Facebook Earnings Preview: What to Watch for on Wednesday

Facebook reports its fourth-quarter earnings on Wednesday afternoon and the social media giant is once again expected to post huge revenue growth.

The company’s mobile ad sales continue to ensure that Facebook’s financial performance is the picture of health even as other factors—including the spread of online misinformation, fake accounts, and concerns over the well-being of its own users—paint less of a rosy image of the company in the eyes of the world. In short, Facebook is making money hand-over-fist, but CEO Mark Zuckerberg still has plenty of concerns on his plate, including some that could be discussed on tomorrow’s earnings call.

Here are some things to look for when Facebook reports results from its most recent quarter on Wednesday.

Revenue growth, spending growth

Wall Street expects Facebook to report fourth-quarter revenue of roughly $12.55 billion, which would be up more than 42% over the same period in the previous year, while adjusted earnings per share are expected to jump by almost 38% to $1.94. While the social media giant’s primary financial lines are not expected to disappoint, one area that investors will be watching closely on Wednesday will be Facebook’s forecasted operating expenses for the rest of 2018. Last fall, the company’s announcement that it expected operating expenses to rise 45% to 60% in 2018—in part, due to increased spending on security measures, extra workers to police what’s posted on the service, and on original programmingcaused shares to drop briefly after the previous earnings report. Investors will undoubtedly be hoping to see Facebook lower that forecast.

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Algorithm changes

Facebook shares also took a hit earlier this month after the company announced its huge new changes to the service’s news feed, where Facebook will begin to show fewer posts from news organizations and marketers in favor of more content from users’ friends and family. The changes are sure to be a topic of discussion on Wednesday’s earnings call, as investors and analysts seek more detailed information about how the shift could affect Facebook’s bottom line, specifically with regard to its ad business. While some have reported that Facebook’s engagement rates have slipped of late, Zuckerberg said the recent moves are aimed at improving the quality of users’ experiences on the social network at a time when there are increasing concerns over social media’s effects on mental health.

And, speaking of news on Facebook, Zuckerberg also said recently that he wants to boost local news sources on users’ news feeds while also finding out about individuals’ most trusted news sources. So far, those in the news industry have been skeptical, including Fortune‘s Adam Lashinsky.

Progress on messaging and video

Zuckerberg said last year that he wants to move faster in monetizing messaging apps Facebook Messenger and WhatsApp, both of which have well over a billion monthly active users. Both apps have added a number of new features in the past year, including those aimed at getting users to engage with businesses online, so investors will be looking for some more optimism from Facebook on that front. Meanwhile, the company has invested a fair amount in its Watch online video platform, including landing original programming for the service, and Facebook may share some updates on how Watch is performing with users as part of its earnings report.

China's Wanda Commercial gets $5.4 billion from Tencent-led investors

HONG KONG (Reuters) – Chinese conglomerate Dalian Wanda Group’s debt-laden commercial property arm will receive a boost from a group of investors, led by technology giant Tencent Holdings, that is set to buy a 14 percent stake in the company for $5.4 billion.

The group, including Suning Commerce Group, JD.com Inc and Sunac China, will buy the stake for 34 billion yuan from investors who purchased the interest when the company was delisted from the Hong Kong bourse in 2016.

The deal will help Wanda Commercial ease imminent capital pressures and repay old investors in the buyout fund created for the delisting. Those investors had been promised up to 12 percent annual interest if Wanda Commercial failed to relist in Shanghai within two years.

The company was delisted when Wanda Group took it private with a $4.4 billion fund, with a view to relist in Shanghai to achieve better share price performance.

Wanda Commercial needs to make a $510 million payment on a syndicated loan by the end of March. It has a further $1 billion to repay by the end of May and has $600 million in offshore notes due in November, ratings agencies have said.

Wanda Group said on Monday that it would receive HK$10.32 billion ($1.3 billion) from the disposal of London, Sydney and Gold Coast developments.

In a statement later on Monday evening, Wanda Group said that, after the introduction of the new strategic investors, Wanda Commercial would be renamed Wanda Commercial Management Group and would aim to complete previously earmarked asset sales in the next one to two years.

“Going forward, it will stop engaging in property development and will transform into a company solely focused on commercial management,” Wanda Group said.

The group’s sprawling investments in leisure, financial businesses and entertainment drew the attention of Chinese regulators last year, who ordered lenders to assess their exposure to overseas deals by Wanda and HNA Group, among others.

Later in 2017, Wanda sold a portfolio of domestic hotels and tourism assets, including 13 theme parks, for $9 billion to Sunac and Guangzhou R&F Properties. Wanda Commercial operated 235 Wanda Plazas in China as of the end of last year.

In a separate statement, retailer Suning said it would contribute 9.5 billion yuan for a 3.91 percent stake in Wanda Commercial. On Tuesday, property developer Sunac said it also planned to utilize 9.5 billion yuan for a 3.91 percent stake.

