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Facebook scrambles to escape stock’s death

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A year ago, before Facebook had turned Meta, the social media company was sporting a market cap of $1 trillion, putting it in rarefied territory with a handful of U.S. technology giants.

Today the view looks much different. Meta has lost about two-thirds of its value since peaking in September 2021. The stock is trading at its lowest since January 2019 and is about to close out its third straight quarter of double-digit percentage losses. Only four stocks in the S&P 500 are having a worse year.

Facebook’s business was built on network effects — users brought their friends and family members, who told their colleagues, who invited their buddies. Suddenly everyone was convening in one place. Advertisers followed, and the company’s ensuing profits — and they were plentiful — provided the capital to recruit the best and brightest engineers to keep the cycle going.

But in 2022, the cycle has reversed. Users are jumping ship and advertisers are reducing their spending, leaving Meta poised to report its second straight drop in quarterly revenue. Businesses are removing Facebook’s once-ubiquitous social login button from their websites. Recruiting is an emerging challenge, especially as founder and CEO Mark Zuckerberg spends much of his time proselytizing the metaverse, which may be the company’s future but accounts for virtually none of its near-term revenue and is costing billions of dollars a year to build.

Zuckerberg said he hopes that within the next decade, the metaverse “will reach a billion people” and “host hundreds of billions of dollars of digital commerce.” He told CNBC’s Jim Cramer in June that the “North Star” is to reach those sorts of figures by the end of the decade and create a “massive economy” around digital goods.

Investors aren’t enthusiastic about it, and the way they’re dumping the stock has some observers questioning if the downward pressure is actually a death spiral from which Meta can’t recover.

“I’m not sure there’s a core business that works anymore at Facebook,” said Laura Martin of Needham, the only analyst among the 45 tracked by FactSet with a sell rating on the stock.

Nobody is suggesting that Facebook is at risk of going out of business. The company still has a dominant position in mobile advertising and has one of the most profitable business models on the planet.

Even with a 36% drop in net income in the latest quarter from the prior year, Meta generated $6.7 billion in profit and ended the period with over $40 billion in cash and marketable securities.

The Wall Street problem for Facebook is that it’s no longer a growth story. Up until this year, that’s the only thing it’s known. The company’s slowest year for revenue growth was the pandemic year of 2020, when it still expanded 22%. Analysts this year are predicting a revenue drop.

The number of daily active users in the U.S. and Canada has fallen in the past two years, from 198 million in mid-2020 to 197 million in the second quarter of this year. Globally, user numbers are up about 10% over that stretch and are expected to increase 3% a year through 2024, according to FactSet estimates.

“I don’t see it spiraling in terms of cash flows in the next few years, but I’m just worried that they’re not winning the next generation,” said Jeremy Bondy, CEO of app marketing firm Liftoff.

Sales growth is expected to hover in the single digits for the first half of 2023, before ticking back up. But even that bet carries risks. The next generation, as Bondy describes it, is now moving over to TikTok, where users can create and view short, viral videos rather than scrolling past political rants from distant relatives with whom they mistakenly connected on Facebook.

Meta has been trying to mimic TikTok’s success with its short video offering called Reels, which has been a major focus across Facebook and Instagram. Meta plans to increase the amount of algorithmically recommended short videos in users’ Instagram feeds from 15% to 30%, and Bondy speculates the company will likely “get tremendous revenue flow from that” algorithmic shift.

However, Facebook acknowledges it’s early days for monetizing Reels, and it’s not yet clear how well the format works for advertisers. TikTok’s business remains opaque because the company is privately held and owned by China’s ByteDance.

Sheryl Sandberg, who’s leaving the company Friday after more than 14 years as chief operating officer, said in her final earnings call in July that videos are harder than photos in terms of ads and measurement, and that Facebook has to show businesses how to use the ad tools for Reels.

“I think it’s very promising,” Sandberg said, “but we’ve got some hard work ahead of us.”

Skeptics such as Martin see Facebook pushing users away from the core news feed, where it makes tons of cash, and toward Reels, where the model is unproven. Martin says Zuckerberg must know something important about where the business is headed.

