Avaya Holdings Corp. is nearing a chapter 11 bankruptcy filing to restructure its balance sheet as it looks to turn around its business and move past problems surrounding the company’s accounting, people familiar with the matter said.
Avaya disclosed earlier this week it has reviewed various restructuring proposals from competing creditor groups. One plan, supported by a senior lender group including Apollo Global Management , would significantly reduce Avaya’s debt load through chapter 11, wipe out shareholders and, pending the completion of an internal investigation into controls over financial reporting, provide directors and executives with releases from potential litigation.
plans to fold its biggest businesses into three divisions, undertaking one of the biggest reshuffles in the Wall Street firm’s history.
Goldman will combine its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another, people familiar with the matter said. Marcus, Goldman’s consumer-banking arm, will be part of the asset- and wealth-management unit, the people said.
A third division will house transaction banking, the bank’s portfolio of financial-technology platforms, specialty lender GreenSky, and its ventures with
Apple Inc.
and
General Motors Co.
, the people said.
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The reorganization could be announced within days, the people said. Goldman is scheduled to report third-quarter earnings Tuesday.
It is unclear how the makeover will shake up Goldman’s senior leadership team, though at least a few executives will have new roles, the people said.
Marc Nachmann,
the firm’s co-head of trading, will slide over to help run the combined asset- and wealth-management arm, they said.
The reorganization is the latest step in Chief Executive
David Solomon’s
push to shift Goldman’s center of gravity toward businesses that generate steady fees in any environment. It also reflects the firm’s struggle to overcome skepticism, from investors and even among some of its own executives, over its ambitions for consumer banking.
The firm’s trading and investment-banking acumen has been Goldman’s calling card for decades, churning out massive profits when the markets favored risk-takers and bold deals. But investors often discounted those successes, reasoning that they are harder to sustain when market conditions turn. And in recent years, Goldman has sought to sharpen its trading arm’s focus on client service.
Following the changes, Goldman’s organizational chart will look more like its peers.
A slide presentation from Goldman’s 2020 investor day offered a glimpse of what a combined banking-and-trading business would look relative to peers. At Goldman, the merged group would have delivered a return on equity of 9.2% in 2019, besting
Morgan Stanley
and
Bank of America Corp.
but below what
JPMorgan Chase
& Co. and
Citigroup Inc.
earned that year.
Bloomberg News earlier reported that Goldman had planned to restructure its consumer-banking arm and was considering combining its asset- and wealth-management businesses.
Goldman’s shares have struggled to keep pace with its rivals, at least by one measure. The firm traded at 0.9 times book value as of June, according to FactSet. That compared with 1.4 times at Morgan Stanley and 1.3 times at JPMorgan.
Goldman has sought to narrow the gap by beefing up the businesses that command higher valuations on Wall Street. Managing wealthy people’s money and overseeing funds for pensions and other deep-pocketed institutions is more profitable than other financial services, and it usually doesn’t put the firm’s balance sheet at risk. And many investors view traditional consumer banking—taking deposits and making loans—as more predictable.
Goldman has invested heavily in building its own consumer bank, and folding the unit into its asset- and wealth-management arm should create more opportunities to offer banking services to wealthy individuals.
Earlier this year, the bank said it aimed to bring in $10 billion in asset and wealth-management fees by 2024.
racing to save itself, will reject some of the most fundamental aspects of its decade-old business model.
The once-hot maker of connected fitness equipment posted losses of more than $1.2 billion in the most recent quarter as revenue plunged and the company warned it would spend more cash than it brings in for several more months. Peloton lost $2.8 billion in the year ended June 30, compared with a $189 million loss in the prior year.
Losses come as demand for Peloton’s bikes and treadmills has plunged and the company’s count of people who subscribe to its fitness classes stagnated after growing fourfold since early 2020. The company had about 3 million subscribers to its connected fitness offering at the end of the June quarter.
Peloton CEO Barry McCarthy aims to make Peloton primarily a subscription-based company.
Photo:
Kevin Dietsch/Getty Images
Peloton shares were down nearly 20% in morning trading, as the company posted steeper losses and weaker revenue than analysts had projected. Through Wednesday’s close, its share price was down 88% from a year ago.