Reporting by Clare Jim adn Donny Kwok; Editing by David Goodman and Himani Sarkar

Most Americans wary of self-driving cars: Reuters/Ipsos poll

(Reuters) – Two-thirds of Americans are uncomfortable about the idea of riding in self-driving cars, according to a Reuters/Ipsos opinion poll, underscoring one of many challenges for companies spending billions of dollars on the development of autonomous vehicles.

While 27 percent of respondents said they would feel comfortable riding in a self-driving car, poll data indicated that most people were far more trusting of humans than robots and artificial intelligence under a variety of scenarios.

The Reuters/Ipsos poll found a wide disparity of opinion by gender and age, with men generally more comfortable than women about using self-driving vehicles and millennials more comfortable than baby boomers. (tmsnrt.rs/2DD4h4W)

Among men, 38 percent said they would feel comfortable riding in a self-driving car and 55 percent said they would not. Among women, only 16 percent said they would feel comfortable and 77 percent said they would not.

Among those skeptical of driverless cars was California resident Phoebe Barron. “I don’t want to be the first guinea pig,” she said in an interview.

Colorado resident Sonja Coy told Reuters she had a more positive view. Self-driving cars “are a great innovation and technology with a lot of potential,” she said.

“However, I‘m concerned with how liability will fall in the case of accidents, where there are both self-driving and regular cars on the road,” Coy said.

FILE PHOTO: Waymo unveils a self-driving Chrysler Pacifica minivan during the North American International Auto Show in Detroit, Michigan, U.S., January 8, 2017. REUTERS/Brendan McDermid/File Photo

Like most people, she said she had not yet ridden in a self-driving vehicle. Companies testing the vehicles in the United States and elsewhere have provided limited public access so far.

“We’re talking about abstract things that many people have not experienced firsthand,” said Jeremy Carlson, principal automotive analyst with IHS Markit.

Automotive and technology industry executives are pushing U.S. lawmakers to pass legislation that would loosen restrictions on testing and deploying self-driving cars. However, the legislation is currently stalled in the Senate.

In the meantime, companies from General Motors Co to Alphabet Inc’s Waymo are planning to deploy the first wave of self-driving vehicles over the next three years.

Industry officials and analysts have said providing convincing reassurances about safety is an urgent task for advocates of autonomous vehicle technology.

The Reuters/Ipsos poll was conducted in mid-January and collected responses from 2,592 adults.

Other recent surveys have also highlighted widespread doubts among U.S. consumers about self-driving cars, in the absence of any direct experience with them.

Reporting by Paul Lienert in Detroit; Additional reporting by Chris Kahn in New York; Editing by Tom Brown

ATM makers warn of 'jackpotting' hacks on U.S. machines

(Reuters) – Diebold Nixdorf Inc and NCR Corp, two of the world’s largest ATM makers, have warned that cyber criminals are targeting U.S. cash machines with tools that force them to spit out cash in hacking schemes known as “jackpotting.”

The two ATM makers did not identify any victims or say how much money had been lost. Jackpotting has been rising worldwide in recent years, though it is unclear how much cash has been stolen because victims and police often do not disclose details.

The attacks were reported earlier on Saturday by the security news website Krebs on Security, which said they had begun last year in Mexico.

The companies confirmed to Reuters on Saturday they had sent out the alerts to clients.

NCR said in a Friday alert that the cases were the first confirmed “jackpotting” losses in the United States. It said its equipment had not been targeted in the recent attacks, but that it was still a concern for the entire ATM industry.

“This should be treated by all ATM deployers as a call to action to take appropriate steps to protect their ATMs against these forms of attack,” the alert said.

Diebold Nixdorf said in a separate Friday alert that U.S. authorities had warned the company that hackers were targeting one of its ATM models, known as Opteva, which went out of production several years ago.

A confidential U.S. Secret Service alert sent to banks said the hackers targeted stand-alone ATMs typically located in pharmacies, big box retailers and drive-thru ATMs, Krebs on Security reported.

Diebold Nixdorf’s alert described steps that criminals had used to compromise ATMs. They include gaining physical access, replacing the hard drive and using an industrial endoscope to depress an internal button required to reset the device.

Reuters was unable to obtain a copy of the Secret Service report and an agency representative declined comment. Officials with the Federal Bureau of Investigation could not immediately be reached.

Russian cyber security firm Group IB has reported that cyber criminals remotely attacked cash machines in more than a dozen countries across Europe in 2016. Similar attacks were also reported that year in Thailand and Taiwan.

Reporting by Jim Finkle in Toronto; Additional reporting by Dustin Volz in Washington; Editing by Susan Thomas

Starbucks Chairman Schultz Rambles About Bitcoin on Earnings Call

Howard Schultz dumped the equivalent of a double espresso into an otherwise humdrum Starbucks earnings call on Thursday.

