought by a coalition of states led by Texas alleging Google abused its dominance in digital advertising tools, allowing the case to proceed to the discovery stage and ultimately toward trial.

The EU ruling means Google will very likely continue applying some of the changes it has made since to comply with the 2018 decision, including offering users in the EU a choice screen of different search engines. The Android case was the biggest of three antitrust fines totaling more than $8 billion that the EU has levied against Google since 2017—and it focused on mobile phones, one of the company’s fastest growth areas.

The ruling is also a vote of confidence for the European Commission, the bloc’s antitrust enforcer, which has been aggressive in targeting big U.S. tech companies and other firms over concerns about anticompetitive behavior. Last week, the Commission blocked

Illumina Inc.’s

$7.1 billion merger with cancer-test developer Grail Inc., two U.S. companies.

In the U.S., Judge P. Kevin Castel’s decision was closely watched because the Justice Department has been preparing a similar antitrust case against Google over its position in the advertising technology industry.

In both cases, Google did score some partial victories.

In the EU, the court annulled one element of the decision that alleged Google had broken competition laws by making revenue-sharing payments to manufacturers to exclusively pre-install only Google Search, not competing search engines. As a result, the court reduced the overall fine by about 5% to €4.13 billion, about the same in dollars.

“We are disappointed that the court did not annul the decision in full,” a Google spokesman said, adding that Android has created more competition in the mobile phone industry. The company has previously said it should be able to recoup the money it spends developing Android by encouraging manufacturers to install Google Search.

The court’s decision can still be appealed to the EU’s top court, the Court of Justice. Google said it would review the decision before deciding whether to appeal.

In the U.S., the judge tossed out claims pertaining to Google’s “Jedi Blue” ad agreement with rival Facebook—now known as Meta Platforms Inc. The plaintiffs alleged the deal was part of a plan to “kill” an alternative ad technology called header bidding that Google executives feared would harm its business. He also knocked down the plaintiffs’ claim that Google’s Accelerated Mobile Pages, or AMP, technology was part of an anticompetitive plot to curtail header bidding, among several other claims from the plaintiffs.

In a blog post Tuesday in response to the U.S. decision, Google called the Jedi Blue allegations the “centerpiece” of Texas’s case, and cited the various allegations that were tossed out as evidence that the case was “deeply flawed.”

In a statement on Wednesday, Texas Attorney General

Ken Paxton

applauded the judge’s decision, calling it “a major step in the right direction to make our free market truly free.”

The 2018 EU Android case has been significant because it focused on Google’s efforts to increase its mobile business, but also because it underscored Google detractors’ arguments that antitrust enforcement takes too long. By the time the commission had issued its decision, those detractors said Android had already helped make Google Search as dominant on mobile devices as it had been on desktops.

Shortening the time it takes to force companies to make changes in the market was a major reason that the EU pursued new digital-competition legislation called the Digital Markets Act, passed earlier this year. The new law will eventually make it illegal for Google and other very large tech companies to engage in a range of practices that the bloc considers to be anticompetitive, including some of the practices the commission has previously issued fines for.

The 2018 decision focused in large part on how Google bundled together the licensing of its apps for Android devices. In that decision, the EU ordered Google to stop requiring smartphone manufacturers to pre-install the company’s search app and Chrome web browser as a condition for licensing Google’s popular Play app store. It also said the company would have to allow manufacturers to install Google apps on systems that run alternative versions of the Android operating system.

The EU argued Google’s practices had made it harder for potential competitors to emerge and were part of a strategy that was meant to ensure that Google’s search engine would remain dominant as consumers began using search engines on their smartphones.

Google quickly appealed the 2018 decision but also had to comply with it while its appeal was under way. Google changed its licensing deals for manufacturers and implemented what it called a Choice Screen on Android devices, allowing users of new phones in the EU to select alternate default search engines. So far that choice screen doesn’t appear to have had an appreciable impact on the market share for Google Search in Europe.

Google’s appeal of the case centered in part on whether its Android operating system is dominant, arguing that the Commission was wrong to consider Android devices as their own market without seeing them as competitors to

Apple’s

iPhone and iPad devices. The company also argued that requirements to bundle Google Search with its app store weren’t anticompetitive, and that restrictions on use of other versions of Android were needed to ensure Android phones would be compatible with the company’s apps. The court dismissed Google’s arguments on all those points on Wednesday.

