The cloud boom has finally reached a resting altitude, but Wall Street is doing anything but resting.
Amazon.com Inc.
AMZN,
-4.06%,
the original pioneer in cloud computing, confirmed Thursday what rivals Microsoft Corp.
MSFT,
-1.98%
and Alphabet Inc.
GOOGL,
-2.85%
GOOG,
-2.34%
suggested with their earnings reports earlier in the week: Cloud-computing growth has finally reached a plateau, as companies around the world cut costs to address the slowing economy. Amazon Web Services, the backbone of Amazon’s profit, saw revenue hit its slowest growth on record, and executives said that it will slow down even more.
“The back end of the quarter, we were more in the mid-20% growth range, so carry that forecast to the fourth quarter — we are not sure how it’s going to play out, but that’s generally our assumption,” Amazon Chief Financial Officer Brian Olsavsky told analysts after reporting quarterly growth of 27.5%.
It was a jarring slowdown for AWS, which recorded 33% growth in the second quarter, 37% growth in the first, 37% in the fourth quarter of 2021 and 39% growth a year ago. It shouldn’t have been too much of a surprise, though: Smaller rivals reported similar slowdowns earlier in the week.
Microsoft’s Azure cloud business grew 35% in its fiscal first quarter, down from 40% in the previous quarter and 50% the year before, and executives predicted another five-percentage-point fall this quarter. Alphabet’s Google Cloud is also slowing, even though it was the bright spot of double-digit growth in the disappointing quarter for the internet ad and search giant. Google’s Cloud Services grew 37.6% in the third quarter, up from 35.6% growth in the second quarter, but down from 43.8% in the first quarter, and 44.6% in the fourth quarter.
Regular readers of this column should also not be surprised, as we predicted three months ago (perhaps just a tad early) that a slowdown was coming. It probably should have happened in 2020, but the COVID-19 pandemic caused a rush of companies to boost their cloud services, as remote work suddenly made a move to the cloud essential for many businesses.
More recently, though, the largest businesses with the most complex workloads are shutting down or putting off major projects, and cutting their spending on the cloud-computing power they would have needed to support hem.
“There are three parts to the cloud slowdown,” said Maribel Lopez, principal analyst at Lopez Research, who joined MarketWatch in predicting a cloud-spending slowdown earlier this year. “One is related to reigning in and rationalizing the Wild West of spending that companies did during COVID to keep the lights on,” which is leading to the cutbacks we see now. Second, recent waves of cloud workloads by the industries that are still slow-rolling their move to the cloud — such as government, healthcare and education — “are the most complex, time consuming and challenging to move to the cloud quickly.” Lastly, is a general fear related to the macroeconomic environment, leading to cuts anywhere executives can find them.
Read also: The cloud boom is coming back to earth.
Wall Street has reacted swiftly and strongly, ripping more than $300 billion in market cap away from just Microsoft and Amazon this week, if Amazon’s steep decline in Thursday’s after-hours session persists. But this is where it helps to think about a longer-term view: Just because cloud growth is declining does not mean that the technology is still not core to the future.
Microsoft and Amazon will continue to develop and sell their cloud-computing offerings, and they will see healthy margins on them. Google is continuing to invest in its cloud business, adding 2,000 new employees via its acquisition of Mandiant last quarter, and executives said this week that businesses and governments are still in the early days of public cloud adoption.
“We’re pleased with the momentum in Cloud and do continue to be excited about the long-term opportunity,” Alphabet Chief Financial Officer Ruth Porat told analysts this week.
Many analysts agree. Dan Ives, an analyst with Wedbush Securities, said this week in a note about Microsoft that “the shift to cloud is still less than 50% penetrated.” Growth is slowing as inflation continues and the strong dollar outside the U.S. hits the revenue lines of many tech giants, causing many companies to pause in their spending, but that is a short-term problem.
Moving to a cloud provider is not for the faint of heart, and it is a transition that in some cases takes longer than expected. The same will hold true for investing in the cloud for the long term, even as there is some pain now. It’s still a massive and important part of the tech sector, an essential business that enabled companies to keep operating around the world during the pandemic. Whatever the future growth rate, the cloud appears here to stay.
projected sales in the current quarter would be far below expectations, sending its stock plunging and offering the latest stark sign of how shifting economic forces are battering tech giants that thrived during the pandemic.
The company on Thursday said sales in the recently completed third quarter rose 15% from a year earlier, while net income was $2.9 billion—its first quarterly profit in 2022, though still a 9% decline from the same period last year.
The e-commerce giant jolted investors with its projection for revenue of $140 billion to $148 billion in the current period—analysts had expected more than $155 billion, according to FactSet. Amazon, which said the estimate includes a sizable hit from foreign-exchange factors, also said it anticipated operating income of anywhere between zero and $4 billion, reflecting the uncertainty looming over what is traditionally its biggest quarter of the year because of holiday shopping.
The company’s shares fell more than 12% in after-hours trading following the results to trade near $97. At that level, Amazon’s valuation is below $1 trillion, which it first hit in 2018.
The disappointing outlook capped an extraordinary several days that also saw shares of other tech giants plummet after their results showed worsening conditions in a range of areas.
Shares of
Facebook
parent Meta Platforms Inc., already battered over the past year, dropped nearly 25% on Thursday after it reported its second quarterly revenue decline in a row a day earlier.
Microsoft Corp.’s
stock also fell after it delivered on Tuesday its worst net income decline in more than two years and the weakest revenue growth in over five years. Google-parent
Alphabet Inc.
similarly disappointed investors with slowing sales.