“The naysayers will look at our [fourth-quarter] financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business,” Chief Executive
Barry McCarthy
said in a letter to shareholders. “But what I see is significant progress driving our comeback and Peloton’s long-term resilience.”
Peloton has long sought out an affluent base of customers with stationary bikes that cost up to $2,500, and has worked to ensure only owners of its equipment are able to connect to its popular workout classes.
Mr. McCarthy, who took over in February, said the company also will court more frugal customers and make its workout classes, often accessed through screens on Peloton equipment, compatible with competitors’ exercise products.
He said the company is also trying to bring more people in through selling equipment and clothes through Amazon.com Inc.’s e-commerce platform to letting people rent bikes through a subscription. Peloton historically has offered two subscription options, one in which courses connect to bikes and treadmills and cheaper options in which classes aren’t connected.
“You never know which initiative is going to get us where we want to go, but I am confident of the cumulative effect,” Mr. McCarthy said in a call with analysts.
The efforts come as Peloton’s finances deteriorate.
Revenue for the June quarter fell to $679 million, a nearly 30% drop from a year ago as declining exercise equipment sales more than offset higher revenue from subscriptions.
Efforts to restructure the company contributed to it burning through $412 million in cash in the latest quarter, after going through $650 million in each of the prior two periods. It ended June with $1.25 billion in cash reserves and a $500 million credit line.
Peloton is taking steps to shore up its finances, from sweeping layoffs to outsourcing manufacturing of its fitness equipment. The company said earlier this month it would cut around 800 jobs in an effort to reduce costs, after announcing in February it would lay off about 2,800 workers. Executives said cost-cutting aims to ensure the company maintains at least $1 billion in available cash.
One of the pandemic’s biggest winners, Peloton has struggled to adapt as Americans revert to prepandemic habits and tighten spending amid inflation near its highest level in decades. Americans are spending less on in-home fitness, from sales of equipment to connected workouts, as they return in droves to gyms and become increasingly cautious about spending available cash amid economic uncertainty.
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Mr. McCarthy’s predecessor, Peloton co-founder
John Foley,
spent hundreds of millions of dollars to expand the company’s manufacturing and supply, betting that demand would hold as the pandemic waned. Along with replacing Mr. Foley, the company earlier this year made changes to its board and said it would cancel plans for a $400 million factory in Ohio.
For the first time, in the most recent quarter, Peloton’s subscription revenues were greater than equipment sales. Mr. McCarthy, who previously worked at
Spotify Technology SA
and
Netflix Inc.
, aims to make Peloton primarily a subscription-based company. Subscriber revenue for the quarter was $383 million; equipment sales were $296 million.
Peloton’s subscriber count rose by just 4,000 in the quarter ended June 30 and the company predicts that the total number of subscribers will remain flat in the current quarter.
It is a big change from the start of 2021, when Peloton’s quarterly revenue peaked at $1.2 billion, and exercise equipment comprised more than 80% of sales.
The company said it expects total revenue between $625 million and $650 million for the current quarter, which ends Sept. 30.
Mr. McCarthy, in his investor letter, likened Peloton to a dangerously tipping cargo ship he was aboard as a high-schooler when the crew managed a dramatic recovery.
“Peloton is like that cargo ship,” he said. “We’ve sounded the alarm for general quarters. Everyone’s at their station.”
is cutting hundreds of corporate roles in a restructuring effort, according to people familiar with the matter, a week after the retail giant warned of falling profits.
The retailer began notifying employees in its Bentonville, Ark., headquarters and other corporate offices of the restructuring, which affects various departments including merchandising, global technology and real-estate teams, the people said. Around 200 jobs in total are being cut, said one of these people.
A Walmart spokeswoman confirmed that there were roles being eliminated as the company updated its structure, but said that the company was also investing in other areas and creating some new roles.
Last week, Walmart warned that its profit would decline in the current quarter and fiscal year because it was having to mark down apparel and other merchandise that has piled up in its stores. The retailer said higher prices for food and fuel were causing U.S. shoppers to pull back on other categories that are more profitable for it.
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Walmart was one of several retailers that was caught off guard this spring as shoppers shifted their spending away from products that have been in high demand throughout much of the pandemic. In addition, some products arrived late due to supply-chain snarls, causing oversupply as shopper interest waned.
