US Inc. said hackers accessed data, including birth dates and billing addresses, for about 37 million of its customers, the second major security lapse at the wireless company in two years.
The company said in a regulatory filing Thursday that it discovered the problem on Jan. 5 and was working with law-enforcement officials and cybersecurity consultants. T-Mobile said it believes the hackers had access to its data since Nov. 25 but that it has since been able to stop the malicious activity.
The cellphone carrier said it is currently notifying affected customers and that it believes the most sensitive types of records—such as credit card numbers, Social Security numbers and account passwords—weren’t compromised. T-Mobile has more than 110 million customers.
The company said its preliminary investigation indicates that data on about 37 million current postpaid and prepaid customer accounts was exposed. The company said hackers may have obtained names, billing addresses, emails, phone numbers, birth dates and account numbers. Information such as the number of lines on the account and plan features could have also been accessed, the company said.
“Some basic customer information (nearly all of which is the type widely available in marketing databases or directories) was obtained,” T-Mobile said in a statement. “No passwords, payment card information, social security numbers, government ID numbers or other financial account information were compromised.”
The company said its systems weren’t breached but someone was improperly obtaining data through an API, or application programming interface, that can provide some customer information. The company said it shut down the activity within 24 hours of discovering it.
The company’s investigation into the incident is ongoing. T-Mobile warned that it could incur significant costs tied to the incident, though it said it doesn’t currently expect a material effect on the company’s operations. The company is set to report fourth-quarter results on Feb. 1.
T-Mobile acknowledged a security lapse in 2021 after personal information regarding more than 50 million of its current, former and prospective customers was found for sale online. T-Mobile later raised its estimate and said about 76.6 million U.S. residents had some sort of records exposed.
A 21-year-old American living in Turkey claimed credit for the 2021 intrusion and said the company’s security practices cleared an easy path for the theft of the data, which included Social Security numbers, birth dates and phone-specific identifiers. T-Mobile’s chief executive later apologized for the failure and said the company would improve its data safeguards.
T-Mobile proposed paying $350 million to settle a class-action lawsuit tied to the 2021 hack. As part of the settlement, the company also pledged to spend $150 million for security technology in 2022 and this year.
Write to Will Feuer at Will.Feuer@wsj.com
Corrections & Amplifications T-Mobile US Inc. acknowledged a security lapse in 2021. An earlier version of this article incorrectly said it was last year. (Corrected on Jan. 19)
Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.
Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.
REIT prices may turn a corner in 2023
REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.
And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.
During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.
When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”
Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates
In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
-0.50%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.
REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.
The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.
Industry numbers
The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.
The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.
FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.
The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.
Screen of high-yielding equity REITs
For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.
Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.
This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.
For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
-0.18%,
which represents 98% of U.S. companies by market capitalization.
We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.
If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.
For example, if we look at Vornado Realty Trust
VNO,
+1.01%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.
Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.
Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Brandywine Realty Trust
BDN,
+1.82%
11.52%
12.82%
1.30%
$1,132
Offices
Sabra Health Care REIT Inc.
SBRA,
+2.02%
9.70%
12.04%
2.34%
$2,857
Health care
Medical Properties Trust Inc.
MPW,
+1.90%
9.18%
11.46%
2.29%
$7,559
Health care
SL Green Realty Corp.
SLG,
+2.18%
9.16%
10.43%
1.28%
$2,619
Offices
Hudson Pacific Properties Inc.
HPP,
+1.55%
9.12%
12.69%
3.57%
$1,546
Offices
Omega Healthcare Investors Inc.
OHI,
+1.30%
9.05%
10.13%
1.08%
$6,936
Health care
Global Medical REIT Inc.
GMRE,
+2.03%
8.75%
10.59%
1.84%
$629
Health care
Uniti Group Inc.
UNIT,
+0.28%
8.30%
25.00%
16.70%
$1,715
Communications infrastructure
EPR Properties
EPR,
+0.62%
8.19%
12.24%
4.05%
$3,023
Leisure properties
CTO Realty Growth Inc.