These tech companies flourished during the pandemic, as life and work suddenly shifted more to the internet, pushing up sales and spurring the already fast-growing companies to accelerate hiring and investment.
Now, one after another, engines that drove that growth are sputtering. Sales of personal computers and other gadgets are falling. Consumers, walloped by inflation, are broadly trimming their spending, while companies are tightening their outlays for everything from digital ads to IT services.
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“There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Amazon Chief Executive
Andy Jassy
said Thursday.
In the third quarter, Amazon’s online store sales rose 7% to $53.48 billion after falling in recent quarters. The segment includes product sales primarily on its flagship site and digital media content. Its online sales got a boost from its annual Prime Day sale, which this year fell in the third quarter where last year it was in the second quarter.
While still the nation’s largest online store, Amazon’s e-commerce division has struggled to grow this year. The company in the second quarter reported a 4% year-over-year drop in its online stores segment. That marked the largest drop since the metric was first reported in 2016.
This year, Amazon’s e-commerce machine—which has grown at breakneck speed for decade—has been showing signs that it could be entering a phase of slower growth. After a multibillion-dollar infrastructure build-out and hiring spree, it now has to contend with high inflation and concerns about a recession weighing on consumer spending.
Chief Financial Officer
Brian Olsavsky
said the company has entered a period of caution.
“We are preparing for what could be a slower growth period like most companies. We are going to be very careful on our hiring,” Mr. Olsavsky said during a call with reporters Thursday. “We certainly are looking at our cost structure and looking for areas where we can save money.”
He said Amazon is “seeing signs all around that people’s budgets are tight, inflation is still high.”
Analysts say the new challenges Amazon faces in e-commerce could linger.
Amazon has the largest share of online commerce, about 38%, but its market share has plateaued in recent years, according to market research firm Insider Intelligence. Analysts say the company’s size has made it unlikely the e-commerce unit’s growth would hit the same pace it once did. Amazon also is dealing with increased competition from
Walmart Inc.,
Target Corp.
and others.
Mr. Jassy has shifted toward cost-cutting. The company cut back on subleasing millions of square feet of excess warehouse space and put off opening new facilities while earlier thinning out its hourly workforce through attrition.
It enacted a hiring freeze through the end of the year at its corporate retail division, the segment that drives core sales and is responsible for a large part of this year’s slowdown. The company has paused hiring among some teams at its Amazon Web Services cloud-computing division.
While Amazon’s earnings continue to be aided by AWS and its expanding advertising business, growth slowed in the cloud business. AWS had sales of $20.5 billion during the third quarter, a 27% rise but one of the lowest rates of growth posted by the unit in recent quarters. Mr. Olsavsky said the company saw AWS customers “working to cut their bills.”
Amazon’s advertising revenues rose 25% to $9.5 billion.
Amazon is headed toward the end of the year with added challenges. After needing fewer blue-collar employees earlier in the year, it has looked to add more than 100,000 workers at its warehouses to meet the expected holiday demand. Still, that strategy has come with a cost. Amazon recently said it would spend $1 billion to raise average starting salaries to $19 an hour nationwide and is earmarking millions to raise wages and benefits for its delivery employees.
Consumers will be more likely to return to bricks-and-mortar stores for their holiday shopping this year, and economic concerns will likely weigh on spending, according to analysts. Amazon’s own
Jeff Bezos
seemed cautious about the future. He recently said it is time to “batten down the hatches,” referring to warning signs that the U.S. is headed for a recession.
Write to Sebastian Herrera at sebastian.herrera@wsj.com
are among the tech heavyweights featured in a packed week of earnings that investors will probe for indicators about the broader economy.
Other tech companies scheduled to report their latest quarterly reports include Google parent company
Alphabet Inc.
and
Microsoft Corp.
Investors also will hear from airlines such as
Southwest Airlines Co.
and
JetBlue Airways Corp.
, automotive companies
General Motors Co.
and
Ford Motor Co.
, and energy giants
Chevron Corp.
and
Exxon
Mobil Corp.
Nearly a third of the S&P 500, or 161 companies, are slated to report earnings in the coming week, according to FactSet. Twelve bellwethers from the Dow Jones Industrial Average, including
Boeing Co.
and
McDonald’s
Corp., are expected to report as well.
The flurry of results from a broad set of companies will give a sense of how businesses are faring as they deal with inflation denting consumer spending, ongoing supply-chain challenges and a stronger dollar.
People awaited the release of Apple’s latest iPhones in New York last month. The company will report quarterly results on Thursday afternoon.
Photo:
ANDREW KELLY/REUTERS
One area holding up to the challenges has been travel. Several airline companies have reported that consumers still have an appetite to spend on trips and vacations. On Friday,
American Express Co.
raised its outlook for the year in part because of a surge in travel spending.
“We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year,” American Express Chief Executive
Stephen Squeri
said.
In addition to airlines reporting, companies such as car-rental company
Hertz Global Holdings Inc.
and lodging companies
Hilton Worldwide Holdings Inc.
and
Wyndham Hotels & Resorts Inc.
will offer reads into leisure spending.
Overall, earnings for the S&P 500 companies are on track to rise 1.5% this period compared with a year ago, while revenue is projected to grow 8.5%, FactSet said.
Other companies will serve as a gauge for how consumers have responded to higher prices and whether they have altered their spending as a result.
Coca-Cola Co.
and
Kimberly-Clark Corp.
on Tuesday and
Kraft Heinz Co.
on Wednesday will show how consumers are digesting higher prices.
Mattel Inc.,
set to report on Tuesday, will highlight whether demand for toys remains resilient. Rival
Hasbro Inc.
issued a warning ahead of the holiday season.