In response to an analyst question about tax law, the Starbucks executive chairman detoured into a stream-of-conscious monologue about Bitcoin and cryptocurrency.

“Well, I think I have another question for you: Twenty or so years later, and the question is, the issue of do you understand and are you anticipating what could happen with cryptocurrencies? And the reason I mention this is not because I’m talking about Bitcoin, because I don’t believe that Bitcoin is going to be a currency today or in the future,” said Schultz, without explaining his pessimism.

After panning Bitcoin, the longtime coffee godfather elaborated by saying the promise of blockchain—a software technology that creates a decentralized, tamper-proof ledger—would soon result in a trusted “consumer application” for digital currency.

Schultz hastily noted that Starbucks isn’t creating a digital currency nor investing in crypto assets. But he then speculated that the emergence of a “legitimate” digital currency would depend on retail stores.

“I personally believe that there is going to be a one or a few legitimate trusted digital currencies off of the blockchain technology. And that legitimacy and trust in terms of its consumer application will have to be legitimatized by a brand and a brick and mortar environment, where the consumer has trust and confidence in the company that is providing the transaction,” he said.

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Schultz then brought up his earlier “clairvoyance” about “the Internet and e-commerce and the Amazon effect of things”—in order to suggest (you guessed it) that Starbucks was in a unique position to capitalize on the impending era of blockchain.

He wrapped up by requesting that the call’s participants not to ask the company’s CFO “lots of questions about this, because this is not something that’s in our model.”

Then, as if Schultz had not said anything, the call returned to ordinary analyst patter about income and tax strategies, leaving befuddled reporters wondering what the odd interlude was all about.

Some Starbucks observers may speculate that Schultz, who has been one of the most visionary corporate leaders in recent decades, was sketching out early plans to make the coffee company a pioneer in blockchain. Others might suggest Schultz switch to decaf.

You can find a transcript of his remarks, which came towards the end of the call, at SeekingAlpha (registration required).

Intel data center sales surge, warns of potential security flaw fallout

(Reuters) – Intel Corp (INTC.O) on Thursday gave a bullish forecast and blew past Wall Street expectations for the fourth quarter on the strength of data center sales, the business it sees as key to its transformation from a PC supplier.

Intel stock rose 3.8 percent to $47.06, boosted by a 10 percent dividend hike and the forecast, which signaled that Intel is succeeding in containing fallout from recently disclosed security flaws that could allow hackers to steal data from computers.

Those flaws, dubbed Spectre and Meltdown, created global concern among technology users, and Intel acknowledged on Thursday, for the first time, that the fallout could hurt future results. But Intel executives consistently indicated that they did not expect that to happen.

Software fixes for the problems would be succeeded by solutions designed into Intel chips themselves later this year, Chief Executive Brian Krzanich said on a conference call.

In an interview ahead of Intel’s earnings call with investors, Chief Financial Officer Bob Swan said the company sees no “meaningful impact” on corporate earnings from the vulnerabilities.

“They had all these bullets flying at them with these chip flaws, but when I look at these numbers, it’s a blowout across all metrics,” said Daniel Morgan, a fund manager with Synovus Trust, which holds Intel shares. “That makes it a bulletproof quarter.”

Revenue from the company’s higher-margin data center business rose about 20 percent to $5.58 billion, beating the average analyst estimate of $5.13 billion, according to Thomson Reuters I/B/E/S. Investors had targeted 10 percent growth, said Kevin Cassidy, an analyst at Stifel.

”Data center group is one of the key metrics we are watching. It’s certainly a positive to see that turn up,” said Peter Karazeris, an analyst Intel investor Thrivent Financial.

Slideshow (2 Images)

Revenue from Intel’s PC group hit $9 billion for the quarter, a 2 percent decline from the year before, but ticked up 3 percent for the year to $34 billion.

Intel also saw strong growth in two small non-PC businesses that it hopes to expand in the future. Its so-called internet of things business, which focuses on connecting street lights and industrial machines to the web, expanded 21 percent to $879 million for the quarter. Programmable chips, which customers like Microsoft Corp (MSFT.O) are experimenting with using in data centers, grew 35 percent to $568 million for the quarter.

Intel predicted $65 billion in revenue for 2018, well above expectations of a $63.7 billion forecast. The company also said its tax rate would be 14 percent for 2018 after changes in U.S. tax law that it executives said created a “level playing field” for U.S. manufacturers.

Intel warned in its earnings release that fallout from the discovery of Spectre and Meltdown could hurt future results, as well as customer relationships and the company’s reputation.

Analysts have said the biggest risk to Intel might come from customers using the disruption caused by fixing the bug as an excuse to press for lower prices.