“He wouldn’t be hurting its revenue at the same time he needs more money, unless he felt like the core business wasn’t strong enough to stand alone,” Martin said. “He must feel he has to try to move his viewership to Reels to compete with TikTok.”

A Facebook spokesperson declined to comment for this story.

Zuckerberg has at least one major reason for concern beyond just stalled user growth and a slowing economy: Apple.

The 2021 iOS privacy update, called App Tracking Transparency, undermined Facebook’s ability to target users with ads, costing the company an estimated $10 billion in revenue this year. Meta is counting on artificial intelligence-powered advertising to eventually make up for Apple’s changes.

That may amount to little more than a Band-Aid. Chris Curtis, an online marketing expert and consultant, has seen social networks rise and fall as trends change and users move along. And that problem isn’t solvable with AI.

“I’m old enough, and I was there when MySpace was a thing,” said Curtis, who previously worked at Anheuser-Busch and McKinsey. “Social networks are switchable, right?”

When you look at Meta’s user numbers, Curtis said, they suggest the company is “not in a good position.”

‘Force for good or evil’

The last time Facebook’s market cap was this low, it was early 2019 and the company was dealing with the continued fallout of the Cambridge Analytica privacy scandal. Since then, Facebook has suffered further reputational damage, most notably from the documents leaked last year by whistleblower and former employee Frances Haugen.

The main takeaway from the Haugen saga, which preceded the name change to Meta, was that Facebook knew of many of the harms its products caused kids and was unwilling or unable to do anything about them. Some U.S. senators compared the company to Big Tobacco.

Former Facebook employee and whistleblower Frances Haugen testifies during a Senate Committee on Commerce, Science, and Transportation hearing entitled 'Protecting Kids Online: Testimony from a Facebook Whistleblower' on Capitol Hill, in Washington, U.S.,
Former Facebook employee and whistleblower Frances Haugen testifies during a Senate Committee on Commerce, Science, and Transportation hearing entitled ‘Protecting Kids Online: Testimony from a Facebook Whistleblower’ on Capitol Hill, in Washington, U.S., October 5, 2021.
Jabin Botsford | Reuters

Denise Lee Yohn, author of brand-building books including “What Great Brands Do” and “Fusion,” said there’s little evidence to suggest that Facebook’s rebranding to Meta late last year has changed public perception of the company.

“I think the company still suffers from a lot of criticism and skepticism about whether they are a force for good or evil,” Yohn said.

Rehabilitating a damaged brand is difficult but not impossible, Yohn said. She noted that in 2009, Domino’s Pizza was able to successfully come back from a crisis. In April of that year, a video made as a prank by two restaurant employees went viral, showing one of them doing disgusting acts with food while cooking in one of the company’s kitchens. Both employees were arrested and charged with food contamination.

In December 2009, Domino’s launched a marketing blitz called the “Pizza Turnaround.” The stock climbed 63% in the first quarter of 2010.

Yohn said the company’s approach was, “We’ve been told our pizzas suck, and so we’re actually going to make substantive changes to what we are offering and change people’s perceptions.” While it sounded initially like “just marketing speak,” Yohn said, “they actually really did change.”

Zuckerberg, on the other hand, is not “coming across as a leader who is serious about changing his culture and about changing himself and about kind of creating a company that will be able to step into the future that he’s envisioning,” she said.

Meta’s reputational hit could also harm the company’s ability to recruit top-tier talent, a stark contrast to a decade ago, when there was no more prized landing spot for a hotshot engineer.

A former Facebook ad executive, who spoke on condition that his name not be used, told CNBC that even though TikTok is owned by a Chinese parent, it now has an edge over Meta when it comes to recruiting because it’s viewed as having less “moral downside.”

Ben Zhao, a computer science professor at University of Chicago, said he’s seeing that play out on the ground as an increasing number of students in his department are showing interest in working for TikTok and ByteDance.

In order to stay competitive, given how the market has punished tech stocks this year, Zhao said, Meta and Google are “having to pay more and are having certainly to hand out more lucrative stock options and packages.”

The bull case

Still, Zuckerberg has a history of proving his doubters wrong, said Jake Dollarhide, the CEO of Longbow Asset Management in Tulsa, Oklahoma.