Google also argued that the revenue-sharing agreements that required phone makers not to pre-install other search engines covered less than 5% of the market and didn’t have an impact on competitors. The court on Wednesday sided with Google, ruling that the Commission didn’t prove its case on that point.

It is the European Commission’s second court victory against Google in as many years. Last year, Google lost its appeal of a separate, $2.42 billion antitrust fine over allegedly directing users of its search engine to Google’s own comparison-shopping ads at the expense of other services. A second appeal to the EU’s top court is pending.

Google was also fined $1.49 billion in 2019 for limiting how some websites could show ads that were sold by the company’s rivals. Its appeal of that case is still under way.

Google continues to attract scrutiny from antitrust regulators in the EU. Last year, the commission opened a formal antitrust investigation into allegations that Google abuses its dominant position in advertising technology. Google said its ad-tech tools are competitive and that it would work with the commission to resolve its questions.

The Wall Street Journal reported earlier this year that Google had offered concessions to try to ward off a potential antitrust lawsuit in the U.S. targeting the company’s ad-tech business.

The Wall Street Journal reported earlier this year that Google had offered concessions to try to ward off the Justice Department’s antitrust lawsuit targeting the company’s ad-tech business, but people familiar with the matter say the offer wasn’t likely to satisfy regulators.

Write to Sam Schechner at sam.schechner@wsj.com and Kim Mackrael at kim.mackrael@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Roku Swings to Second-Quarter Loss on Slower Ad Spending

Leave a comment

Roku Inc.

ROKU -2.01%

said it expected two of its main revenue drivers—advertising and sales of streaming hardware—to come under further pressure during the second half of the year, sending the company’s shares down 25% in after-hours trading.

“We are in an economic environment defined by recessionary fears, inflationary pressures, rising interest rates, and ongoing supply chain disruptions,” the company said in a letter to investors Thursday in which it announced its second-quarter results. It forecast that ad spending would continue to be negatively affected as a result. “We also believe that consumer discretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales.”

The company said it expected to make $700 million in revenue during the third quarter, below analysts’ expectations of $898.3 million. Roku also withdrew its full-year revenue growth rate estimate, citing uncertainty and volatility in the macro environment.

San Jose, Calif.-based Roku is the nation’s largest maker of streaming hardware—accounting for about 37% of the U.S. market, according to Parks Associates—but it derives most of its revenue from advertising: It sells all ads viewed on The Roku Channel, its own streaming service, and also sells some ads that appear on other streaming services viewed on Roku devices.

In the second quarter, the company swung to a loss of $112.3 million, or a loss of 82 cents a share, compared with a profit of $73.5 million, or 52 cents a share, a year earlier. Analysts polled by FactSet expected a loss of 71 cents a share.

Supply-chain issues are pushing up prices for Roku’s component parts, the company said. Roku said it was absorbing the higher costs to insulate customers from price increases, which resulted in a negative gross margin of 24% for its players.

Roku’s stock has had a rough 2022 so far. Even before Thursday’s after-hours plunge, its shares were down 63% since the start of the year.

As markets react to inflation and high interest rates, technology stocks are having their worst start to a year on record. WSJ’s Hardika Singh explains why the sector — from tech giants to small startups — is getting hit so hard. Illustration: Jacob Reynolds

Revenue rose 18% to $764.4 million. Of that, $673.2 million came from platform revenue—which includes revenue from advertisers and content publishers—while player revenue accounted for $91.2 million.

Roku Chief Executive

Anthony Wood

described the ad-market upheaval as cyclical. “We’re in an economic cycle where advertising is trending down. It’ll turn around,” he said during a call with analysts Thursday. He also said Roku was the beneficiary of some of that upheaval, because some advertisers were shifting more ad dollars away from traditional TV and toward streaming services, helping Roku grow its market share.

During the second quarter, advertisers in the automotive and consumer-packaged-goods industries reduced their spending on traditional TV, but increased their spending on Roku by a double-digit percentage, said Alison Levin, Roku’s vice president for ad sales and strategy, during a call with journalists before the earnings call.

Roku will soon face competition for streaming ad dollars from two major competitors: streaming services

Netflix

and

Disney

+ are planning to begin selling ads. Mr. Wood said he believed the new entrants to the market would complement Roku by making streaming ads an even greater draw for advertisers.