The company posted a loss of $687 million, or 15 cents per share, in the fourth quarter ended Dec. 30, including a $5.4 billion charge related to recent changes in U.S. tax law.

Excluding items, the chipmaker earned $1.08 per share for the fourth quarter, up 39 percent from 79 cents a year earlier. Total revenue for the quarter rose 4.1 percent to $17.1 billion, up from $16.4 billion a year earlier.

Those figures beat analysts’ expectations of a profit of 86 cents per share on a revenue of $16.34 billion, according to Thomson Reuters I/B/E/S.

Reporting by Laharee Chatterjee in Bengaluru, Stephen Nellis in San Francisco; Additional reporting by Jim Finkle in Toronto; Editing by Peter Henderson and Lisa Shumaker

Apple Is Going to Let You Disable Its Controversial Feature That Slows Down iPhones

Apple Inc. plans to release a software update that will let users disable a function that slowed down older iPhones to preserve battery life, the company said Wednesday.

The change will come as part of an iOS 11.3 software update, which will be released in the spring for consumers and was released Wednesday as a test for developers. The software update will also let iPhone users access their hospital health records, adds new animated emojis for the iPhone X, and new video features for the Apple Music service and the news-reading app.

Once the update arrives, users will be able to measure the health of their iPhone battery and turn off an unpopular function that slows down the handsets. In December, Apple was criticized when it was discovered the company intentionally slows some older iPhones. The throttling was installed to lengthen iPhone batteries’ lifespan. When a user replaced an aging battery, the mechanism would be disabled.

Apple apologized and lowered the price of battery replacements by $50 in 2018. The software update will also tell users when they should get their battery replaced. Apple warns that disabling the feature to slow down iPhones could result in devices unexpectedly rebooting.

A long-anticipated addition to the iPhone’s Health app, the health records feature will enable users to pull up their medical history, such as past procedures and lab results. Apple has partnered with 12 hospitals on the feature, including Johns Hopkins Medicine and UC San Diego Health, the company said in a statement Wednesday.

The iOS 11.3 update also improves the company’s ARKit augmented reality platform for iOS devices and will let users project virtual objects onto walls and doors. Apple is working on a multiperson mode for ARKit that would improve gaming apps, expected later this year, Bloomberg News has reported. The software update will also improve security for HomeKit devices, upgrade music video playback in the Apple Music service, add a new video section to Apple News and send location information to emergency services during a call.

SK Hynix posts record annual profit on solid chip demand

SEOUL (Reuters) – South Korea’s SK Hynix Inc said on Thursday that fourth-quarter operating profit nearly tripled to a record high, exceeding market expectations, as demand for its memory chips held firm despite a stronger won.

The result boosts the world’s second-biggest memory chip maker after Samsung Electronics Co Ltd to its largest-ever annual operating profit of 13.7 trillion won ($12.9 billion), driven by fatter margins for memory chips as servers and mobile devices seek more firepower.

Falling prices for NAND flash memory chips, used in products like USB drives and mobile phones, and concerns that the memory chip boom might be ending soon have sent SK Hynix shares down about 20 percent from a 16-year high of 90,300 won in early November.

However, many analysts are expecting SK Hynix to make even bigger profits in 2018 as NAND shipments are seen increasing this year, and demand also seems strong for DRAM chips used in mobile phones, computers and servers for temporary data storage.

“Despite the strengthening of the won versus the dollar, DRAM prices continue to be strong and appetite from servers could improve further, fuelling an outlook of another record-breaking profit this year,” said Pak Yu-ak, analyst at Kiwoom Securities.

The stronger won makes Korean products less competitive overseas and erodes foreign income when repatriated.

Total memory chip industry revenue in 2017 was a record $132 billion, up from $80 billion in 2016, and is set to rise further to $150 billion in 2018 before falling to about $130 billion in 2019, data and forecasts from research provider Gartner showed.

Operating profit for its October-December quarter rose to 4.5 trillion won from 1.54 trillion won in the same period a year ago, SK Hynix said. That compared with a 4.3 trillion won Thomson Reuters StarMine SmartEstimate from a survey of 12 analysts.

Revenue rose 69 percent to 9 trillion won.

Larger rival Samsung is also expected to book record quarterly profit for the October-December quarter, although its guidance earlier this month fell short of market consensus partly due to the strong won, analysts said.

South Korean exporters will be keeping a close eye on the won in 2018. The currency traded on Wednesday near a three-year high.

SK Hynix said DRAM chip shipments rose 3 percent from July-September while average selling prices climbed 9 percent. NAND chip shipments jumped 16 percent while the average selling price rose 4 percent.