CTO,
+1.58%
7.51%
9.34%
1.83%
$381
Retail
Highwoods Properties Inc.
HIW,
+0.76%
6.95%
8.82%
1.86%
$3,025
Offices
National Health Investors Inc.
NHI,
+1.90%
6.75%
8.32%
1.57%
$2,313
Senior housing
Douglas Emmett Inc.
DEI,
+0.33%
6.74%
10.30%
3.55%
$2,920
Offices
Outfront Media Inc.
OUT,
+0.70%
6.68%
11.74%
5.06%
$2,950
Billboards
Spirit Realty Capital Inc.
SRC,
+0.72%
6.62%
9.07%
2.45%
$5,595
Retail
Broadstone Net Lease Inc.
BNL,
-0.93%
6.61%
8.70%
2.08%
$2,879
Industial
Armada Hoffler Properties Inc.
AHH,
-0.08%
6.38%
7.78%
1.41%
$807
Offices
Innovative Industrial Properties Inc.
IIPR,
+1.09%
6.24%
7.53%
1.29%
$3,226
Health care
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
LTC Properties Inc.
LTC,
+1.09%
5.99%
7.60%
1.60%
$1,541
Senior housing
Source: FactSet
Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.
Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.
Largest REITs
Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Prologis Inc.
PLD,
+1.29%
2.84%
4.36%
1.52%
$102,886
Warehouses and logistics
American Tower Corp.
AMT,
+0.68%
2.66%
4.82%
2.16%
$99,593
Communications infrastructure
Equinix Inc.
EQIX,
+0.62%
1.87%
4.79%
2.91%
$61,317
Data centers
Crown Castle Inc.
CCI,
+1.03%
4.55%
5.42%
0.86%
$59,553
Wireless Infrastructure
Public Storage
PSA,
+0.11%
2.77%
5.35%
2.57%
$50,680
Self-storage
Realty Income Corp.
O,
+0.26%
4.82%
6.46%
1.64%
$38,720
Retail
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
VICI Properties Inc.
VICI,
+0.41%
4.69%
6.21%
1.52%
$32,013
Leisure properties
SBA Communications Corp. Class A
SBAC,
+0.59%
0.97%
4.33%
3.36%
$31,662
Communications infrastructure
Welltower Inc.
WELL,
+2.37%
3.66%
4.76%
1.10%
$31,489
Health care
Digital Realty Trust Inc.
DLR,
+0.69%
4.54%
6.18%
1.64%
$30,903
Data centers
Alexandria Real Estate Equities Inc.
ARE,
+1.38%
3.17%
4.87%
1.70%
$24,451
Offices
AvalonBay Communities Inc.
AVB,
+0.89%
3.78%
5.69%
1.90%
$23,513
Multifamily residential
Equity Residential
EQR,
+1.10%
4.02%
5.36%
1.34%
$23,503
Multifamily residential
Extra Space Storage Inc.
EXR,
+0.29%
3.93%
5.83%
1.90%
$20,430
Self-storage
Invitation Homes Inc.
INVH,
+1.58%
2.84%
5.12%
2.28%
$18,948
Single-family residental
Mid-America Apartment Communities Inc.
MAA,
+1.46%
3.16%
5.18%
2.02%
$18,260
Multifamily residential
Ventas Inc.
VTR,
+1.63%
4.07%
5.95%
1.88%
$17,660
Senior housing
Sun Communities Inc.
SUI,
+2.09%
2.51%
4.81%
2.30%
$17,346
Multifamily residential
Source: FactSet
Simon Property Group Inc.
SPG,
+0.95%
is the only REIT to make both lists.
is considering the launch of a new giant startup fund after ill-timed bets and massive losses weighed down two earlier attempts to dominate startup investing, according to people familiar with discussions at the company.
The Tokyo-based tech conglomerate, by far the world’s largest startup investor in recent years, would likely use its own cash for what would be the third SoftBank Vision Fund if it moves ahead with the plan, some of the people said.
The company is also considering putting additional money into Vision Fund 2, its main investment fund for the past few years, instead of starting a new fund, one of the people said. Vision Fund 2 is currently worth less than the investment that went into it. Those losses significantly reduce the pay for SoftBank staff working on the fund—a factor in its decision making. The company expects to make a decision in the coming months, the people said.