United Parcel Service Inc.
will release its results on Tuesday and provide an opportunity to show how it is faring ahead of the busy shipping season. The Atlanta-based carrier’s earnings come weeks after rival
FedEx Corp.
warned of a looming global recession and outlined plans to raise shipping rates across most of its services in January to contend with a global slowdown in business.
Results from credit-card companies
Visa Inc.
and
Mastercard Inc.
will offer insights into whether inflation has finally put a dent in consumer spending after both companies reported resilient numbers last quarter.
Wireless carrier
T-Mobile US Inc.’s
numbers on Thursday will give more context to mixed results from competitors
Verizon Communications Inc.
and
AT&T Inc.
AT&T
issued an upbeat outlook on Thursday after its core wireless business exceeded the company’s expectations, whereas Verizon on Friday said earnings tumbled as retail customers balked at recent price increases.
Other notable companies lined up to report include
A new study has found that the COVID antiviral Paxlovid can interact badly with certain heart medications, raising concerns for patients with cardiovascular risk who test positive.
The study was published in the Journal of the American College of Cardiology and found the reaction involved such medications as blood thinners and statins. As patients who are hospitalized with COVID are at elevated risk of heart problems, they are likely to be described Paxlovid, which was developed by Pfizer
PFE,
-0.28%.
“Co-administration of NMVr (Paxlovid) with medications commonly used to manage cardiovascular conditions can potentially cause significant drug-drug interactions and may lead to severe adverse effects,” the authors wrote. “It is crucial to be aware of such interactions and take appropriate measures to avoid them.”
The news comes just days after the White House made a renewed push to encourage Americans above the age of 50 to take Paxlovid or use monoclonal antibodies if they test positive and are at risk of developing severe disease.
White House coordinator Dr. Ashish Jha told the New York Times that greater use of the medicine could reduce the average daily death count to about 50 a day from close to 400 currently.
“I think almost everybody benefits from Paxlovid,” Jha said. “For some people, the benefit is tiny. For others, the benefit is massive.”
Yet a smaller share of 80-year-olds with COVID in the U.S. is taking it than 45-year-olds, Jha said, citing data said he has seen.
On Thursday, the White House extended its COVID pubic health emergency through Jan. 11 as it prepares for an expected rise in cases in the colder months, the Associated Press reported.
The public health emergency, first declared in January 2020 and renewed every 90 days since, has dramatically changed how health services are delivered.
The declaration enabled the emergency authorization of COVID vaccines, as well as free testing and treatments. It expanded Medicaid coverage to millions of people, many of whom will risk losing that coverage once the emergency ends. It temporarily opened up telehealth access for Medicare recipients, enabling doctors to collect the same rates for those visits and encouraging health networks to adopt telehealth technology.
Since the beginning of this year, Republicans have pressed the administration to end the public health emergency.
President Joe Biden, meanwhile, has urged Congress to provide billions more in aid to pay for vaccines and testing. Amid Republican opposition to that request, the federal government ceased sending free COVID tests in the mail last month, saying it had run out of funds for that effort.
Separately, the head of the World Health Organization urged countries to continue to surveil, monitor and track COVID and to ensure poorer countries get access to vaccines, diagnostics and treatments, reiterating that the pandemic is not yet over.
Tedros Adhanom Ghebreyesus said most countries no longer have measures in place to limit the spread of the virus, even though cases are rising again in places including Europe.
“Most countries have reduced surveillance drastically, while testing and sequencing rates are also much lower,” Tedros said in opening remarks at the IHR Emergency Committee on COVID-19 Pandemic on Thursday.
“This,” said the WHO leader, “is blinding us to the evolution of the virus and the impact of current and future variants.”
U.S. known cases of COVID are continuing to ease and now stand at their lowest level since late April, although the true tally is likely higher given how many people overall are testing at home, where the data are not being collected.
The daily average for new cases stood at 38,530 on Thursday, according to a New York Times tracker, down 19% from two weeks ago. Cases are rising in six states, namely Nevada, New Mexico, Kansas, Maine, Wisconsin and Vermont, and are flat in Wyoming. They are falling everywhere else.
The daily average for hospitalizations was down 7% at 26,665, while the daily average for deaths is down 7% to 377.
The new bivalent vaccine might be the first step in developing annual Covid shots, which could follow a similar process to the one used to update flu vaccines every year. Here’s what that process looks like, and why applying it to Covid could be challenging. Illustration: Ryan Trefes
Coronavirus Update: MarketWatch’s daily roundup has been curating and reporting all the latest developments every weekday since the coronavirus pandemic began
Other COVID-19 news you should know about:
• Federal Health Minister Karl Lauterbach has urged German states to reintroduce face-mask requirements for indoor spaces due to high COVID cases numbers, the Local.de reported. Lauterbach was launching his ministry’s new COVID campaign on Friday. “The direction we are heading in is not a good one,” he said at a press conference in Berlin, adding it’s better to take smaller measures now than be forced into drastic ones later.
• Health officials in Washington and Oregon said Thursday that a fall and winter COVID surge is likely headed to the Pacific Northwest after months of relatively low case levels, the AP reported. King County (Wash.) Health Officer Dr. Jeff Duchin said during a news briefing that virus trends in Europe show a concerning picture of what the U.S. could soon see, the Seattle Times reported.
Two banners unfurled from a highway overpass in Beijing condemned Chinese President Xi Jinping and his strict Covid policies, in a rare display of defiance. The protest took place days before the expected extension of the leader’s tenure.