Target Corp.
in June issued a profit warning after it reported quarterly results that, like Walmart, showed a surge in inventory levels. Last week,
Best Buy Co.
cut its sales and profit goals, saying consumers had pulled back on electronics.
Walmart is the largest private employer in the U.S. and while much of its workers are hourly staff, it has thousands of people in corporate roles. Walmart employed 2.3 million worldwide, including 1.7 million in the U.S., as of Jan. 31.
While the overall U.S. job market has been strong, a handful of other major employers are pulling back on hiring or cutting some jobs.
Ford Motor Co.
is preparing to cut thousands of white-collar workers, while technology giants such as
Microsoft Corp.
and Facebook parent
Meta Platforms Inc.
have pulled back.
Investors will get another update on the health of the U.S. job market on Friday when the government releases data for July. Economists surveyed by The Wall Street Journal think Friday’s jobs report will show that they added more than 250,000 in July, compared with 372,000 in June.
is slashing about 23% of its full-time staff as the flashy online brokerage continues to reel from a sharp slowdown in customer trading activity.
The job cuts mark the second round of layoffs this year at Robinhood, which in April reduced its staff by about 9%. Together, the two rounds have cut more than 1,000 jobs from the company.
The layoffs come alongside a broader company reorganization,
Vlad Tenev,
Robinhood’s chief executive, said in a message posted to the company’s blog. In the statement, Mr. Tenev said the previous round of layoffs in April “did not go far enough” in helping the company cut costs.
“Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the Covid era would persist into 2022,” Mr. Tenev said in the message. “In this new environment, we are operating with more staffing than appropriate. As CEO, I approved and took responsibility for our ambitious staffing trajectory—this is on me.”
Robinhood also moved up the release of its second-quarter results a day earlier than scheduled, reporting its monthly active users tumbled to 14 million, down 34% from a year earlier. Revenue fell 44% to $318 million.
Launched less than a decade ago, Robinhood ushered in a free-stock trading phenomenon during the Covid-19 pandemic, thanks to its easy-to-use, mobile-first online brokerage platform.
By the second quarter of last year—Robinhood’s best, according to public filings—the company boasted more than 21 million active users, who flocked to the app to trade flashy meme stocks, options and cryptocurrencies.
But the pandemic-darling has seen its fortunes unwind this year as markets have tumbled and customers are no longer stuck at home like they were during the Covid-19 pandemic. Revenue tied to customers’ trading activity dropped 55% in the latest quarter to $202 million.
Robinhood’s stock price plunged this year and finished Tuesday at $9.23, down 76% from its initial public offering price last year of $38 a share. Its stock fell 1.6% in recent after-hours trading.
Robinhood scaled up staffing quickly during the Covid-19 pandemic to meet the surge in demand for its services. On the company’s earnings call in April, Mr. Tenev said the company grew its head count to nearly 3,900 in the first quarter of this year from roughly 700 at the end of 2019. Tuesday’s reduction will bring the head count to about 2,600.
In his blog post, Mr. Tenev said all employees would receive an email and a Slack message with their employment status immediately following Tuesday’s companywide meeting where the layoffs were announced. Employees who were laid off will be able to remain employed through October, Mr. Tenev said.
“The reality is that we over-hired, in particular in some of our support functions,” Mr. Tenev said later on the call with reporters. He noted that employees in support, operations, marketing and program management would be most acutely affected.
A number of technology companies have laid off employees in recent months as they grapple with a slowdown in growth and the threat of a looming recession.
Twitter Inc.,
Netflix Inc.
and
Tesla Inc.
are among those that have made staff cuts.
Within the brokerage landscape, Robinhood has found itself more deeply affected by the current market environment. Compared with larger, entrenched players in the industry, Robinhood’s users tend to be younger and have less money in their brokerage accounts. Jason Warnick, Robinhood’s chief financial officer, said Robinhood customers tend to invest in growth stocks and cryptocurrencies. Both categories were hammered by a downturn in markets this year.
In addition to slowing growth, Robinhood has found itself under the watchful eye of regulators. The New York State Department of Financial Services said Tuesday that it imposed a $30 million fine on Robinhood’s cryptocurrency trading unit for alleged violations of anti-money-laundering and cybersecurity regulations.