SoftBank, led by Chief Executive Officer
Masayoshi Son,
has been hit particularly hard by the rout in tech valuations that began last fall, posting a record $23 billion loss in the three months ended in June.
Much of that red ink is a product of its first two Vision Funds, the startup investment unit that Mr. Son formed in 2017 in a bid to dominate the venture sector. The $100 billion initial Vision Fund, which raised $60 billion from Saudi and Emirati wealth funds, was beset by giant soured bets on companies including WeWork Inc. and
Didi Global Inc.,
leading to meager gains over five years.
The successor Vision Fund 2, funded by SoftBank and intended to be more cautious, is now worth 19% less than the $49 billion it invested, after accelerating its spending just as valuations peaked on companies including fintech Klarna Holdings AB.
Chief Executive Officer Masayoshi Son has been hit particularly hard by the rout in tech valuations.
Photo:
Neil Hall/REUTERS
Mr. Son told investors in August he was “quite embarrassed and remorseful” after having gotten caught up in the frenzy, and he has substantially cut back spending on startups. Still, he has said he is committed to the startup and tech sector long term and eventually plans to increase spending again.
Mr. Son and SoftBank have tried to chart a new path forward after the market turned against unprofitable tech investments. He has also faced a string of departures of top staff. In July, the company said
Rajeev Misra,
who led the Vision Fund since it was created in 2017, would step back from his role overseeing new investments as he starts his own fund.
Despite the misses, SoftBank expects to have more cash coming in over the next year, from a public listing of its chip maker Arm. Its Japanese telecom holdings also generate cash.
Still, analysts and investors say the company’s options are more limited than in the past. Mr. Son has been selling down SoftBank’s stake in Alibaba Group Holding Ltd. and its telecom holdings, and funding a large stock-buyback program. The result has been an increasingly concentrated bet on startups, where results have been disappointing.
Among those pushing for a new fund are some employees of the Vision Fund. A new fund would be a way to reset their compensation, which is partly based on profits at the fund and its investments, one of the people familiar with discussions said. The current fund would require making back large losses before employees could get those bonuses. A new fund would put profits closer in reach. The company is also considering restructuring staff incentives for Vision Fund 2.
The size of the new fund couldn’t be determined.
Mr. Son personally takes a hit with Vision Fund 2 in the red because of a $2.6 billion personal commitment he made. Based on the terms of the investment, Mr. Son didn’t put up the money himself but owes SoftBank if the fund ends up performing poorly.
The unusual investment has been criticized by some investors and analysts who say it could skew Mr. Son’s motivations given a structure that could make him more focused on Vision Fund 2 than on other investments. Mr. Son, who owns over one-fourth of SoftBank, has said the structure better aligns him with the investment fund.
SoftBank structured its arrangement in a way that allows the company to get repaid on most of its investment before Mr. Son. About $33 billion of its commitment to Vision Fund 2 is in preferred equity.
While that structure would have led to outsize profits for Mr. Son if Vision Fund 2 did well, today it means particularly large losses because the fund is underwater. Mr. Son currently owes $2.1 billion on the investment, SoftBank disclosures show. He is charged a 3% annual interest rate on his unpaid balance to SoftBank.
From the Archives: SoftBank’s longtime strategy of dumping mountains of cash on promising young companies to create big winners failed dramatically at WeWork and is inviting scrutiny into the fund’s other investments. Here’s a look at Vision Fund’s structure, and how its fast-paced investment strategy could make it risky.
Write to Eliot Brown at Eliot.Brown@wsj.com and Julie Steinberg at julie.steinberg@wsj.com
Group Corp. on Monday reported a record quarterly loss of more than $23 billion after its Vision Fund investments suffered from the global selloff in technology shares.
The April-June loss was about 1½ times the previous record set just three months earlier in the January-March quarter.
The weak results reflect the fall in technology shares around the globe recently, sparked by interest-rate increases and China’s crackdown on tech companies.