• Kevin Spacey’s trial on sexual-misconduct allegations will continue without a lawyer who tested positive for COVID on Thursday, Yahoo News reported. The “American Beauty” and “House of Cards” star is on trial in Manhattan federal court facing allegations in a $40 million civil lawsuit that he preyed upon actor Anthony Rapp in 1986 when Rapp was 14 and Spacey was 26. Jennifer Keller’s diagnosis comes after she spent about five hours cross-examining Rapp on the witness stand over two days — a few feet away from the jury box without wearing a mask.
• A man who presents himself as an Orthodox Christian monk and an attorney with whom he lived fraudulently obtained $3.5 million in federal pandemic relief funds for nonprofit religious organizations and related businesses they controlled, and spent some of it to fund a “lavish lifestyle,” federal prosecutors said Thursday. Brian Andrew Bushell, 47, and Tracey M.A. Stockton, 64, are charged with conspiracy to commit wire fraud and unlawful monetary transactions, the U.S. attorney’s office in Boston said in a statement, as reported by the AP.
Here’s what the numbers say:
The global tally of confirmed cases of COVID-19 topped 623.9 million on Monday, while the death toll rose above 6.56 million, according to data aggregated by Johns Hopkins University.
The U.S. leads the world with 96.9 million cases and 1,064,821 fatalities.
The Centers for Disease Control and Prevention’s tracker shows that 226.2 million people living in the U.S., equal to 68.1% of the total population, are fully vaccinated, meaning they have had their primary shots. Just 110.8 million have had a booster, equal to 49% of the vaccinated population, and 25.6 million of those who are eligible for a second booster have had one, equal to 39% of those who received a first booster.
Some 14.8 million people have had a shot of the new bivalent booster that targets the new omicron subvariants.
is paying $17.90 a share in cash for Poshmark, the companies said. Poshmark priced its initial public offering at $42 a share in January 2021 and the shares more than doubled on their first day. The stock has slumped since and closed Monday at $15.57.
The transaction values Poshmark at about $1.6 billion, including about $580 million of cash reserves, Naver said. Poshmark’s peak market capitalization was $7.3 billion, which it hit on the day it went public, according to FactSet.
Poshmark looks and behaves much like Instagram, motivating sellers to give and receive comments and “likes” and allowing users to follow their favorite sellers. Similar to
eBay Inc.,
EBAY 1.11%
sellers take photos of their own items and sell them directly. Poshmark collects fees on sales on its marketplace but doesn’t hold any inventory.
While the Covid-19 pandemic gave a boost to online shopping, Poshmark’s losses have widened and its revenue growth has slowed this year. After reaching $90.9 million in revenue in the March quarter, revenue edged down to $89.1 million in the June quarter and Poshmark forecast it would come in between $85 million and $87 million for the September quarter.
How will the pandemic affect America’s retailers? As states across the nation struggle to return to business, WSJ investigates the evolving retail landscape and how consumers might shop in a post-pandemic world.
Naver is South Korea’s largest web portal and operates as a major search engine ahead of Google locally. It also offers mobile payments and online shopping. Outside Korea, Naver is behind the Line messaging app and is a major operator of webtoons, or digital comics made for reading on online and mobile platforms. In 2021, the South Korean company acquired Wattpad, a Toronto-based storytelling platform, for $600 million.
The companies said the Poshmark transaction is expected to close by the first quarter of 2023. The Redwood City, Calif., company will become a stand-alone U.S. subsidiary of Naver. Poshmark’s founder and Chief Executive
Manish Chandra
and his team will continue to lead the company.
Founded in 2011, Poshmark has billed itself as a way to marry sustainable commerce with social media and says it has more than 80 million registered users. The number of active buyers—people who purchased on the site in the past 12 months—was about 8 million in the last quarter, the company reported. It faces competition from
Etsy Inc.,
eBay,
ThredUp Inc.,
the
RealReal Inc.,
Facebook Marketplace and other marketplaces that let people buy or sell secondhand goods.
The companies said the combination would help Poshmark expand into Korea and other parts of Asia. Poshmark currently offers its app to users in the U.S., Canada, Australia and India. It would also give Naver a bigger foothold in the U.S. market.
Naver expects the deal will enable savings totaling around $30 million for the two companies. That includes gains from reducing redundant costs and Poshmark’s expected gains from accessing Naver’s live-commerce solutions and other technologies, said Kim Nam-sun, Naver’s chief financial officer, in a conference call.
Naver’s shares fell by nearly 9% on Tuesday following news of the Poshmark acquisition.
At a press conference in Seoul, Naver CEO
Choi Soo-yeon
played down the stock slide. The purchase was made at a very reasonable price, she said, expressing confidence that the so-called customer-to-customer market that Poshmark operates in would continue to grow in the years ahead.
With the acquisition, Naver expects to help Poshmark improve its marketing campaigns and to pursue partnerships with the South Korean company’s own offerings. As an example, Ms. Choi cited Weverse, an online marketplace for K-pop merchandise it jointly owns with HYBE Co., the agency behind boy band BTS.
“We will continue to pursue new projects and study the best ways to create service synergies between the two firms,” Ms. Choi said.
A few years from now, in addition to deciding your next vehicle’s make and model, you may have another tough choice: the Google model or the
Apple
AAPL -3.00%
one? Other options may include “car maker generic” and even, I’m spitballing the name here:
Amazon
Prime Edition.
Now that cars, especially electric ones, are becoming something like smartphones on wheels, some of the dynamics that played out in the early days of the mobile industry are playing out in the auto industry. Competition between the two kingpins of the smartphone industry has in the past couple of years gained new momentum, with Google racking up auto-maker partnerships for the automobile-based version of its Android operating system, and Apple teasing plans to expand its software capabilities in the car.