The company, meanwhile, has encountered questions about the future viability of part of its business model, after Securities and Exchange Commission Chairman
Gary Gensler
earlier this year outlined a revamp of trading rules that could threaten one of the key ways Robinhood makes money.
As its business has struggled this year, Robinhood has increasingly been considered a takeover target by some market watchers, especially in the highly competitive brokerage industry. In May, one of the biggest names in cryptocurrency,
Sam Bankman
-Fried, unveiled a roughly $648 million investment in Robinhood in exchange for 7.6% of the company’s Class A shares.
Any outside investor, including Mr. Bankman-Fried, would face an uphill battle in mounting an aggressive takeover bid for Robinhood, due to a dual-class share structure that gives the majority of voting control to Mr. Tenev and
Baiju Bhatt,
Robinhood’s other co-founder.
Mr. Warnick reiterated on Tuesday’s media call that Robinhood intends to continue as a stand-alone, independent company.
“We’ve got an incredibly strong balance sheet with $6 billion in cash and we’ve got a lot of momentum on the product side,” he said. “To the contrary of being acquired, we actually think that we should be looking more aggressively at opportunities to acquire other companies that would help speed our innovation.”
Mr. Warnick added that Robinhood plans to roll out tax-advantaged retirement accounts later this year, following its earlier launch of other products including a new debit card. Some former employees, customers and analysts, however, have criticized the brokerage for being too slow to unveil new products that could diversify its revenue stream.
HONG KONG—Billionaire Jack Ma plans to relinquish control of Ant Group Co., people familiar with the matter said, part of the fintech giant’s effort to move away from affiliate Alibaba Group Holding Ltd. after more than a year of extraordinary pressure from Chinese regulators.
The authorities halted Ant’s $34 billion-plus IPO in 2020 at the 11th hour and are forcing the technology firm to reorganize as a financial holding company regulated by China’s central bank. As the overhaul progresses, Ant is taking the opportunity to reduce the company’s reliance on Mr. Ma, who founded Alibaba.
Mr. Ma, a 57-year-old former English teacher and one of China’s most prominent entrepreneurs, has been the target of government action that appears designed to reduce his influence and the power of his companies. He has controlled Ant since he carved its precursor assets out of Alibaba more than a decade ago. Over time he built it into a company that owns the Alipay payments network with more than one billion users, an investing platform that houses what was once the world’s largest money-market fund, and a large microlending business. Ant was expected to be valued at more than $300 billion had it gone public.
Diminishing his ownership could put back a potential revival of Ant’s IPO for a year or more. Chinese securities regulations require a timeout on public listings for companies that have gone through a recent change in control.
Mr. Ma doesn’t hold an executive role at Ant or sit on its board, but is a larger-than-life figure at the company and currently controls 50.52% of its shares via an entity in which he holds the dominant position. He could relinquish his control by transferring some of his voting power to other Ant officials including Chief Executive
Eric Jing,
after which they would collectively control the company, some of the people said.
Ant told regulators of Mr. Ma’s intention to cede control as the company prepared to convert into a financial holding company, the people familiar with the matter said. Regulators didn’t demand the change but have given their blessing, the people said. Ant is required to map out its ownership structure when it applies to become a financial holding company.
The People’s Bank of China has yet to officially accept Ant’s application to become a financial holding company. Any change of control isn’t likely to materialize until Ant’s restructuring is complete.
Ant owns the Alipay payments network that has more than one billion users.
Photo:
Qilai Shen/Bloomberg News
Mr. Ma has personally contemplated ceding control of Ant for years, some of the people said. He has been concerned about the corporate-governance risks arising from being too reliant on a single dominant figure atop the company, those people said.
The charismatic founder addressed those risks at Alibaba years ago by setting up a partnership structure to ensure a sustainable succession as its first generation of leaders moved on. He gave up the CEO job at Alibaba in 2013 and stepped down as chairman in 2019 when he retired from the company. He currently holds less than 5% of Alibaba’s shares.
American depositary shares of Alibaba traded in the U.S. fell 2.2% on Thursday. They have lost nearly half their value over the past 12 months.
The need to end Mr. Ma’s control at Ant gained new urgency as the souring regulatory environment spurred Ant and Alibaba to cut their ties. On Tuesday, Alibaba revealed seven top Ant executives had stepped down from the Alibaba partnership, the top echelon of management at Alibaba and its subsidiaries. The two companies also terminated long-running commercial and data-sharing agreements that had given Alibaba an edge.