Shares of
Uber
Technologies Inc. and
DoorDash Inc.,
two U.S. companies in which SoftBank has invested, fell more than 40% during the April-June quarter. SoftBank said its Vision Fund 1 has fully exited its position in Uber.
SoftBank rushed to plow its money into tech startups last year, seeing new opportunities in businesses such as finance and health that were changing in the pandemic era. Chief Executive
Masayoshi Son
and his team invested $38 billion from SoftBank’s Vision Fund 2 into 183 companies last year, according to SoftBank’s filings.
On Monday, Mr. Son said he got overexcited during the period when tech valuations were booming. “When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful,” he said.
In May, as the losses from those investments began to emerge, Mr. Son said he was switching to a defensive policy.
He said Monday that SoftBank’s Vision Funds approved about $600 million in investments in the April-June quarter, down from a peak of $20.6 billion in the same quarter a year earlier. He said the caution would continue, even though the market’s decline may make some companies a bargain.
“Now seems like the perfect time to invest when the stock market is down so much, and I have the urge to do so, but if I act on it, we could suffer a blow that would be irreversible, and that is unacceptable,” he said.
SoftBank said it turned some of its older investments into cash to shore up its finances. It said it raised $10.49 billion using its shares in Chinese e-commerce company
Alibaba
Group Holding Ltd. SoftBank used what it calls prepaid forward contracts, in which it gets cash upfront from its lenders and promises to settle the contract later either with cash or with Alibaba shares.
SoftBank reports its results in yen. The net loss in the April-June quarter was ¥3.16 trillion, equivalent to $23.4 billion at the current exchange rate. That compares with a net loss of ¥2.1 trillion in the January-March quarter. For SoftBank’s full fiscal year ended March 31, it reported a loss of ¥1.71 trillion, a record annual figure, equivalent to $12.7 billion at the current rate.
SoftBank’s shares have been steady recently and rose 0.7% on Monday in Tokyo trading, which ended before the release of the results.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
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
Yahoo was once the most popular website on the planet, the only place that everyone on the internet seemed to touch at least once an online session. After an ignominious slide, however, Yahoo is just another site that has some fans in certain parts of Asia and offers some niche products.
Has Mark Zuckerberg launched Facebook on a similar path?
That is the big question investors need to start asking as the Meta Platforms Inc.
META,
+6.55%
chief executive scrambles to shift his strategy amid obvious signs of distress. After its first-ever decline in users three months ago, Facebook reported its first quarterly revenue decline in history Wednesday, and Zuckerberg’s answer is to mimic a rival and send the company into dangerous waters that already almost killed the platform and took U.S. democracy with it.
Zuckerberg is changing the company’s core apps to become far more reliant on artificial intelligence to drive the content its users see, seeking to mimic growing Chinese rival TikTok — a major shift to give the algorithm more power over what people see on Facebook and Instagram. Zuckerberg told analysts on the company’s second-quarter earnings call that Meta’s apps will rely more on its discovery engine, instead of people or things you follow, for content. That means users will see (and are already seeing) content from complete strangers in their feeds and videos, just like TikTok.
“Right now, about 15% of content in a person’s Facebook feed, and a little more than that of their Instagram feed, is recommended by our AI from people, groups or accounts that you don’t follow,” Zuckerberg said. “And we expect these numbers to more than double by the end of next year.”
Facebook was lucky to survive a series of scandals in recent years, from allowing election misinformation to run amok to selling private user data to helping spread the incitement of violence that led to the storming of the U.S. Capitol. Yet apparently nothing was learned, as the company, or at least its algorithm, will now decide what stranger’s content you will see.
Facebook, and the world, have already learned that bad actors will learn how to game that algorithm, leading to dominance of incendiary posts or videos, divisive content that will pit strangers against strangers, on an even scarier scale than exists today. If we’re lucky, the result will be that the users Facebook still has will decide it’s time to leave for other online destinations, as Yahoo’s fans once did.