Dollarhide remembers when investors ran from Facebook not long after its 2012 IPO, scoffing at the company’s ability to move “from the PC to the mobile world.” Facebook’s mobile business quickly caught fire and by late 2013, the stock was off to the races.

Zuckerberg’s success in pivoting to mobile gives Dollarhide confidence that Meta can cash in on its bet-the-farm move to the metaverse. In the second quarter, Meta’s Reality Labs division, which houses its virtual reality headsets and related technologies, generated $452 million in revenue, about 1.5% of total Meta sales, and lost $2.8 billion.

“I think Zuckerberg is very bright and very ambitious,” said Dollarhide. “I wouldn’t bet against Zuckerberg just like I wouldn’t bet against Elon Musk.”

Dollarhide’s firm hasn’t owned Facebook shares, though, since 2014, preferring the trajectory of tech companies such as Apple and Amazon, two of his top holdings.

“The reality is they can be perceived as a value company and not a growth company,” Dollarhide said, regarding Meta.

No matter what happens in the next year or two or even three, Zuckerberg has made clear that the future of the company is in the metaverse, where he’s banking on new businesses forming around virtual reality.

Zhao, from University of Chicago, says there’s immense uncertainty surrounding the metaverse’s prospects.

“The real question is — are daily users ready for the metaverse yet?” Zhao said. “Is the underlying technology ready and mature enough to make that transition seamless? That’s a real question and that may not be all up to Facebook or Meta at this point.”

If Zuckerberg is right, perhaps 10 years from now Meta’s stock price from the depths of 2022 will look like the discount of the decade. And if that happens, predictions of a death spiral will be mocked like a 2012 cover story from Barron’s, headlined “Facebook is worth $15” with a thumb pointing down. Four years later, it was trading near $130.

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Ex-Google ad boss builds free search engine

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An advert- and tracker-free search engine launches in the UK, France and Germany on Thursday.

Neeva has 600,000 users in the US, where it launched last year.

Creator Sridhar Ramaswamy, who worked at Google for 16 years and ran its ad business, told BBC News the technology sector had become “exploitative” of people’s data, something he no longer wanted to be a part of.

Trackers share information about online activity, largely to target adverts.

Neeva has raised $77.5m (£68m) from investors.

It offers free-to-use search, with other features such as password-manager access and virtual-private-network (VPN) service to be made available on a subscription basis.

Users are asked to create an account, to build subscriptions at a later date.

And the UK price was likely to be about £5 per month, Mr Ramaswamy said.

“We felt the traditional search engines had become about advertising and advertisers – and not really about serving users,” he said.

“Google has a dominant position in the marketplace – and the incentive for them to truly innovate, to truly create disruptive experiences, is not really there.

“And then also as a company they feel obligated to show more and more revenue and profit to their shareholders, so they just keep increasing the number of ads.”

Trying out Neeva

Search the word “migraine” on both Google and Neeva, and the first page of the results are fairly similar – links to news articles and factual information.

Neeva creator Sridhar Ramaswamy
Neeva creator Sridhar Ramaswamy

But with a brand, the difference becomes more stark.

When I try “BMW”, both search engines lead with links to the carmaker’s website and Wikipedia entry.

But while Google follows with a map, social-media feeds and links to used-car dealers, Neeva sticks with different BMW official pages.

Google certainly has more variety – but it is also blatantly pushing me towards buying a car.

Neeva’s Chrome browser extension lists the trackers installed on web pages visited.

I tried a few:

  • the Daily Mail had 351 trackers.
  • the BBC four, two of which were internal tools
  • Tesco five
  • Sainsbury’s 10
  • parenting forum Mumsnet 27
  • the front page of Reddit three
  • Amazon three – all its own

And almost all – but not the BBC – had at least one belonging to Google, meaning Google is receiving anonymised information about users visiting those pages.

While I had the extension activated, no ads displayed around the editorial content.

But ultimately, none of Neeva’s other rivals has dented the dominance of Google search.

“To Bing” or “to Duckduckgo” – another privacy-focused service – are not verbs in the way “to google” is.

And asked if Mr Ramaswamy could ever topple his former employer, Steph Liu, an analyst at Forrester specialising in privacy and search, said: “Realistically, no.

“It’s a sort of David and Goliath story. Google has too many users, it has too much revenue.