Mr. Ma previously held back from giving up control of Ant because he didn’t want to delay the company’s plans for an initial public offering, some of the people familiar with the matter said. The scuttling of those plans—after Mr. Ma laid into financial regulators in a speech—removed that obstacle and created a fresh opportunity for Mr. Ma to resolve the matter, those people said.
A change in control could mean that Ant will have to wait a while longer before it tries going public again. Chinese securities regulations state that companies can’t list domestically on the country’s A-share market if they have had a change of controlling shareholder in the past three years—or in the past two years if listing on Shanghai’s Nasdaq-like STAR Market.
In less than six months, China’s tech giant Ant went from planning a blockbuster IPO to restructuring in response to pressure from the central bank. As the U.S. also takes aim at big tech, here’s how China is moving faster. Photo illustration: Sharon Shi
Hong Kong also imposes a waiting period but only for one year. Ant’s scuttled IPO plan included simultaneous listings in the former British colony as well as Shanghai.
Ant is in no rush to attempt an IPO again and intends to keep its options open, some of the people said. The company could consider other moves including spinning off units that could in turn be listed themselves, those people said.
Mr. Ma controls Ant through an entity called Hangzhou Yunbo Investment Consultancy Co., which in turn controls two vehicles that together own a little more than half of Ant’s shares.
Mr. Ma has a 34% stake in Hangzhou Yunbo. The other 66% is split evenly among Ant’s CEO, Mr. Jing, former CEO
Simon Hu
and veteran Alibaba executive and former Ant nonexecutive director Fang Jiang.
The billionaire originally owned all of the entity. He transferred two-thirds of the shares to the three executives in August 2020 before Ant filed its IPO prospectus. At the same time, Mr. Ma was given veto power over Hangzhou Yunbo’s decisions, according to the prospectus. The arrangement was designed to give the other executives more say in Ant’s affairs without triggering an effective change in control that could delay the IPO, a person familiar with the matter said.
Jack Ma doesn’t hold an executive role at Ant or sit on its board but controls 50.52% of its shares via an entity in which he holds the dominant position.
Photo:
bobby yip/Reuters
Mr. Ma could cede control of Ant by diluting his voting power in Hangzhou Yunbo via giving up his veto and transferring some of his stake to other executives, the person said.
Mr. Hu, who resigned as Ant’s CEO last year and recently retired, and Ms. Jiang, who left Ant’s board last year, will likely exit Hangzhou Yunbo and be replaced by other Ant executives. In addition to Mr. Jing, Ant’s most senior executives are now Executive Vice President Xiaofeng Shao and Chief Technology Officer Xingjun Ni. Mr. Shao is also the general secretary of Ant’s Communist Party committee, according to people familiar with the matter. Mr. Ni was instrumental in founding Alipay in 2004.
Mr. Ma’s control over Ant goes back more than a decade to the period when he was CEO of Alibaba. In 2011, it emerged that he had carved the payments business Alipay out of Alibaba without the knowledge of key shareholders including Yahoo Inc. and
SoftBank Group Corp.
9984 0.37%
Alibaba argued the transfer was needed for Alipay to secure a Chinese license that might not have been granted if the company had foreign shareholders. Following the move, China’s central bank in May 2011 gave Alipay a license to operate as a payment-services company. Yahoo and SoftBank were later compensated by an agreement that allowed them to share economic interests in Ant through their ownership in Alibaba.
In 2014, Ant Financial Services Group was created to hold Alipay and other financial businesses including consumer lending. The company in 2020 changed its name to Ant Group.
Write to Jing Yang at Jing.Yang@wsj.com and Raffaele Huang at raffaele.huang@wsj.com
is exchanging its top finance executive about four months after it named a new chief executive, a move that comes as the fitness-equipment maker navigates persistent losses.
The New York-based at-home exercise equipment company on Monday said
Liz Coddington
will serve as its chief financial officer, effective June 13. Peloton said its current CFO,
Jill Woodworth,
decided to leave after more than four years with the company.
Peloton said Ms. Woodworth will remain with the company as a consultant on an interim basis to help prepare the fiscal year 2022 financial results.