While the algorithm takes even more charge of Facebook and Instagram — the content-moderation aspect of both social-media sites is already mostly handled by AI, Zuckerberg said in answer to a question on the call, showing just how incapable Facebook’s technology is at succeeding in its aims — Zuckerberg will expend his human capital on his pipe dream of the “metaverse.” Zuckerberg’s grand vision is to create a digital universe populated by those who want to escape the real world of grass, flowers, air, sky, animals and humans by wearing a clunky headset so you can hang out with your friends in a digital nightclub or boardroom or wherever else you want.
Virtual reality has only proven to be popular among a small segment of the population, and it is still too kludgy to be adopted by the mainstream consumer, something Yahoo co-founder Jerry Yang has already learned. So instead, all those parents and grandparents on Facebook, the olds Zuckerberg no longer cares about, will be tended by bots, while his minions focus on a new world: The uncomfortable, potentially dystopian future.
Facebook and Instagram have had huge growth because they appealed to the masses, not just advanced users or the techies who develop these products. If Meta loses these users, its apps will continue their current downward spiral — digital ad declines, recession or not — much in the same way that Yahoo failed to transition to mobile, with a complex site and services that could not easily adapt even as they tried to copy younger rivals, just as Facebook is doing now.
Zuckerberg is the king of Meta, with total founder control, so what he says is the law of the land — power that Yang and the parade of CEOs who took over Yahoo when he was not in charge never had. Nobody is going to stop Zuckerberg from this bet on an algorithm-driven future, so investors need to decide if they want to take the chance that there is nothing ahead of him but a downward spiral to the same fate Silicon Valley has already seen from a once-popular portal to the web.
has made a takeover offer worth more than $20 billion for software maker
Splunk Inc.,
SPLK -2.76%
according to people familiar with the matter.
The offer was made recently and the companies aren’t currently in active talks, some of the people said.
Should there be a deal, it would be Cisco’s biggest ever, eclipsing the roughly $7 billion acquisition of Scientific Atlanta in 2005. Its most recent deal of size was its nearly $5 billion purchase of Acacia Communications Inc. in 2021.
Splunk is currently searching for a chief executive after
Doug Merritt
stepped down from the role in November after roughly six years following a series of disappointing earnings reports. The company named Chairman
Graham Smith
as interim CEO, a position he still holds.
Splunk shares rose sharply early in the pandemic as did those of a number of other technology companies with strong growth potential, but have almost fallen in half since then.
It isn’t clear whether other potential suitors are circling Splunk.
Splunk, founded in 2003, makes software used by companies’ information-technology and security operations to monitor and analyze data.
San Jose, Calif.-based Cisco sells routers, switches and security services as well as software products such as its Webex meeting application.
Cisco’s interest shows that the networking giant—a serial acquirer, but usually of smaller companies—has an appetite for big deals.
And it has the wherewithal, with a market value of around $235 billion and more than $20 billion in cash and short-term investments.
Software has been a hot corner of the M&A market lately, with a number of companies in the sector being snapped up by private-equity firms or other industry players. In one of the latest examples,
Citrix Systems Inc.
agreed to be taken private by a pair of private-equity firms in an acquisition valued at $16.5 billion, including debt.
Splunk said in June that technology-focused private-equity firm Silver Lake was making a $1 billion investment in the company to help support the transformation of the business. Splunk has been shifting from a traditional software-licensing arrangement to a cloud-based subscription model. An increase in the shares on news of that investment had evaporated by the close of trading Friday.
Cisco is set to report its fiscal second-quarter earnings Feb. 16, while Splunk reports March 2.
Write to Dana Cimilluca at dana.cimilluca@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
TOKYO—After a deal that could have been worth $80 billion to his company fell apart,
SoftBank Group Corp.
9984 5.85%
Chief Executive
Masayoshi Son
is playing salesman for Plan B—an initial public offering of chip designer Arm.
Mr. Son sounded as if he were on a roadshow for investors at a news conference in Tokyo on Tuesday. He said Arm is entering a “golden period” of high demand for the chips it helps create in smartphones, electric vehicles and computer-server farms operated by the likes of
Amazon.com Inc.