“With companies like Netflix and Disney moving into ads, it makes streaming ads even more mainstream,” he said.

Write to Patience Haggin at patience.haggin@wsj.com and Denny Jacob at denny.jacob@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Twitter Reports Surprising Drop in Revenue Amid Elon Musk Fight

Leave a comment

Shares of Twitter fell 2% to $38.72 in premarket trading. Twitter’s results Friday follow rival social-media company

Snap Inc.

SNAP 5.42%

posting its weakest-ever quarterly sales growth because of “increasing competition for advertising dollars that are now growing more slowly.”

Twitter, in its news release, cited “advertising industry headwinds associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter.” The company won’t host an earnings conference call because of the pending transaction, which it is suing Mr. Musk to complete.

Twitter’s revenue dipped to $1.18 billion from $1.19 billion a year ago, and was below the average analyst estimate of $1.32 billion on

FactSet.

Advertising revenue rose 2% from a year earlier to $1.08 billion. In the first quarter, advertising revenue grew 23%.

“The digital ad metrics they’re holding are relatively firm despite a dark macro environment,” Wedbush Securities analyst

Dan Ives

said. “They’re not falling off a cliff like we saw with Snap.” Shares of Snap were down more than 30% in premarket trading Friday.

Twitter reported a loss of $270 million, or 35 cents a share, compared with year-ago earnings of $65.6 million, or 8 cents a share. Excluding items like stock-based compensation, the company reported an adjusted loss of 8 cents a share. Analysts, on average, were expecting an adjusted profit of 14 cents a share, FactSet shows.

The number of Twitter’s monetizable average daily active users increased to 237.8 million from 229 million in the first quarter and 206 million a year ago. U.S. users–who make up the company’s biggest market–grew to 41.5 million from 39.6 million in the first quarter and 37 million a year ago. The company said the increase was driven by product improvements and global conversation around current events.

At the release of its results in April, Twitter said it was withdrawing earlier goals and outlooks, and it wouldn’t provide forward-looking guidance. Before Mr. Musk’s courtship, Twitter had been working to achieve three main goals by the end of 2023: to surpass $7.5 billion in annual revenue, reach 315 million daily users and double the pace at which it produces new technology.

Earlier this week, Delaware Chancery Court’s chief judge granted Twitter’s request to fast-track its lawsuit against Mr. Musk. A five-day trial is scheduled for October despite opposition from the billionaire’s lawyers, who argued that a trial should take place on or after Feb. 13 of next year.

Mr. Musk has said his primary reason for backing out of the deal is a lack of faith in Twitter’s estimate that less than 5% of its monetizable daily active users are spam or fake accounts. He has said that estimate is probably too low.

Twitter has said for years in its securities filings that the number of fake and spam accounts on its platform could be higher than its estimates. The company said in its lawsuit against Mr. Musk that he has buyer’s remorse over the fall in share prices since he agreed to the deal in April.

In a recent court filing, Mr. Musk’s team said they became concerned about Twitter’s user numbers after the company disclosed in its April earnings report that it had overstated its user base for nearly three years through the end of 2021 because of an error in how it accounted for people linked to multiple accounts. The revision reduced the number of monetizable daily active users by 0.9% for the fourth quarter of last year.

The court filing also said Mr. Musk met with Twitter executives in May to discuss how the company measures spam and that he was “flabbergasted to learn just how meager” its process was and pointed to the absence of automated tools to help with the calculation.

Mr. Musk’s bid for Twitter has helped hold up the company’s stock price amid a sharp selloff in tech company stocks. Before Friday, Twitter’s stock price was down less than 10% so far this year, while the tech-heavy Nasdaq Composite Index has lost more than 20%.

The deal for Twitter values the company at $54.20 a share. Twitter shares closed at $39.52 on Thursday.

Elon Musk has cultivated close ties with Beijing to build Tesla’s business in China. Now that he is buying Twitter and focusing on free speech, WSJ looks at how China has used the social-media platform to promote its views, and why that’s raising concerns. Photo Illustration: Sharon Shi

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Opinion: Google’s earnings should be a warning to investors in Facebook and other online-ad companies

Leave a comment

Google’s earnings shortfall is an indication of trouble across the online-advertising industry, and should scare investors in Facebook and other competitors.