Reporting by Joyce Lee; Editing by Sandra Maler and Rosalba O’Brien

Avoid General Electric Until It's No Longer A Component Of The Dow 30

The Dow Jones Industrial Average set an all-time intraday high of 26,215.23 on Monday, Jan. 22 up 6% year to date, as General Electric (GE) set a multiyear intraday low of $15.80, down 7.3% year to date and mired in bear market territory down 47.1% since setting its 52-week high of $30.59 on Feb. 21, 2017.

GE reports quarterly earnings before the opening bell on Wednesday, Jan. 24 and analysts expect the company to earn 28 cents a share.

Some say that GE is now a buy on the prospect of successfully transitioning into an industrial stock. In my opinion, a trading position at my monthly value level of $15.92 can be justified given that the stock is technically oversold.

However, if GE spins off business units, the stock will likely be booted from the Dow Jones Industrial Average, which normally causes weakness, as any portfolio benchmarked to the Dow 30 must remove the stock.

Bank of America Merrill Lynch downgraded the stock citing lower earnings estimates, a lack of value for GE Capital and a $6.2 billion after-tax charge for its insurance portfolio.

I must admit that I liked shares of GE when the dividend yield was above 4%, but when the dividend was cut, and the yield fell below 3%, I would not even include the stock in my eight ‘Dogs of the Dow’ for 2018.

Most analysts who track the Dogs of the Dow’ have ten components. I have been choosing eight stocks, and each year I remove the prior year big winners. I want to have my dog pound to have an aggregate loss for the prior year, but that was illusive for 2018. My eight ended 2017 with an aggregate gain of just 1.7%.

The daily chart for GE

Daily Chart For General Electric

Courtesy of MetaStock Xenith

The daily chart shows that GE has been below a ‘death cross’ since March 8 when the stock closed at $29.80. A ‘death cross’ occurs when the 50-day simple moving average falls below the 200-day simple moving average indicating the lower prices lie ahead.

The horizontal lines show my monthly value level of $15.92, my quarterly risky level of $22.27, my semiannual risky level of $24.03 and my annual risky level of $31.12.

The Weekly Chart for General Electric

Weekly Chart For General Electric

Courtesy of MetaStock Xenith

The weekly chart for General Electric is negative but oversold with the stock below its five-week modified moving average at $17.79. The stock is well below its 200-week simple moving average or ‘reversion to the mean’ at $27.19, last tested during the week of June 23 when the average was $27.77. The 12x3x3 weekly slow stochastic reading is projected to end this week at 11.90 well below the oversold threshold of 20.00.

Trading Strategy: Buy weakness to my monthly value level of $15.93, and reduce holdings on strength to my quarterly and semiannual risky levels of $22.27 and $24.03, respectively.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Netflix crosses $100 billion market cap on subscriber surge

(Reuters) – Netflix Inc (NFLX.O) snagged 8.33 million new streaming customers in the final quarter of last year – 2 million more than Wall Street expected – as the pioneering online video service kept pouring money into programming in a race to dominate internet television around the world.

The results cheered investors who drove Netflix shares up 7.8 percent to a record high of $245.16 in after-hours trading on Monday, hitting a market capitalization of more than $100 billion for the first time. Tech companies have been driving much of the U.S. stock market’s record-breaking rally since January, with Netflix shares up 15 percent in 2018 before Monday after rallying 53 percent last year.

After signing up more than half of all U.S. broadband households, Netflix is building its customer base in 190 countries, and investors are expecting that billions in investments can begin delivering steady profits. The company’s quarterly earnings report showed interest is growing.

Netflix picked up 6.36 million subscribers in international markets from October through December, when it released new seasons of critically acclaimed shows “Stranger Things” and “The Crown” as well as action movie “Bright.” That topped Wall Street expectations of 5.1 million, according to FactSet.

Along with 1.98 million customer additions in the United States, the company ended the year with 117.58 million streaming subscribers around the globe.

Netflix turned a DVD-by-mail business into an online competitor of movie channel HBO. As it grew it began licensing its own original shows to ensure a stream of new offerings if studio suppliers ended deals.

In fact, Walt Disney Co (DIS.N) is making a major push into online streaming and will pull its first-run shows and movies from Netflix in 2019 as Hollywood fights for audiences.

Netflix plans to spend up to $8 billion this year on TV shows and movies to fend off Disney, Amazon.com Inc (AMZN.O), studios-owned Hulu and local competitors that are jumping into online video.

In 2017, Netflix recorded its first full-year profit in international markets. The company has said it is aiming for steady improvements in profitability overseas this year.

Last October, Netflix raised prices for two of its three main subscription plans to help fund the substantial content investment, helping to drive revenue higher.

For the December quarter, Netflix reported diluted earnings-per-share of 41 cents, even with the expectations of analysts polled by Thomson Reuters I/B/E/S.

Revenue for the three months totaled $3.286 billion, in line with forecasts.

Looking ahead, Netflix forecast streaming customer additions of 6.35 million for the first quarter, above analysts’ expectation of 5.01 million, according to FactSet.