“The ultimate goal is to offer an alternative for the consumer base who are worried about their privacy, who don’t want Google hoovering up their data and targeting ads based on their search history”.

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Elon M Twitter deal back on in surprise U-turn

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Billionaire Elon Musk has apparently changed his mind about buying Twitter, again, and is now willing to proceed with his takeover of the social media platform.

In a letter to the firm, Mr Musk agreed to pay the price he offered months ago before trying to quit the deal.

The surprise reversal comes just weeks before the two sides were due in court.

Twitter, which had sued Mr Musk to force the takeover to move forward, was seen as having the stronger case.

In the letter, attorneys for Mr Musk said he intended to move ahead to complete the transaction, pending receipt of the financing and an end of the legal fight.

A spokesperson for Twitter acknowledged the firm had received the proposal, adding “the intention of the company is to close the transaction at $54.20 per share” – the price that Mr Musk promised in April.

The apparent win for Twitter sent its shares soaring more than 20% to more than $52 apiece. But the value remained lower than the takeover price, in a sign of lingering investor doubts the deal will go through.

Later on Tuesday, Mr Musk wrote in a tweet: “Buying Twitter is an accelerant to creating X, the everything app”.

Elon Musk and Parag Agrawal
Elon Musk and Twitter boss Parag Agrawal have feuded publicly

When Mr Musk first revealed plans to buy Twitter in a $44bn deal, he said he wanted to clean up spam accounts on the platform and preserve it as a venue for free speech.

But the billionaire, a prolific Twitter user known for his impulsive style, balked at the purchase just a few weeks later, citing concerns that the number of fake accounts on the platform was higher than Twitter claimed.

Twitter executives denied the accusations, arguing that Mr Musk – the world’s richest person with a net worth of more than $220bn – wanted out because he was worried about the price.

The back-and-forth followed a sharp downturn in the value of technology stocks, including Tesla, the electric car company that Mr Musk leads and is the base of much of his fortune.

The fight, which was scheduled to go to trial 17 October, saw the two sides face off in lengthy court filings, private messages and bitter public spats on Twitter, where Mr Musk has more than 100 million followers.

In one such exchange, Mr Musk responded to Twitter boss Parag Agrawal with an emoji for faecal matter.

Preparation for the trial had ensnarled many of the biggest names in tech, as lawyers for the two companies demanded communications about the deal.

Mr Musk, who could have paid a $1bn break-up fee to walk away, was set to be interviewed ahead of the trial this week.

Some industry watchers, who were taken by surprise by the development, questioned whether the latest twist was a concrete offer or a delay tactic.

A dramatic turnaround

It’s hard to keep track with this deal. On, off, now – it appears – on again.

However there’s a lot to read into Twitter’s brief statement.

The “intention” to go through with the deal suggests a nervousness that this is a delaying tactic from Musk’s team.

The statement effectively can be read as – ‘We are going to pursue this sale, whatever Elon Musk says or does’.

The way Twitter also, so pointedly, says it will sell the company at $54.20 suggests they are still worried about Musk lowballing.

So far Musk has been a highly erratic negotiating partner – hot and cold. Keen one minute, looking for the exit the other.

You can see why Twitter is playing it cautiously.

At Twitter, which has been thrown into turmoil since Mr Musk first turned his attention to the firm, staff told the BBC that their bosses were initially silent on the matter, even as the report spread widely.

Investors have long been sceptical that the takeover would go forward, especially since Mr Musk was seen as offering a heady price for a firm struggling to attract users and grow.

Twitter shares had been trading below $43 apiece at the start of the day.

News that Mr Musk had proposed to honour the original agreement sent shares in the company soaring almost 13% before trading was halted.

Wedbush Securities analyst Dan Ives said Mr Musk’s chance of winning in court was “highly unlikely”.

“Being forced to do the deal after a long and ugly court battle in Delaware was not an ideal scenario and instead accepting this path and moving forward with the deal will save a massive legal headache,” he wrote in a report after the news.

But he added, that Mr Musk’s ownership of the platform, a top venue for politicians and journalists to spread news and opinion, would still likely cause a “firestorm of worries and questions” in Washington and beyond.