The pitch came hours after the Japanese investment and technology conglomerate said it was abandoning plans to sell Arm to Nvidia Corp.—in what would have been the largest semiconductor deal on record—because antitrust concerns stood in the way.
Mr. Son said he was surprised to see the backlash not only from U.S. regulators who sued to block the deal in December but also big tech companies that rely on Arm’s chip designs.
“We saw strong opposition because Arm is one of the most important and essential companies that most companies in the IT industry or in Silicon Valley rely on, either directly or indirectly,” he said.
SoftBank paid $32 billion when it acquired the U.K.-based chip business in 2016. Mr. Son said the sale to Nvidia, under which SoftBank would have received both cash and Nvidia shares, could have been worth $80 billion because of a rise in Nvidia’s share price.
SoftBank now plans to pursue a public listing of Arm by March 2023. Arm shares will most likely be listed on the tech-heavy
Nasdaq Stock Market
in the U.S. because many of Arm’s clients are based in Silicon Valley, Mr. Son said.
He said SoftBank didn’t intend to keep Arm for itself because he wanted outside investors in the SoftBank-led Vision Fund, which owns a quarter of Arm, to be able to cash in through an IPO and because he wanted to give stock options as incentives to Arm employees.
Uncertainties linger around an Arm IPO, including whether the volatile semiconductor business will stay hot through this year.
Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon
Tech shares have fallen recently because of tightening by the Federal Reserve. Fumio Matsumoto, chief strategist at
Okasan Securities,
said that made the timing for a big IPO less than ideal, and he also observed that a strategic buyer in the chip industry might pay more for Arm because of the potential synergy effects.
Still, Mr. Matsumoto said the downturn in Silicon Valley also offered opportunities for Mr. Son, and it made sense to raise cash for his war chest from an Arm IPO. “Because technology share prices have gone through a sharp correction over the past year, we are seeing a good cycle to consider preparing” for new investments, Mr. Matsumoto said.
After a rough patch a few years ago, Arm is on track for $2.5 billion in revenue this fiscal year, which ends in March, up from $1.98 billion the previous year, SoftBank said. Arm’s operating profit, according to one type of calculation used by SoftBank, more than doubled over the past two years to a projected $900 million this fiscal year.
An array of consumer electronics companies as well as semiconductor companies, including
Apple Inc.,
Samsung Electronics Co.
and
Qualcomm Inc.,
use Arm’s designs in at least some of their chips. The designs are known for their low power consumption, making them nearly ubiquitous in mobile devices.
The collapse of the Arm deal is just one of the challenges Mr. Son is tackling in his globe-spanning investment portfolio. He said “we are in pain” over China’s crackdown on its big tech companies, which hit SoftBank investments including its most valuable one, e-commerce giant Alibaba Group Holding Ltd.
The past two years have seen some of the wildest swings in the four decades since Mr. Son started SoftBank. The pandemic, initially seen as a blow, soon emerged as a boon for many technology businesses including those in which SoftBank has invested. SoftBank shares surged, only to fall by half from their recent peak when the China troubles hit and the Arm deal ran aground.
SoftBank’s net asset value, Mr. Son’s preferred measure of the company’s finances, fell by ¥1.6 trillion, equivalent to about $14 billion, in the October-December quarter to ¥19.3 trillion. That is a fall of 30% from the peak in September 2020 and the lowest level since 2017.
Mr. Son blamed the sharp fall in Alibaba shares. The Chinese company, which once made up the majority of SoftBank’s net assets, now accounts for less than a quarter of the total.
SoftBank said it unloaded a small number of Alibaba shares to settle contracts with its lenders, but Mr. Son said SoftBank’s stake in the Chinese company remained close to a quarter.
Mr. Son, who turns 65 this year, has lost a number of top lieutenants in recent years, including Chief Operating Officer
Marcelo Claure,
who stepped down in January after a pay dispute. Mr. Son said that while he was grooming successors, he didn’t intend to step down soon.
“If I stop, I’d become an old grandpa very quickly,” he said. He boasted that when he went bowling recently, he topped 200 points in two different rounds—a fine score for an amateur. “I thought, ‘Hey, I’m still pretty young,’ ” he said.