Investors appear confident in Netflix’s ability to grow. Netflix recently traded at 91 times expected earnings for the next 12 months, versus Amazon at 152 times earnings and Disney at 17 times earnings, according to Thomson Reuters data.

Reporting by Lisa Richwine in Los Angeles and Aishwarya Venugopal in Bengaluru; Editing by Peter Henderson and Lisa Shumaker

Amazon’s Cashier-Free Store Opens to the Public Tomorrow in Seattle

Amazon’s attempt to remake shopping as we know it will take a major step forward Monday, when members of the public will get their first chance to shop in the Amazon Go convenience store. The store, which has been open to Amazon employees since 2016, uses advanced technology to let shoppers walk in, take what they want off the shelf, then leave — without waiting in line for a cashier.

Shoppers gain entry to the Amazon Go store, located below Amazon’s offices in downtown Seattle, using a smartphone app. Then a mix of cameras, sensors and artifical intelligence keeps track of what they take off the shelves. When shoppers walk out with their purchases, the system automatically charges them. The store is otherwise modeled on a convenience store, offering takeaway food like salads and sandwiches, meal kits for home preparation and an array of beverages.

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Though the cameras and sensors run the front lines, Recode reports that human staffers are still keeping an eye on things from behind the scenes as they system is perfected. But it has already shown that it’s powerful, identifying shoppers’ identities even when they’re in costume.

Amazon is widely expected to build more Go stores if the public opening of the first one goes well. That will accelerate the behemoth’s expansion from e-commerce into brick-and-mortar retail, which already includes its acquisition of Whole Foods last year, and its more tentative experiment with physical bookstores. Speculation has also begun to swirl about a possible acquisition of Target.

Snap Needed Emotional Intelligence This Week but Didn't Have Any

Snap, parent corporation of social network Snapchat, has faced a number of recent leaks about the business, including a new round of layoffs. But the company’s reaction, a threat to sue or imprison employees who might talk to the press, was the second time in a week the company showed a disturbing lack of emotional intelligence.

Snap has made some bad moves in the past, like the initial fight among the co-founders. Turning down $3 billion for an acquisition by Facebook and the fall stock plunge. But the biggest problem of late has been the attitudes toward employees that management clumsily communicated.

Patience is understandably running thing. Over the last six months, Snap has faced the following:

  • Expenses raced ahead of income, increasing fiscal pressures as user growth has not kept pace with expectations. (When Fortune writes, “Its first trick was making selfies disappear. Its latest is sending gargantuan piles of cash into the ether,” you know the coverage will be ugly.)
  • The company saw two big stock drops immediately after earnings announcements in August and November.
  • The current stock price of about $14 remains far below the $17 IPO figure.
  • Layoffs this week and October after a September restructuring suggest the level of problem and money pressures Snap faces.

Snap has been like a sieve for insider news getting out to the press, which has made the company irate, as reported by Cheddar’s Alex Heath. This resulted in a harsh memo that in part said the following:

As a result, all employees must keep our information strictly confidential until disclosed by Snap. We have a zero-tolerance policy for those who leak Snap Inc. confidential information. This applies to outright leaks and any informal “off the record” conversations with reporters, as well as any confidential information you let slip to people who are not authorized to know that information.

If you leak Snap Inc. information, you will lose your job and we will pursue any and all legal remedies against you. And that’s just the start. You can face personal financial liability even if you yourself did not benefit from the leaked information. The government, our investors, and other third parties can also seek their own remedies against you for what you disclosed. The government can even put you in jail.

Not that anyone should minimize the need for a basic level of confidentiality. Leaking information from a public company, particularly if some people have a chance to trade on the insights before others do, can be a significant legal risk. But there are different ways to communicate, and Snap management opted for as heavy-handed a one as might be imagined. If they wished an effective deterrent, internal training and emphasis would have been far more effective.

Instead, this move is almost guaranteed to scare employees not into knowing compliance with right actions but further into psychological bunkers and out of the company as soon as possible.

What can you expect when a culture of secrecy reportedly makes many employees feel isolated and in danger? This is like entrepreneurs who are so intent on protecting their “brilliant” ideas that they never learn how limited or flawed the concepts are because they won’t listen. If you regularly divide employees, you miss the communication and collaboration necessary for innovation and solving problems.

And speaking of innovation, as the hammer comes down in this way, it also strikes in another. In the memo released at the time of the most recent layoffs, via Cheddar, CEO Evan Spiegel discussed the need to create a “highly scalable business model” and an “organization that scales internally.” He wrote, “This means that we must become exponentially more productive as we add additional resources and team members.”

To many, that translates as “your life should be ours.” There is only so productive people can be. They aren’t machines, and if you continually expect more and more, even with additional tools and resources (but likely not), you burn people out. That may work if you think everyone but yourself is replaceable and you want to use individuals as tools to make money — but, on second thought, no, it probably won’t. Some have pulled it off, but far more often these attitudes have limited success at most.