For the car companies involved, which face the nearly impossible challenge of producing software on par with what tech companies offer, working with Silicon Valley can address consumer desires while also staving off competition from companies like Tesla. And yet there is an inherent tension in these partnerships over who controls the user experience and the valuable data produced.
Taken together, these forces mean that every car maker is having to navigate a delicate balance between doing things in-house and signing partnerships that cede control, and potentially some sources of revenue. These choices are leading to a vast and confusing new ecosystem in which “mobile” device refers to the car, and not just the phone. Until now, consumers didn’t need to care about what software was running in their car, but increasingly, they may.
For the average driver, this could mean cars that operate with much more familiar, and functional, software. But it may also extend the limited choice that now exists in the duopoly of smartphone operating systems, with implications for later selling a vehicle, or switching to a different smartphone ecosystem. Imagine car listings that say “60k miles, runs great, supports up to Apple CarOS v 3.1, sorry Android users, get an iPhone already!!”
Google’s head start
To understand what’s happening to the tech that controls our cars, Google’s aggressive moves are a good place to start.
Software increasingly controls most aspects of our cars, from driver-assist systems maintaining the vehicle’s speed and heading on the highway to the code and computers that assure the car comes to a stop when we step on the brakes—or the car does the braking for us.
But the auto-operating system competition so far centers on the infotainment system that shows us everything from maps to movies on the road.
Google and Apple both have systems—called Android Auto and CarPlay—that mirror phone apps on vehicles’ displays.
Google has gone further. In 2017, it announced Android Automotive (yes, the name is very similar), which is an operating system installed in the vehicle itself that controls its built-in infotainment system, rather than just displaying a version of a phone’s screen. Android Automotive is the thing that turns the screens in many new vehicles into what is more or less an Android-powered tablet that runs Android apps customized for cars. Auto makers can also license Google’s own apps and services, like Maps and Assistant, through an arrangement it calls Google Automotive Services, although this is optional.
Android Automotive can do much more than Android Auto, by gathering all sorts of data from other parts of the car, like its speed, battery status, heating and air conditioning, and pretty much anything else an auto maker wants to make available to Google’s software.
Apple’s next-generation CarPlay software will allow drivers to customize the look of instrument clusters on their vehicle in the same way they can change faces on the Apple Watch.
Photo:
Apple
Android Automotive replaces the often less-than-great customized software that car makers have in the past put on their vehicles’ infotainment systems. For example,
Ford’s
widely derided Sync infotainment system started as a partnership with
Microsoft,
until Ford switched to
BlackBerry’s
QNX unit in 2014. Last year, Ford announced it would be switching infotainment-software providers again, this time to Google’s Android Automotive, starting with cars sold next year. In 2020, the first vehicle running Android Automotive went on sale in the U.S.—the Polestar 2, from Volvo’s electric-vehicle unit.
To date, Google has announced partnerships with nearly a dozen auto makers and auto-parts suppliers, including
Stellantis,
Honda,
BMW,
Renault-Nissan-Mitsubishi and General Motors’ GMC and Chevrolet brands. Other auto makers have announced they are using Android Automotive, which is open source, without entering partnerships with Google, including electric-vehicle startups like Lucid Motors.
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What auto makers get out of using Android Automotive is a ready-made operating system for their cars maintained by a company with the resources to continually update that software, taking care of small but important details like staying current with new wireless standards. And what Google gets out of this arrangement is that it makes it easier for the company to offer its services on a wide variety of vehicles, says Haris Ramic, who has led Google’s Android Automotive team since it started in 2015.
This also means more people using Google’s services, like Maps or its Assistant. Nearly everyone who buys one of the hundreds of millions of vehicles that are slated to run Android Automotive will, from the perspective of its user interface and the apps that can run on it, be buying an Android smartphone with wheels.
Apple isn’t standing still
The software transformation of cars is still in its early days, and it’s hard to predict how it will play out. But one possible outcome is that many auto makers will end up offering cars with infotainment systems built by Google or Apple that have little modification by the auto maker, says Kersten Heineke, a Germany-based partner at McKinsey who consults with automotive clients.
Several major auto makters have said they plan to use Qualcomm’s chips in future vehicles.
Photo:
Qualcomm
Apple hasn’t announced an equivalent of Android Automotive—that is, software that auto makers can license to run on their vehicles, whether or not an iPhone is connected to them. And as with all its future plans, the company is very guarded about what it says publicly.
However, a demo of the next generation of its iPhone-mirroring CarPlay software in June at Apple’s developers conference, including renderings of the interface of a future vehicle, points to much deeper, and even perhaps Android Automotive-level integration with cars in the future. Some analysts have taken to calling Apple’s hypothetical future in-vehicle software “CarOS.”
Apple has announced more than a dozen launch partners for the next generation of CarPlay, starting with models that go on sale in 2023, including Volvo, Ford, Honda, Renault, Mercedes and Porsche.
For Apple to license its software to auto makers would be almost unprecedented in the history of the company. Apple has long focused on controlling both hardware and software in its devices. On the other hand, failing to offer something like a CarOS to compete with Android Automotive could put Apple at the mercy of Google in hundreds of millions of automobiles, since Google will control the operating system on which Apple’s CarPlay phone-mirroring software runs. Currently, some Volvo and Polestar vehicles can run Apple’s CarPlay on Android Automotive, but this is a much shallower integration than acting as the actual operating system running parts of the car.
In its June presentation, Apple showed off new CarPlay software taking over the instrument cluster of a vehicle, including gauges like speed, RPM and charge status.