Google parent company Alphabet Inc.
GOOGL,
-3.59%

GOOG,
-3.04%
reported first-quarter results Tuesday that were slightly shy of Wall Street estimates, with revenue at Google and YouTube both hit by the war in Ukraine and slower ad spending. The numbers weren’t the only problem, though: Wall Street analysts seemed especially disappointed in comments by Alphabet Chief Financial Officer Ruth Porat about a potentially slower second quarter and slowing revenue growth at YouTube.

Many analyst questions were around YouTube’s slowing growth rate, and whether or not the company was seeing more competition from TikTok. In the first quarter, YouTube revenue grew 14.39% to $6.9 billion, its slowest growth in the past five quarters. In the year-ago quarter, for example, YouTube revenue soared 48.7%.

Porat blamed Russia’s invasion of Ukraine; like many U.S. corporations, Alphabet suspended its business in Russia after it went to war with Ukraine. The loss of revenue from Russia was about a 1% hit on its overall revenue, executives disclosed.

“The war, that did have an outsized impact on YouTube ads relative to the rest of Google,” Porat said. “And that was both from suspending the vast majority of our commercial activities in Russia as well, as I noted earlier, the related reduction in spend primarily by brand advertisers in Europe.”

Analysts weren’t buying that explanation, sticking to questions about the rise of TikTok. One analyst said he has been hearing concerns about more competition from TikTok affecting YouTube’s mobile usage.

“We’ve seen significant investment in online video and there has been a ton of innovation, but there are 2 billion-plus logged-in viewers who visit YouTube every single month and more people are creating content on YouTube than we have ever seen before,” Alphabet Chief Executive Sundar Pichai rebutted.

In addition to YouTube, concerns about the general macroeconomic advertising environment and the outlook spooked some analysts. Porat said that in Google Services, the revenue growth rates in its advertising businesses benefited from lapping the COVID-related weakness in 2020.

“Obviously we will not have that tailwind for the rest of this year,” she said. “As discussed in prior calls, the largest impact from COVID on our results was in the second quarter of 2020, which means that in the second quarter of 2022, we will face a particularly difficult comp as we lap the recovery we had in the second quarter of 2021.”

Wall Street had been expecting Alphabet to weather the storm in the online-ads sector, where Apple Inc.’s
AAPL,
-3.73%
privacy changes to iOS have had a big impact on Facebook parent Meta Platforms Inc.
FB,
-3.23%
and other ad-based companies. Comments about its Google ad and search business are likely indicators that other internet companies could report even more disappointing results in the coming weeks, starting with Facebook on Wednesday.

In after-hours trading Tuesday, shares of Alphabet fell 4% at one point, though a major increase to its stock buyback plan — to $70 billion, up from $50 billion last year — likely helped its shares stave off much more damage, ending the session down 2.7%. Meta, which saw its stock dip nearly as much in Tuesday’s after-hours session, may not be so lucky.

If Alphabet is no longer a port in the storm, investors are going to have a tough time finding a better alternative among its few competitors.

Read original article here

Business

Google Charges More Than Twice Its Rivals in Ad Deals, Unredacted Suit Says

Leave a comment

Google takes a cut of 22% to 42% of U.S. ad spending that goes through its systems, according to a newly unredacted lawsuit by state attorneys general, shedding new light on how the search giant profits from its commanding position in the internet economy.

The share the

Alphabet Inc.

GOOG -3.43%

subsidiary takes of each advertising transaction on its exchange—a marketplace for ad buyers and sellers—is typically two- to four-times as much as the fees charged by rival digital advertising exchanges, according to the suit, which is being led by Texas.

The unredacted filing on Friday in the U.S. District Court of the Southern District of New York came after a federal judge ruled last week that much of the antitrust suit could be unsealed.

“[T]he analogy would be if Goldman or Citibank owned the NYSE [New York Stock Exchange]” one senior Google employee said, according to the suit.

Google has called the lawsuit flawed. “This lawsuit is riddled with inaccuracies and our ad tech fees are actually lower than reported industry averages,” said Peter Schottenfels, a Google spokesman.

The suit alleges the company has deployed strategies to “lock in” publishers and advertisers and help the company’s ad buying tools win more than 80% of auctions on its exchange, a newly revealed figure. It gives a window into Google’s overwhelming dominance of advertising, citing Google documents that say the company served 75% of all online ad impressions in the U.S. during the third quarter of 2018.