Then that memo ended as follows:

Lastly, I’d like to make it very clear that our team is not here to win 2nd place. The journey is long, the work is hard, but we have and we will consistently, systematically, out-innovate our competitors with substantially few resources and in far less time. And we will have a blast doing it.

Put differently: You won’t have the resources you need but you will succeed and work faster and harder because you are order to, and you will enjoy the process whether you want to or not.

The communications style of Snap in these two instances betrays a remarkable degree of emotional tone deafness. Even though the people responsible are likely sure they are motivating employees while helping select for the types of people who will do well by them, they transmit subtexts that are off-putting to many who could be of immense help but are unwilling to submerge themselves into the drive to enhance the financial well being of a tiny group.

The people at Snap could have avoided the problem with a few steps:

  • Clarify and be honest with yourself about what you really want to achieve. Have someone from the outside look at materials, interview people, and offer a disinterested observation of the situation.
  • Look at things from an employee’s viewpoint and put yourself in their shoes. Given the general atmosphere, if you heard this as an employee, how might you react?
  • Recognize that how you feel personally and what you want to accomplish may not work well together. Focus on approaches most likely to produce the needed results, not something that makes you feel vindicated.
  • Get expert help. If you pride yourself on an engineering culture, as Snap seems to, don’t assume you’re also a master of psychology and motivation. Chances are that you aren’t.

raceAhead: Companies With Ethnically Diverse Leadership Make More Money

Your week in review, in haiku.

1.

And now we tell you

openly: We were all such

fools for you. Sweet (D)reams.

2.

I feel no need to

comment in any way on

the whole Tide pods thing.

3.

Beltway shut-down? Stand

up Dreamers! Showtime, Bannon?

Fake news crashes hard.

4.

Don’t know why…there’s cash

and legal stuff for you to

sign…Stormy Daniels.

5.

Dreams restored, lives saved,

angel in America,

hope. Mathilde Krim.

Wishing you a dreamy weekend.

On Point

Companies with racially diverse executives make more Tubmans
A new McKinsey study builds on their landmark 2015 study and examines financial data from more than 1,000 big companies in twelve countries. Bottom line: The link between ethnic diversity and financial performance is stronger than the link between gender diversity and profits. Companies with higher ethnic board diversity were 33% more likely to outperform competitors, companies with higher gender diversity were 21% more likely to outperform competitors. I’ll be getting this study framed.
Wall Street Journal
A top official at AmeriCorps forced to resign after racist comments revealed
Carl Higbie, a former Navy Seal and conservative commentator has resigned his post at AmeriCorps, the nation’s volunteer organization working in poor communities. A CNN investigation revealed that Higbie had a history of making racist, sexist, anti-Muslim and anti-LGBT comments on the radio starting in 2013. Most of the comments occurred when he was the host of an internet talk show called “Sound of Freedom.” It was not subtle. “Go back to your Muslim shithole and go crap in your hands and bang little boys on Thursday nights,” he said. Also, black women think “breeding is a form of government employment.” Kudos to CNN for the investigation, which consisted of listening to the words Higbie spoke aloud for years and pointing them out to the world.
CNN
White supremacists are responsible for the majority of extremist-related deaths
According to a new report released by the Anti-Defamation League, white supremacists were responsible for the majority of homicides that occurred during violence related to political extremism in 2017. While the number of extremism-related deaths are low overall, right-wing affiliated people accounted for 20 of the 34, says the ADL. Other groups noted in the report were Islamist extremists, black nationalists, and a variety of “alt-right” groups. The Las Vegas shooting was not included because the motive of the gunman is still unknown.
CNN
Fans panic as Tracee Ellis Ross wonders if she’s working too much
Evidently Ross, the beloved co-star of Blackish is paid less than her male counterpart, Anthony Anderson. With negotiations for the fifth season currently underway, insiders say that Ross is asking for her pay to be brought to parity. Part of the issue is that Anderson has a bigger role on the show, but pay equity experts know how to analyze and bridge any gap, am I right?
Madam Noire