—Sam Schechner in Paris contributed to this article.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com and Peter Landers at peter.landers@wsj.com
“The Matrix Resurrections” co-producer Village Roadshow Entertainment Group filed a lawsuit against Warner Bros., alleging the studio parent’s decision to release the movie simultaneously on HBO Max and in theaters was a breach of contract.
The suit, which was filed in Los Angeles Superior Court on Monday, is the latest indication of growing tensions between factions of the entertainment industry as major media companies give priority to direct-to-consumer streaming over traditional distribution platforms.
Warner Bros. parent WarnerMedia, a unit of
AT&T Inc.,
T -0.19%
put its entire 2021 slate of movies on its sister streaming service HBO Max at the same time as their theatrical release. The studio also moved the release date of “The Matrix Resurrections” to 2021 from 2022 in an effort to help HBO Max attract more subscribers, the lawsuit alleged.
“WB’s sole purpose in moving the release date of ‘The Matrix Resurrections’ forward was to create a desperately needed wave of year-end HBO Max premium subscriptions from what it knew would be a blockbuster film, despite knowing full well that it would decimate the film’s box office revenue and deprive Village Roadshow of any economic upside that WB and its affiliates would enjoy,” the suit said.
“The Matrix Resurrections” performed disappointingly at the box office, garnering only a fraction of the revenue generated by its predecessors.
Other films released during the pandemic performed well at the box office, including “Spider-Man: No Way Home,” which unlike “The Matrix Resurrections” wasn’t released on a streaming platform when it came out in theaters, the lawsuit said.
Keanu Reeves and Carrie-Anne Moss in the latest ‘Matrix’ movie.
Photo:
Warner Bros./Everett Collection
Moves by major media companies to give priority to their streaming services over other platforms have potentially significant financial implications for actors, producers and financial partners who fear that the push to streaming will come at their expense.
In July, actress Scarlett Johansson filed a lawsuit against
Walt Disney Co.
, alleging her contract to star in the Marvel movie “Black Widow” was breached when the media giant released the movie on its streaming service Disney+ at the same time as its theatrical launch.
Ms. Johansson, who argued her box office-based performance bonus was hurt by the Disney+ move, was seeking as much as $80 million in damages. Disney, which denied it violated her agreement, settled with Ms. Johansson in September.
In Monday’s lawsuit, Village Roadshow also alleges that Warner Bros. is attempting to cut the company out of future movies and TV shows based on characters or intellectual property that it has ownership stakes in. Village Roadshow said it has invested $4.5 billion in its more-than-two-decade partnership and co-financed many Warner Bros. hits including “Joker,” “American Sniper” and the “Matrix” franchise.
“WB has also been devising various schemes to deprive Village Roadshow of its continuing rights to co-own and co-invest in the derivative works from the films it co-owns,” the suit alleged.
In response to the lawsuit, a spokeswoman for Warner Bros. said: “This is a frivolous attempt by Village Roadshow to avoid their contractual commitment to participate in the arbitration that we commenced against them last week. We have no doubt that this case will be resolved in our favor.”
The partnership between the two companies does contain an arbitration clause to resolve disputes, but Village Roadshow said in the suit that it doesn’t apply in this case.
“Instead, the parties’ contracts expressly allow Village Roadshow to bring any action for injunctive or non-monetary relief in this Court, as they agreed that the arbitration agreement `shall not prevent any party from seeking injunctive relief and other forms of non-monetary relief in the state or federal courts located in Los Angeles County, California,’” the suit said.
The suit comes just weeks before AT&T is expected to close on its deal to combine the WarnerMedia assets with
Discovery Inc.
and create a new company dubbed Warner Bros. Discovery.
Village Roadshow has also been exploring strategic options including taking on investments or even selling itself, The Wall Street Journal previously reported.
Bradley Cooper starred in the 2014 movie ‘American Sniper,’ which Village Roadshow co-financed.
Photo:
Warner Bros./Everett Collection
When Warner Bros. unveiled its strategy to put its 2021 movie slate on HBO Max and in theaters, it said it was doing so both to boost the new streaming service and as a counterbalance the effects the Covid-19 pandemic had on the theatrical industry.