Reports /TrainViral/

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Uber chief convicted for concealing a felony

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Uber’s former chief security officer has been convicted of failing to tell US authorities about a 2016 hack of the company’s databases.

A jury in San Francisco found Joe Sullivan – fired from Uber in 2017 – guilty of obstruction of justice and concealing a felony.

Increasingly, companies negotiate with ransomware hackers.

But investigators said they must “do the right thing” when their systems are breached.

The conviction is a dramatic reversal for Sullivan, who had at one point in his career prosecuted cyber-related crime for the San Francisco US attorney’s office.

After Sullivan’s conviction his lawyer, David Angeli, said “Mr Sullivan’s sole focus, in this incident and throughout his distinguished career, has been ensuring the safety of people’s personal data on the internet,” the Washington Post reported.

But prosecutors said the case was a warning to companies.

“We expect those companies to protect that data and to alert customers and appropriate authorities when such data is stolen by hackers,” US attorney Stephanie M Hinds said.

Ms Hinds accused Sullivan of working to hide the data breach from US regulator the Federal Trade Commission (FTC), adding he “took steps to prevent the hackers from being caught”.

At the time, the FTC was already investigating Uber following a 2014 hack.

When it was hacked again, the attackers emailed Sullivan and told him they had stolen a large amount of data, which they would delete in return for a ransom, according to the US Department of Justice (DOJ) .

Staff working for Sullivan confirmed data, including about 57 million Uber users’ records and 600,000 driving-licence numbers, had been stolen.

According to the DOJ, Sullivan arranged for the hackers to be paid $100,000 (£89,000) in bitcoin in exchange for them signing non-disclosure agreements to not reveal the hack to anyone,

The hackers were paid in December 2016, even though they had refused to provide their true names.

The payment was disguised as a “bug bounty”, a reward used to pay cyber-security researchers who disclose vulnerabilities so they can be fixed.

The Washington Post reported that the process enabled Uber to gather clues about the two hackers. The firm eventually identified the pair – both of whom have since been convicted of criminal offences – in January 2017 and required them to sign new agreements in their own names.

This conviction has sent shivers down the spines of many cyber-security executives.

With organised ransomware gangs, government-backed hacking teams and anarchist kids targeting companies, being a chief information security officer is already a daunting job.

Sullivan being personally convicted for a decision taken on behalf of his employer sets a scary precedent, some say.

For observers, the crimes Sullivan committed in 2016 also read as odd by today’s standards.

Negotiating with hackers and paying them to keep quiet is literally done every day now by corporations hit by ransomware gangs.

The key difference here, the jury found, is that Sullivan tried to cover it up.

Giving cyber-criminals what they want no longer carries the seriousness it once did, but companies, then and now, must always be transparent about how they respond to cyber-incidents that affect them and their customers.

The DOJ said that Sullivan “orchestrated these acts despite knowing that the hackers were hacking and extorting other companies as well as Uber, and that the hackers had obtained data from at least some of those other companies”.

A new management team at Uber eventually reported the breach to the FTC in 2017 after carrying out their own investigation.

In 2018, Uber paid US states $148m to settle claims that it had been to slow to reveal the hack.

Shock ruling

The verdict was a surprise to many working in computer security. At the time Sullivan had reportedly informed some senior figures at Uber about the threat.

The court also heard that internal legal advice had suggested that there was no need to disclose the hack if the attackers were identified, and agreed to delete the data and not spread it further.

Responding to the judgement, Dr Ilia Kolochenko, founder of ImmuniWeb, and a member of Europol Data Protection Experts Network, wrote, “The Uber case is just another illustrative example of the unfolding global trend to hold cyber-security executives accountable for their companies’ data breaches.

“Serious misconduct, such as deliberate concealment of a data breach despite the regulatory requirement to report the breach to mitigate harm, may even entail criminal sanctions.”

Dr Kolochenko said cyber-security executives should urgently check that their employment contracts address issues such as coverage of legal fees in case of a civil lawsuit or prosecution in relation to their professional responsibilities. The contracts should also contain a guarantee that their employer will not sue them – as victimised companies may also do this in case of security incidents, she added.

Sullivan has not yet been sentenced, and may appeal against the judgement.

Reports /TrainViral/

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