The Woke Leader

Life in the #MeToo era: What kind of man do you want to be?
Writer Ijeoma Oluo gets to the essence of #MeToo queasiness, recounting a conversation with a male friend who disappointed her in an all too familiar way. When commenting on an article that talked about men feeding women alcohol to coax them into sex, “[h]e sat in my living room and told me that he took issue with the essay’s insistence that this behavior was predatory or abusive.” First, I was shocked by his obtuseness; if you’re in Oluo’s living room, you must be close enough to understand her unwavering heart on matters of feminism, boundaries, and truth. But as she unpacks their exchange, she frames a serious question. What kind of man do you want to be? “Men who believe that victory lies not in the enthusiastic consent of their sexual partners, but in the tired, resigned, and often scared surrender of unwilling partners[?]”
The Establishment
How a romantic notion of military might is keeping the country divided
Writer and broadcaster Chris Hayes, working with graphic novelist Mike Dawson, has published a searing comic-essay exploring the toxic brew of nationalism, militarism and America-first sentimentality that erupted after 9/11. They claim it was a return to a ‘good versus evil’ posture after the interminable 90s, a time when “the country faced no overarching enemy for the first time in decades…seemingly possessed of no greater national purpose than making money.” It’s a fascinating argument that wends its way back to our cultural habit of romanticizing World War II and military service. “To reinforce the cult of the soldier – is to reinforce the same set of oppositional culture war clichés that undergird our current political discourse,” they say. Food for thought, particularly if you think about all the issues that lay fallow in the 1990s, without a great enemy to give us purpose.
The Nib
Lupita Nyong’o will single-handedly save book publishing
Well, maybe not. But the Academy Award winner is set to publish her first children’s book, about a 5-year-old Kenyan girl with very dark skin, who goes on an adventure with the help of her mother to understand and claim her beauty. Like her protagonist, Sulwe, which means “star” in Luo, Nyong’o struggled with colorism and her self-image as a child. As an adult, she has become an advocate for representation in Hollywood and beyond. She hopes the story will plant a seed of understanding in 5-7-year olds, a time when “you learn all the things that you spend the rest of your life trying to unlearn.”
New York Times

Senate passes bill renewing internet surveillance program

WASHINGTON (Reuters) – The U.S. Senate on Thursday passed a bill to renew the National Security Agency’s warrantless internet surveillance program for six years with minimal changes, overcoming objections from civil liberties advocates that it undermined the privacy of Americans.

The legislation, which easily passed the House of Representatives last week, is expected to be signed into law by President Donald Trump by Friday.

Thursday’s 65-34 passage in the Senate was largely a foregone conclusion, after senators earlier this week cleared a 60-vote procedural hurdle, which split party lines and came within one vote of failing.

Passage of the legislation marked a disappointing end to a years-long effort by a coalition of liberal Democrats and libertarian-leaning Republicans to redefine the scope of U.S. intelligence collection following the 2013 disclosures of classified surveillance secrets by former NSA contractor Edward Snowden.

The bill reauthorizes what is known as Section 702 of the Foreign Intelligence Surveillance Act, which gathers information from foreigners overseas but incidentally collects an unknown amount of communications belonging to Americans.

Slideshow (15 Images)

Under Section 702, the NSA is empowered to eavesdrop on vast amounts of digital communications via American companies like Facebook Inc (FB.O), Verizon Communications Inc (VZ.N) and Alphabet Inc’s (GOOGL.O) Google.

But the program also incidentally scoops up Americans’ communications, including when they communicate with a foreign target living overseas. Intelligence analysts can then search those messages without a warrant.

The White House, U.S. intelligence agencies and congressional Republican leaders said the program is indispensable to national security.

Opponents of the program said it allows the NSA and other intelligence agencies to grab data belonging to Americans in a way that represents an affront to the U.S. Constitution.

The bill passed by Congress does add a narrow warrant requirement for cases where the Federal Bureau of Investigation seeks emails related to an existing criminal investigation that has no relevance to national security. Privacy advocates said that essentially gave more protections to criminal suspects than ordinary Americans caught up in the program’s surveillance.

Reporting by Dustin Volz; Editing by Chizu Nomiyama and Tom Brown

Tom Siebel's billion-dollar software firm raises $100 million

SAN FRANCISCO (Reuters) – C3 IoT, a software company founded and run by longtime Silicon Valley executive Thomas Siebel that helps companies collect and analyze data, has raised another $100 million in a new funding backed by TPG Growth, the company said on Wednesday.

The valuation of C3 IoT was not disclosed. The company had been valued at $1.4 billion in its last funding round in March 2017.

C3 IoT is a software developer for the “industrial Internet of Things,” or a network of devices, vehicles and building sensors that collect and exchange data.

TPG’s Rise Fund, its social and environmental fund co-founded by U2’s Bono and managed by TPG Growth, is investing in C3 IoT for the first time in one of its largest investments to date. TPG Partner Nehal Raj said in a statement that C3 IoT helps create “measurable social impact” in areas such as healthcare and energy.

TPG first invested in C3 IoT in September 2016. The company has now raised $122 million in total and said it is profitable.

Siebel, the chief executive of C3 IoT, sold his company Siebel Systems to Oracle Corp in 2005 for $5.85 billion. Siebel is also investing in the new round, which closed earlier this week, along with Breyer Capital and Sutter Hill.

Reporting by Liana B. Baker in San Francisco; Editing by Leslie Adler