The suit cites programs, with code names such as Bell, Elmo and Poirot, that helped Google generate more than $1 billion in sales.

The Department of Justice is investigating the U.S.’s largest tech firms for allegedly monopolistic behavior. Roughly 20 years ago, a similar case threatened to destabilize Microsoft. WSJ explains.

The case argues that Google’s business practices inflate advertising costs, which brands pass on to consumers in higher priced products. It also alleges that Google suppresses competition from rival exchanges and limits websites’ options for ad delivery.

Led by Texas Attorney General

Ken Paxton

and joined by 15 states, the suit complements a separate antitrust case by the U.S. Justice Department and 38 state attorneys general focused on Google’s search services, as well as a Utah-led lawsuit targeting Google’s Play app store. Those cases are set for trial in 2023 or later. The Justice Department is exploring a separate suit against Google’s advertising business.

Lawyers for the group of states in the Texas-led suit put a focus on the role of Google’s advertising exchange, called AdX, which they say charges a fee of between 19% and 22% of the prices advertisers are paying on the exchange to reach publishers. That is double to quadruple what AdX’s nearest competitors charge, according to the suit.

The company’s commanding market share in advertising helped it secure those larger fees, according to the suit.

Smaller advertisers pay even larger fees. Transacting on a separate system called Google Display Network, they pay fees ranging from 32% to 40% to Google. The rates are in line with Google’s public statements that publishers receive 68% of revenue from AdSense, a tool to serve ads to smaller websites.

In internal discussions about Google Display Network, executives said the company’s ad networks make “A LOT of money” in commissions because “we can,” according to the suit. “Smaller pubs don’t have alternative revenue sources,” a Google employee said.

When a system called header bidding opened Google’s ad auctions to rival exchanges about five years ago, a change that followed accusations that the tech giant’s systems were anticompetitive, a Google executive wrote in an email that the system posed “an obvious dilemma” that could reduce Google’s profit margins to “around 5 percent,” according to the unredacted suit.

The company deemed the threat of header bidding existential because the system would circumvent Google’s tools. In 2016, one employee worried that competition from rival exchanges would show that the 20% fee Google charged for its exchange “likely wasn’t justified,” according to the suit. Others strategized to “kill” it.

“AdX is the lifeblood of our programmatic business,” a company executive wrote in an email in 2017. “What do we do?”

The search giant sought to undermine header bidding through partnerships and software that protected its position, the suit says. Google offered an alternative to header bidding that appeared to be a concession to the competitive pressure, but the suit says it secretly developed a program called “Jedi” to ensure that Google’s exchange won auctions.

Google employees anticipated that the Jedi program could create blowback from clients and the public, saying it “generates suboptimal yields for publishers and serious risks of negative media coverage if exposed externally,” according to newly unredacted material.

The company’s staff also discussed playing a “jedi mind trick” on the industry by “getting publishers to come up with” the idea of removing rival exchanges “on their own”—primarily by fostering concern that header bidding would strain a publisher’s servers, the suit says.

In 2018, Google struck a previously-reported deal with Facebook that it code-named “Jedi Blue.” The complaint alleges that

Facebook

engaged in an “18-month header bidding strategy” to increase its leverage in such a deal.

The complaint alleges Google also developed Accelerated Mobile Pages, or AMP, a version of a website hosted on Google’s servers designed to load quickly on mobile phones, in part as a way to combat header bidding. Google explicitly designed AMP pages not to work well with header bidding, the suit alleges, and deliberately made ads that didn’t use AMP load with a one-second delay to give AMP what Google called “a nice comparative boost.”

Publicly, Google claimed the AMP sites loaded four times faster than non-AMP pages. But internally Google employees said they grappled with being asked to “justify” a system that actually made websites “slower,” according to the complaint.

Google internal documents show that AMP pages brought 40% less revenue to publishers, according to unredacted sections of the suit.

Texas Attorney General Paxton said that Google’s internal communications show it can’t justify its ad fees. “Only a monopolist can charge rates that are double the rates of its competitors and yet still increase their market share,” Mr. Paxton said.

Google’s Reach in Internet Economy

Write to Keach Hagey at keach.hagey@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here