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Ms. Coddington most recently served as vice president of finance for Amazon Web Services, an
Amazon.com Inc.
subsidiary that provides on-demand cloud computing platforms. Before that, she held CFO and leadership finance roles at companies including retailer
Walmart Inc.
and streaming business
Netflix Inc.
Ms. Coddington joins Peloton as the company is dealing with waning demand from consumers after facing issues around its ability to meet orders, which soared during the early stages of the pandemic. The surge in demand for Peloton bikes led the company to break ground on a million-square-foot factory in Wood County, Ohio, last year.
Peloton is now looking to sell the factory that it will never use. The company also slashed prices for its equipment, projected slower growth and had to borrow $750 million to fund its operations.
Peloton in May reported its largest quarterly loss since the company went public in 2019, reporting a net loss of $757.1 million for the quarter ended March 31, compared with a loss of $8.6 million in the prior-year period.
In February, Peloton replaced Chief Executive
John Foley
with
Barry McCarthy,
who previously led the finances of digital music service
Spotify Technology SA
and Netflix. The company also cut 2,800 jobs amid reduced demand for its exercise equipment. Mr. Foley was closely associated with the company’s growth phase after its public offering and the revenue surge early in the pandemic.
The change in the CFO-seat makes sense given the continuing restructuring under Mr. McCarthy, said
Rohit Kulkarni,
managing director at equity trading and research firm MKM Partners LLC.
“As the new CEO puts his mark on the organization’s structure and aligns it with where he wants the company to go, these changes are not completely surprising,” he said.
With Peloton’s fiscal year ending June 30, Ms. Coddington will very quickly be “under a bigger investor microscope,” as the expectation is that the company will release fiscal year guidance soon after she joins, Mr. Kulkarni said. “It will be a challenging task to provide that new guidance.”
Write to Jennifer Williams-Alvarez at jennifer.williams-alvarez@wsj.com and Mark Maurer at Mark.Maurer@wsj.com
aims to shake up the game industry by expanding the software giant’s library of blockbuster videogames and bolstering its efforts to entice consumers to its cloud-gaming service.
The planned $75 billion deal would be Microsoft’s biggest ever and its most ambitious investment yet in its plan to turn its Game Pass subscription service into the
Netflix
of gaming. Once the acquisition closes, Microsoft said it would be the world’s third-largest game company by sales, with 30 game studios under its belt, including the developers of popular franchises Call of Duty, World of Warcraft and Candy Crush.
Around a decade ago, Microsoft shifted to bringing its corporate clients to subscription-based cloud services. The move has helped lift its market value to $2 trillion and maintain its status as one of the world’s top tech companies. The Activision acquisition positions Microsoft to use the same tactic on consumers by persuading gamers to abandon their expensive hardware and play on the cloud.
“Together with Activision Blizzard, we have an incredible opportunity to invest and innovate, to create the best content, community and cloud for gamers to build substantial new value for our shareholders,” said Microsoft Chief Executive
Satya Nadella
on an investor and media call Tuesday.
With more gamers playing on smartphones rather than pricey game consoles and computers, companies around the world are racing to develop services for streaming high-end games to all kinds of devices the same way movies and TV shows are streamed.
Amazon.com Inc.,
Alphabet Inc.’s
Google,
Sony Group Corp.
and a host of smaller players are trying, but Microsoft has taken a large early lead in the emerging cloud-game space by spending billions of dollars on acquisitions and infrastructure, analysts said.
“Microsoft has big aspirations in gaming,” said
Mark Moerdler,
a Bernstein Research analyst. “Microsoft has been buying a number of studios because of what they’re trying to build with Game Pass and subscription gaming.”
If the company can convert some of Activision’s nearly 400 million monthly active users into subscribers, it could significantly bolster its cloud-game business, Mr. Moerdler said.
Subscribers to Microsoft’s Game Pass have increased 39% in the past year to 25 million, the company said. A billboard in New York pitching Activision’s ’Call of Duty: Vanguard.’
Photo:
Richard B. Levine/Zuma Press
Cloud gaming is an emerging technology that allows people to stream games using nearly any internet-connected device with a screen, much as they stream videos on Netflix, Hulu and other platforms. Streaming games is more challenging, though, because games are interactive and require a lot more data to run smoothly. While Netflix moved into mobile games last year, it has so far offered only a handful of games that subscribers must download to an Android or iOS device—not games that can be streamed via the cloud.