The studio earned the wrath of Hollywood producers and stars by not alerting them to the decision in advance. Many feared they would be shortchanged by the move and were openly critical of the studio.
Warner Bros. ended up cutting new deals with much of the talent involved in its 2021 slate, which cost the studio more than $200 million, the Journal previously reported.
No deal regarding “The Matrix Resurrections” was reached, and Village Roadshow said in its suit that not only was the box office for the movie cannibalized but that it was also a victim of “rampant piracy” that Warner Bros. “knew would come by distributing this marquee picture on a streaming platform on the same day as its theatrical release.”
Piracy has been on the rise since more films have been released on streaming platforms, according to firms that track such data. Theater owners have also been vocal about their concerns of increased piracy due to the streaming first strategy.
The issue over the release of “The Matrix Resurrections,” isn’t the only significant crack in Village Roadshow’s 25-year partnership with Warner Bros. It also claimed Warner Bros. is violating Village Roadshow’s rights to participate in projects derived from movies it co-produced.
Village Roadshow co-financed the 2019 film ‘Joker,’ starring Joaquin Phoenix.
Photo:
Niko Tavernise/Warner Bros./Everett Collection
Village Roadshow said Warner Bros. tried to force it to give up its rights in a TV series based on the movie “Edge of Tomorrow,” which it co-financed and co-produced.
“When Village Roadshow refused, WB said the quiet part out loud: it will not allow Village Roadshow to benefit from any of its Derivative Rights going forward, despite the over $4.5 billion it has paid WB to make and distribute 91 films. In other words, if Village Roadshow won’t give up its rights, WB will make sure they are worth nothing,” the suit said.
“Warner Bros. has a fiduciary duty to account to Village Roadshow for all earnings from the exploitation of the films’ copyrights, not just those it can’t hide through sweetheart deals to benefit HBO Max,” said Mark Holscher, a Kirkland & Ellis litigation partner who represents Village Roadshow.
Village Roadshow also said under its agreement with Warner Bros. it should have the option to partner in “Wonka,” a prequel to “Charlie and the Chocolate Factory” that it co-produced.
are exploring a possible sale of a significant stake or all of the CW Network, which they jointly own, according to people familiar with the matter.
Among the suitors is
Nexstar Media Group Inc.,
NXST -1.86%
the nation’s biggest broadcaster and a large owner of affiliates of the network, the people close to the talks said. The CW Network caters primarily to teens and young adults.
People close to the talks said they are far along and an agreement could be reached soon, though the talks could still fall apart. There are other interested parties as well, but the discussions with Nexstar are most advanced, they said.
The most prevalent scenario is Nexstar’s taking a controlling stake in the CW, with CBS and WarnerMedia remaining as minority owners and receiving commitments to be the primary program suppliers for the network, the people said.
CBS and WarnerMedia have been exploring strategic options for the CW Network for several months, some of the people involved in the talks said. The network isn’t profitable as a stand-alone broadcast entity, but the content produced for it is a valuable asset for other platforms at the parent companies.
Warner Bros., which produces some of the CW’s biggest shows, including “Riverdale,” has generated significant revenue selling the shows to
Netflix Inc.
over the years. Other popular shows on the CW include “All American” and “The Flash.”
Popular CBS-produced shows for the CW include “Walker,” based on intellectual property from the TV show “Walker Texas Ranger.”
With the launch of HBO Max, the WarnerMedia-owned direct-to-consumer streaming service, the CW shows made from Warner Bros. in the future will be funneled there.
AT&T is in the process of merging its WarnerMedia entertainment assets, which also include the cable networks TNT, TBS and CNN, with programming behemoth
Discovery Inc.
to create a separate company. The deal is expected to close in the spring.
For Nexstar, a controlling stake in the CW would represent a significant step in its content aspirations. It already has been investing heavily in a national cable news service called NewsNation.
ViacomCBS and WarnerMedia have been longtime partners in the CW Network since the merger of the UPN and WB networks in 2006.