Such displays of instruments and driving-critical systems generally have to be deeply integrated—physically, in terms of the hardware that controls them—into a vehicle to meet international safety standards for vehicles, says Isaac Trefz, a former software engineer at BMW and now product manager at OpenSynergy, which makes software that helps the computers in cars juggle all the different things being asked of them.
It’s likely that Apple has found some kind of compromise with auto makers in which manufacturers build their systems so they can take on some of the work required to make next-generation CarPlay work, according to
Chris Jones,
an automotive-market analyst at Canalys. In any event, the next CarPlay represents a much deeper level of integration than Apple has asked of auto makers in the past, he adds.
While some auto makers might balk at what are likely to be Apple’s strict requirements for how they make next-generation CarPlay available in their vehicles, the sheer weight of customer demand—there are after all close to a billion iPhone users worldwide—has clearly forced some to work with Apple on Apple’s terms, says Mr. Jones.
Here comes everybody
At the same time, many manufacturers are building their own operating systems to control their cars. Volvo is an illustrative case. The company runs Android Automotive on its infotainment centers, and keeps it separate from VolvoCars.OS, the software developed in-house to stitch together all the systems of the vehicle, says David Holecek, director of digital experience at Volvo Cars, which is owned by China’s Zhejiang Geely Holding. All of that runs on an assortment of hardware from traditional auto-parts makers, and newer entrants like
Nvidia
and
Qualcomm,
depending on the vehicle make and model, he adds.
Some auto makers, like Lucid, have opted to combine Android Automotive with Amazon’s Alexa assistant. Stellantis, which owns 14 automotive brands, including Jeep, Chrysler, Maserati and Alfa Romeo, uses Android Automotive on some of its vehicles, and in January announced a partnership with Amazon to make a variety of that company’s services available in vehicles.
“The way we think about this is that we want to develop our own software going forward,” says
Yves Bonnefont,
chief software officer at Stellantis. “We decided we want to own our future in terms of software development.” Even so, Stellantis sees partnerships with companies like Amazon—and its use of customized versions of the Android Automotive operating system—as a way to save time and resources, and focus on creating unique software experiences in its vehicles, tailored to the kinds of customers each attracts.
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This hodgepodge of software and systems will remain the norm for some time, says Mr. Heineke of McKinsey. There are just too many safety-critical systems in cars, and too many new features—like in-dash entertainment and ever-more-sophisticated driver assist—for one company to do it all, even if that company is Google, Apple or Amazon. On top of that, no one has any idea what the future of these systems will be in a world in which all three of these companies might be trying to displace the personal car as we know it with robotaxis—courtesy of Google-related Waymo, Amazon-owned Zoox and whatever Apple is working on.
However this plays out, it won’t happen nearly as quickly as the mobile ecosystem battles of yore did, among iOS, Android and Fire Phone—remember that?
“The automotive industry is very conservative,” says Mr. Trefz, a veteran of decades of designing hardware and software-based systems that control cars. “So if someone says, ‘This is going to happen in the next five years,’ it’s probably more like 20.”
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Shoppers are finding more empty space on store shelves, but not because the retailer is out of stock. In many cases, the items are locked away to prevent theft.
At a
Best Buy Co.
BBY -5.03%
store in the suburbs of Houston, hundreds of items including Bose speakers and Fitbit activity trackers have been replaced by small blue signs that read, “This product kept in secured location,” and ask shoppers to find store workers for help.
“There used to be a lot more on the floor itself than locked up in cages,” said
Gary Pearce,
a 47-year-old manager at a disaster restoration company who shops in the store weekly.
The store is a sign of an endemic challenge for retailers: how to stop theft without shrinking profits or inconveniencing shoppers. Retailers have long dealt with theft, and frequency is down from a peak last winter for some, said retail executives. But theft attempt levels are higher than they were before the pandemic.
Many large retailers, including
Home Depot Inc.,
HD -1.61%
have been locking up more items while testing other solutions. They track high-risk goods and lock up items in regions or stores being hit hardest, retail executives say.
Best Buy
BBY -5.03%
says it isn’t locking up more items overall than in the past, but continues to do so where needed.
It is a tactic that risks annoying customers and investors. In July a Best Buy analyst recommended selling the company’s stock after he observed conditions in dozens of stores and found items locked up or missing from shelves.
At Best Buy stores, less than 5% of its products are locked up or in backrooms for theft-protection reasons, about the same percentage as previous years. A Best Buy store in Lone Tree, Colo.
Photo:
David Zalubowski/Associated Press
“Putting products in cages certainly deters theft, but it probably hinders sales,” said R5 Capital CEO
Scott Mushkin
in the report titled “Heartbreaking.” Some stores, like one in Danbury, Conn., were in good shape, said the report, while others were messy or didn’t have enough items easily available for shoppers to buy.
Best Buy declined to comment on the research.
Around $69.9 billion worth of products were stolen from retailers in 2019, according to the most recent data from the Retail Industry Leaders Association, which surveyed members.
Theft surged after stores reopened early in the pandemic, retail industry executives say. In part, the rush to buy more online during that period led to more demand online for stolen goods, they say. In some cases stores have been understaffed due to the tight labor market or staffing choices, which means fewer watchful eyes, say some executives. In addition, well-organized theft groups working regionally have become prevalent, making the problem harder to solve than run-of-the-mill shoplifting.
Many retailers use a risk algorithm to determine which items to lock up and in what locations. A high-value item that is frequently stolen is a good candidate, say executives. Retailers often try other deterrents first, like moving a product closer to staffed registers, attaching an alarm that is removed at checkout or using more visible security staff.