Consumer spending on cloud-game services reached $3.7 billion last year, with Microsoft’s Game Pass accounting for 60%, according to research firm Omdia, which forecasts total cloud-game revenue will hit $12 billion by 2026.
Along with announcing its planned acquisition, Microsoft said Tuesday that subscribers to Game Pass—which includes cloud gaming, online multiplayer support and access to a large, rotating library of games—have increased 39% in the past year to 25 million.
Mr. Nadella said Microsoft plans to bring as many Activision games as it can to Game Pass. As it has done with games from developers it has acquired previously, Microsoft could make future games from Activision exclusive on Game Pass and Xbox consoles, analysts said.
“We do think our investment in cloud creates a unique capability for triple-A content to reach any screen on any device,” Microsoft game chief
Phil Spencer
said after the Activision deal was announced.
Growing its cloud-game business will help Microsoft diversify further into consumer-facing businesses. That could narrow the leads Sony’s PlayStation has on Microsoft in game hardware and Amazon’s in cloud services. Mr. Nadella’s broader strategy for Microsoft puts cloud computing at the center of a collection of disparate businesses, from corporate software and enterprise data storage to social media and digital advertising.
Microsoft’s commitments to gaming and the cloud have been years in the making. Since taking over in 2014, Mr. Nadella has leaned heavily on offering the company’s enterprise customers cloud-computing services to power their businesses. This strategy has been the primary driver behind Microsoft’s ascent to become the world’s second-most-valuable company behind
Apple Inc.,
with a market valuation of nearly $2.3 trillion.
Ms. Wu, a target of the GamerGate scandal, says Activision Blizzard’s CEO led a culture of non-accountability, during an interview at WSJ’s Women In: The Tech Industry event.
For years, gaming took a back seat at Microsoft, where consumer-facing businesses got less attention, former and current employees said. The Xbox team was slotted under the Windows operating system and didn’t directly report to the CEO, as Mr. Nadella focused on selling the Office 365 business-software suite and developing the cloud-computing business. The Xbox group struggled to find its place in this structure, the employees said, as the unit was always competing with Windows priorities for investments, typically without success, they said.
“Under Windows, we had to make trade-offs between investing in big gaming initiatives and features for Windows enterprise customers,” said
Richard Irving,
who spent 12 years working on Xbox before leaving Microsoft in 2016. “That was the challenge of being in the Windows division.”
A Microsoft spokesman declined to comment on the company’s previous management of its game business.
A few years ago, Microsoft decided to become more aggressive about expanding its cloud usage to gaming, its main touch point with consumers. Internally, there has been concern that Microsoft is too dependent on enterprise for growth, said people familiar with company strategy. The decision to do more in gaming came after Microsoft looked at the possibility of buying consumer-facing businesses including TikTok,
Pinterest
and Discord, the people said.
It started snapping up game makers, spending more than $10 billion to buy game studios and build a vast library. The company has added popular titles such as the Doom franchise, acquired last year.
Microsoft isn’t alone. The global videogame industry has been riding a wave of consolidation and investing in recent years. Spending on mergers and acquisitions nearly tripled to $26.2 billion in 2021 from $8.9 billion in 2020, data from PitchBook show. And venture-capital deals nearly doubled to a record $11.2 billion from $6.4 billion, according to the private-market-data firm.
Write to Aaron Tilley at aaron.tilley@wsj.com and Sarah E. Needleman at sarah.needleman@wsj.com
General Electric Co. is nearing a $30 billion-plus deal to combine its aircraft-leasing business with Ireland’s
AerCap
AER 1.62%
Holdings NV, according to people familiar with the matter, the latest in a string of moves by the industrial conglomerate to restructure its once-sprawling operations.
Though details of how the deal would be structured couldn’t be learned, it is expected to have a valuation of more than $30 billion, some of the people said. An announcement is expected Monday, assuming the talks don’t fall apart.
The
GE
GE 0.29%
unit, known as GE Capital Aviation Services, or Gecas, is the biggest remaining piece of GE Capital, a once-sprawling lending operation that rivaled the biggest U.S. banks but nearly sank the company during the 2008 financial crisis. GE already took a major step back from the lending business in 2015 when it said it would exit the bulk of GE Capital, and a deal for Gecas would represent another big move in that direction.