Less-expensive items can get similar treatment. “For a store to be locking things up like toothpaste, Spam or honey, they would have had to have been repeatedly targeted over a period of time,” said
Ben Dugan,
director of organized retail crime at
CVS Health Corp.
and president of the Coalition of Law Enforcement and Retail, a group that facilitates planning between retailers and law enforcement.
Home Depot
has been locking up more products during the past 12 months as a stopgap while testing more customer-friendly, higher-tech solutions, according to the company.
“It’s a triage-type scenario. It’s stop the bleeding and give yourself some time,” said
Scott Glenn,
vice president of asset protection at Home Depot.
Overall theft attempts at Home Depot continue to rise compared with before the pandemic, Mr. Glenn said. Shoppers don’t like when items are locked and Home Depot tries to avoid it, he said. But after a high-theft item is locked up, sales gradually go up because the store stays more consistently in-stock, Mr. Glenn said. In stores where Home Depot has aggressive theft deterrents, it has reduced loss to theft, he said.
Best Buy has long locked up some products as a large retailer of high-value electronics, say executives. Across all U.S. stores, less than 5% of its products are locked up or in backrooms for theft-protection reasons, about the same percentage as previous years, said
Damien Harmon,
executive vice president of omnichannel for the company.
Included in the 5% figures is a tactic Best Buy started using last winter as retail theft jumped, he said. The company replaced some products on shelves with QR codes so shoppers could scan, then head to registers to pay and pick up the product.
In some locations including the Houston Best Buy—which sits in an area where many local stores face elevated levels of crime, according to data from the local police department—the share of locked items can be higher. Shopper Mr. Pearce said he understood the extreme measures given the threat of theft.
Best Buy’s store inventory is being held differently than it has in the past, with less on floors due to more buying online, said Mr. Harmon. Products are brought to shoppers directly, which has the added benefit of also reducing theft, said Mr. Harmon.
After an item is locked, Best Buy watches sales trends and doesn’t get many comments about products being locked up, said Mr. Harmon. The company is also experimenting with training store staff to stand near high-theft items, he said. Its internal customer experience scores for stores are at a 15-year high, said a spokeswoman.
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InVue, a Charlotte, N.C., company that sells retailers locked glass cabinets, tracking sensors and software, late last year started getting requests from retailers asking for more customer-friendly options, said
Chris Gibson,
InVue’s chief product and marketing officer.
InVue is pitching more automated solutions that are more aesthetically pleasing or make it easier for store workers or shoppers to unlock a product quickly. Locking down products “became this draconian thing” during the pandemic, said Mr. Gibson. “A lot of our partners are saying, maybe that was a bridge too far.”
Browsing videogames at the local Best Buy used to be fun, said
Zion Grassl,
a 30-year-old video producer for a videogame website. Over the summer his local Best Buy in Eugene, Ore., removed the physical videogames from store shelves, he said, swapped with photocopy images of the front of the box that provide less information about the game.
Mr. Grassl said he understands the need to protect products from theft, but the change ruins the experience of browsing for something you didn’t know you needed.
“You still have this physical representation to look at, but it’s almost like they don’t want you to come in anymore,” he said.
Best Buy declined to comment on Mr. Grassl’s views.
Write to Sarah Nassauer at Sarah.Nassauer@wsj.com and Benoît Morenne at benoit.morenne@wsj.com
Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and
Warren Buffett’s
conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.
The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.
Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.
Photo:
Michelle Bishop/Bloomberg News
“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”
Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and
Jeff Bezos
at Amazon.
Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.
Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.
The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.
Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.
Photo:
Jay Biggerstaff/USA TODAY Sports
Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.
The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.
According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and
Ford Motor Co.
at $1.9 billion.
Add the next three companies and that reflects more than half the $31.8 billion total:
AT&T Inc.
at $1.5 billion,
eBay Inc.
at $1.3 billion, and
Moderna Inc.
at $1.2 billion.
Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.
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An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.
Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said
Jamey Mock,
the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.
Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.
Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.
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Exelon Corp.
is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.
Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.
Lynn Good,
chief executive of
Duke Energy Corp.
, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.
Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.
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Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.
“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.
Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.
“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.
Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.
By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.
“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.
“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.
Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com
according to people familiar with the situation, as healthcare heavyweights scramble to snap up primary-care providers.
The talks are serious and a deal to purchase Cano could be struck in the next several weeks, assuming the negotiations don’t fall apart, some of the people said. Cano shares, which had been down nearly 7%, turned positive and closed up 32% after The Wall Street Journal reported on the talks with Humana and other unnamed parties, giving the company a market value of roughly $4 billion.
Bloomberg subsequently reported CVS’s interest.
It couldn’t be learned which other potential buyers might be in the mix, but Cano could be Humana’s to lose as the health insurer has a right of first refusal on any sale, part of an agreement that was originally struck in 2019.
Miami-based Cano operates primary-care centers in California, Florida, Nevada, New Mexico, Texas, Illinois, New York, New Jersey and Puerto Rico, according to documentation from the company. It mainly serves Medicare Advantage members, a private-sector alternative to Medicare for seniors.
Ties between the companies run deep: Cano was Humana’s biggest independent primary-care provider in Florida, serving over 68,000 of its Medicare Advantage members at the end of last year, according to a securities filing. Cano also operated 11 medical centers in Texas and Nevada for which Humana is the exclusive health plan for Medicare Advantage, the filing added.
Humana has already established a footprint in primary care, which it continues to expand. Earlier this year, its CenterWell Senior Primary Care business joined with private-equity firm Welsh, Carson, Anderson & Stowe to open about 100 new senior-focused primary-care clinics between 2023 and 2025, building on an earlier, similar partnership.