It would also represent another significant move by GE Chief Executive Larry Culp to right the course of a company that has been battered in recent years by souring prospects for some of its top business lines and a structure that has fallen out of favor with investors.
With more than 1,600 aircraft owned or on order, Gecas is one of the world’s biggest jet-leasing companies, alongside AerCap and Los Angeles-based Air Lease Corp. It leases passenger aircraft made by Boeing Co. and
Airbus SE
as well as regional jets and cargo planes to customers ranging from flagship airlines to startups. Gecas had $35.86 billion in assets as of Dec. 31.
AerCap has a market value of $6.5 billion and an enterprise value—adjusted for debt and cash—of about $34 billion, according to S&P Capital IQ, and around 1,400 owned or ordered aircraft. The company has experience in deal making, paying around $7.6 billion in 2014 to buy International Lease Finance Corp. AerCap’s revenue last year was about $4.4 billion, down from around $5 billion in the previous few years.
The aviation business has been hit hard by the Covid-19 pandemic, which has resulted in a sharp drop in global travel and prompted airlines to ground planes. Some airlines have sought to defer lease payments or purchases of new aircraft. Gecas had an operating loss of $786 million on revenue of $3.95 billion in 2020. GE took a roughly $500 million write-down on the value of its aircraft portfolio in the fourth quarter.
Combining the companies could afford cost-cutting opportunities and help the new entity weather the downturn.
Separating Gecas could help GE with its efforts to shore up its balance sheet and improve cash flows. Despite a recent increase, GE’s share price remains below where it was before significant problems in the company’s power and finance units emerged in recent years.
The Boston company has a market value of around $119 billion after the shares more than doubled in the past six months as it posted improving results. Still, the stock has fallen by about three-quarters from the peak just over 20 years ago.
Mr. Culp became the first CEO from outside of GE in late 2018 after the company was forced to slash its dividend and sell off businesses. The former
Danaher Corp.
boss has sought to simplify GE’s wide-ranging conglomerate structure further, as other industrial giants such as Siemens AG and
Honeywell International Inc.
have done in recent years.
Activist investor Trian Fund Management LP, which has owned a significant position in the company since 2015 and holds a seat on its board, has supported such changes.
Early in his tenure, Mr. Culp said he had no plans to sell Gecas, a move his predecessor
John Flannery
had considered after the unit drew interest from private-equity firms pushing further into the leasing business.
Mr. Culp has sought to even out cash flows and refocus on core areas. Operations he has parted with include the company’s biotech business, which was purchased by Danaher in a $21 billion deal that closed last year. GE also sold its iconic lightbulb business in a much smaller deal last year, and previously said it was unloading its majority stake in oil-field-services firm Baker Hughes Co.
GE has cut overhead costs and jobs in its jet-engine unit while streamlining its power business. The pandemic continues to pressure the jet-engine business, GE’s largest division, however.
The company also makes healthcare machines and power-generating equipment, and the rest of GE Capital extends loans to help customers purchase its machines and contains legacy insurance assets too.
AerCap is based in Ireland and Gecas has headquarters there as well. The aircraft-leasing industry has long had a significant presence in Ireland due to the country’s favorable tax regime and the importance of Guinness Peat Aviation in the development of the sector. (A deal between GE and AerCap would reunite two companies that bought their main assets from GPA.) The industry has gotten more competitive as Chinese companies have gained market share, however, and the combination could help the new group stem that tide.
Shares in aircraft-leasing companies plummeted along with much of the market in the early days of the pandemic as demand from major airlines, who lease planes to avoid the costs of owning them, evaporated. But many of the major lessors’ stocks have recovered lost ground and then some in the months since as lockdowns ease and the outlook for travel improves.
AerCap’s Chief Executive Aengus Kelly said on its fourth-quarter earnings call this month that he expects airlines to shift more toward leasing planes as they rebuild their balance sheets, in what would be a boon to the company and its peers.
“Their appetite for deploying large amounts of scarce capital to aircraft purchases will remain muted for some time,” he said. “The priority will be to repay debt or government subsidies.”
—Thomas Gryta contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com and Emily Glazer at emily.glazer@wsj.com