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Deals
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At its investor day last week, Humana’s chief executive,
Bruce Broussard,
said that the company sees a total addressable market of over $700 billion in “value-based” primary care for seniors. He noted that Humana has accelerated its investment in the sector over the past five years, becoming the nation’s largest senior-focused primary-care provider.
There has been a frenzy of deal making involving large companies scooping up primary-care assets as a means of getting closer to patients and providing them more personal service.
Amazon.com Inc.
agreed to purchase the parent of primary-care clinic operator One Medical for about $3.9 billion in July, while CVS Health Corp. agreed to buy
Signify Health Inc.
for $8 billion earlier this month.
Cano went public in 2020 through a special-purpose acquisition vehicle backed by real-estate investor
Barry Sternlicht,
who sits on its board. The deal valued the company at $4.4 billion.
Cano has been the target of two shareholder activists this year, both of which independently pushed for its sale.
Dan Loeb’s
Third Point LLC currently has a roughly 5% stake in the healthcare company. In March, he pointed to the market’s unfavorable view of companies that went public through SPACs as a reason to explore strategic alternatives.
Then in late August, Owl Creek Asset Management LP sent a letter to Cano’s board stating that it had amassed a roughly 4% stake and urged the company to hire investment bankers to explore a sale to a strategic buyer.
Cano has been backed by health-care-focused private-equity firm InTandem Capital Partners since 2016. The firm mainly makes investments in small-to-midsize companies.
—Cara Lombardo contributed to this article.
Write to Laura Cooper at laura.cooper@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com
is in advanced talks to acquire the home-healthcare company
Signify Health Inc.
SGFY 1.34%
for around $8 billion, according to people familiar with the matter.
CVS appears to have beat out other heavy hitters including
Amazon.com Inc.
and
UnitedHealth Group Inc.,
which had been circling Signify for a deal that could be announced soon. UnitedHealth never submitted an official bid, one of the people said.
There is still no guarantee that CVS will reach a deal for Signify, which has been exploring strategic alternatives since earlier this summer.
Bids for the company were due Sept. 6, but people familiar with the matter have said that an eager buyer could make a move before then.
Signify’s valuation has ballooned since The Wall Street Journal reported in August that it was for sale. Shares of the company closed at $28.77 on Friday, giving it a market capitalization of roughly $6.7 billion.
Signify works with a large group of doctors to facilitate house calls. It uses analytics and technology to help physician groups, health plans, employers and health systems with in-home care. It offers health evaluations for Medicare Advantage and other plans.
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At the close of its deal this year to buy Caravan Health, Signify said that it supported roughly $10 billion in total medical spending.
The company went public in February 2021, raising more than $500 million as a result of the offering. On the day of its initial public offering, shares of the company priced above its expected range, at $24.
New York-based New Mountain Capital has backed Signify since 2017. The firm—which had more than $37 billion in assets under management as of early August—has steadily expanded Signify through a series of mergers and acquisitions since its initial investment.
New Mountain is well-versed in the healthcare sector. It previously sold the healthcare payments firm Equian LLC to UnitedHealth for roughly $3.2 billion in 2019.
For CVS, the deal builds on an effort years in the making to transform itself into a major provider of healthcare services through acquisitions and expanded medical services. The company had been struggling to counter slowing revenue from prescription drugs, which drive the bulk of its sales, and to ward off competition from
Amazon
AMZN -0.24%
for retail dollars.
CVS, the nation’s largest drugstore chain by stores and revenue, acquired Aetna in 2018, arguing that melding the insurance company’s patient data with its network of nearly 10,000 bricks-and-mortar sites would squeeze out costs while improving care and convenience.
The strategy has paid off, buoyed by a surge in demand for Covid-19 vaccines and tests at the height of the pandemic. CVS’s market capitalization has grown to more than $130 billion from around $75 billion since the Aetna deal.
The line between Amazon and Walmart is becoming increasingly blurred, as the two companies seek to maintain their slice of the estimated $5 trillion retail market while chipping away at each other’s share, often by borrowing ideas. Photos: Amazon/Walmart
The company is outperforming
Walgreens Boots Alliance Inc.,
which opted against major acquisitions, in the years since. Walgreens, also racing to expand into healthcare, focused largely on partnerships rather than deals. But last year it bought a controlling stake in the primary-care network Village MD, giving it doctors’ offices that CVS had said it could do without.
CVS Chief Executive
Karen Lynch
has since said that the company must have a foothold in primary care if it is to become a full-service medical provider.
CVS had previously been interested in a deal for the parent of One Medical, people familiar with the matter have said.
Amazon
AMZN -0.24%
agreed to purchase the primary-care clinic operator for about $3.9 billion in July.
The Federal Trade Commission is currently investigating the deal. The parent company of One Medical,
1Life Healthcare Inc.,
disclosed the investigation in a securities filing. The disclosure said One Medical and Amazon each received a request for additional information about the deal from the FTC.
While Wall Street has largely focused on CVS’s efforts to acquire primary-care practices, executives have also discussed ambitions to expand its in-home health presence.
A deal for Signify would represent a bright spot in an otherwise lackluster run for deals lately. Deal volumes globally are down roughly 30% this year after a flurry of activity last year, because of a drop in companies’ valuations, market volatility and other factors including Russia’s war in Ukraine.
Healthcare deal making in particular has slowed more than many other sectors. Over $200 billion of healthcare deals announced so far this year has compared with over $400 billion at this time last year, according to Dealogic. The largest healthcare deal to date this year in the U.S. is
Pfizer Inc.’s
$11.6 billion agreement in May to purchase the rest of
Biohaven Pharmaceutical Holding Co.
Write to Laura Cooper at laura.cooper@wsj.com, Sharon Terlep at sharon.terlep@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
