DealBook: A Peek Inside YouTube’s Money Machine

February 4, 2020

Good morning. Silicon Valley is buzzing over Sheryl Sandberg’s engagement, nearly five years after the death of her husband, Dave Goldberg. (Was this email forwarded to you? Sign up here.)

Josh Edelson/Agence France-Presse — Getty Images

Alphabet draws back a curtain on YouTube’s billions

The tech giant surprised Wall Street yesterday when it offered some financial information about YouTube, long a closely guarded secret. But the new information was part of a quarterly report from Alphabet, the parent company, that didn’t meet investor expectations.

YouTube collected over $15 billion in revenue last year, which Rob Copeland of the WSJ says was on the “lower end of projections.” It suggests that YouTube took in less than $8 a year from each of its two billion users.

• YouTube’s revenue figure is higher than Viacom’s for its 2019 fiscal year, our colleague Kevin Roose points out.

• But Alphabet didn’t say how much profit YouTube earned.

• And our colleague Shira Ovide notes that YouTube reported “gross” revenue — which includes the money that the service pays out to content creators and is not the whole financial picture.

Investors weren’t impressed, and Alphabet shares fell 2.7 percent in after-hours trading. The company’s overall revenue growth was less than expected, while its losses from its “moonshot” projects increased 53 percent.

Still, the limited disclosure introduces some transparency to tech giant financials, Ms. Ovide adds. What if Alphabet’s move successfully puts pressure on Microsoft to break out its Azure cloud sales, or on Facebook to disclose Instagram’s revenue?

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced in London.

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Volunteers at a caucus site in Des Moines, Iowa. Jordan Gale for The New York Times

We still don’t have an Iowa caucus winner

Blame new reporting results, a faulty app or some other factor, but as of this moment there are still no results from the Iowa Democratic caucuses.

The official line: “A spokeswoman for the state party said there was no issue with the integrity of the vote but it was taking longer than anticipated to collect and check the reported data for irregularities,” Alex Burns and Jonathan Martin of the NYT write.

One potential culprit is a new app being used to report caucus results. It was created by Shadow, a tech company affiliated with a prominent Democratic nonprofit, Acronym. (Our colleague Sheera Frenkel says poor training on how to use the app, not a hack, appears to be at fault.)

What we are watching for:

• Whether Bernie Sanders, who has been surging in the polls, will officially become the front-runner for the Democratic Party nomination.

• How Democratic business leaders will respond. If Joe Biden underperforms in Iowa, will they flock to, say, Mike Bloomberg, Pete Buttigieg or Amy Klobuchar?

An event to watch: Top Wall Street executives are planning a fund-raiser for Mr. Biden in New York on Feb. 13, with entry at $2,800 a head, according to an invitation we have seen. Organizers include Roger Altman of Evercore; Blair Effron of Centerview Partners; Marc Lasry of Avenue Capital; and Faiza Saeed and Christine Varney of Cravath, Swaine & Moore.

An oil processing plant in Saudi Arabia. Fayez Nureldine/Agence France-Presse — Getty Images

OPEC weighs effects of coronavirus on oil prices

The group is meeting today and tomorrow to figure out a response to the Wuhan coronavirus outbreak, which has pushed down oil prices, Stanley Reed of the NYT reports.

• The epidemic has reduced demand from China and affected other big consumers of oil, like airlines.

• OPEC is expected to discuss whether to cut production by up to a million barrels a day, Mr. Reed adds.

• It may also push an emergency minister-level meeting to this month, several weeks ahead of schedule.

The group is moving because oil prices keep dropping. The price of Brent crude has fallen about 19 percent over the past month to less than $55 a barrel, erasing the effects of a production cut announced in December.

But there’s not much OPEC can do. One oil trader estimated that Chinese oil demand over the last two weeks has fallen about 2.5 million barrels a day, or close to 20 percent compared with the previous year. And China has cut the size of its March orders from Saudi Arabia.

More: The outbreak is likely to delay China’s ability to meet targets in the recent trade deal with the U.S. And the Chinese authorities’ efforts to halt the disease’s spread have turned neighbor against neighbor.

Goldman’s latest bid for Main Street: Amazon loans

First Goldman Sachs partnered with Apple on a credit card. Now it may work with Amazon to lend to small businesses as it tries to become a more mainstream financial giant, writes Laura Noonan of the FT.

• “Goldman has begun building technology to facilitate the offering of loans to small and medium-sized businesses over Amazon’s lending platform,” Ms. Noonan writes, citing unnamed sources.

• Goldman has sought to push beyond M.&A. advice and trading into other businesses, like consumer banking, wealth management and lending.

• Amazon would benefit, too: It could expand its services for merchants without having to take on additional risk.

Harry's shaving products. Mary Altaffer/Associated Press

Are regulators dashing start-ups’ dreams?

There’s potentially a lot at stake as the Federal Trade Commission sues to block the $1.4 billion sale of the upstart shaving brand Harry’s to Edgewell, the owner of Schick — including the fate of many start-ups.

• The F.T.C. argues that the deal would “eliminate one of the most important competitive forces in the shaving industry.”

• Over its nine years, Harry’s grew in popularity by selling sleekly styled razors online and in stores, chipping away at the market share of Gillette and Schick.

• Harry’s “has forced its rivals to offer lower prices, and more options, to consumers across the country,” said Daniel Francis, the deputy director of the F.T.C.’s Bureau of Competition.

Harry’s founders said they were disappointed by the move. They told Michael last year that they had considered going public and remaining independent, but decided that selling to Edgewell was the best way to keep growing.

This could spell trouble for other start-ups. Many investors support them in the hope that they will either sell themselves or hold an I.P.O. Not all start-ups can go public, so preventing them from selling to bigger rivals could deter investors from backing them in the first place.

Bernie Ebbers in 2006. Louis Lanzano/Associated Press

Bernie Ebbers, ex-WorldCom C.E.O., is dead

Mr. Ebbers, who built a telecom giant only to go to prison after its collapse after the dot-com boom and become a symbol of corporate greed, died on Sunday. He was 78.

• He turned his small Mississippi company into WorldCom through more than 40 takeovers, including the $37 billion acquisition of MCI, Kit Seelye and Daniel Victor of the NYT write.

• But WorldCom collapsed in 2002 — its bankruptcy was the biggest ever in the U.S. at that time — and Mr. Ebbers was later arrested on charges of corporate fraud.

• “Former employees testified that Mr. Ebbers had urged them to inflate WorldCom’s financial results to make the company appear more profitable than it was.”

• He was sentenced to 25 years in prison and came to be seen as a corporate villain alongside Jeff Skilling of Enron and Dennis Kozlowski of Tyco.

• Mr. Ebbers was released from a federal prison in Texas in December after his lawyers and family members said his health was deteriorating.

The speed read

Deals

• The financial services company Worldline agreed to buy Ingencio, a big maker of point-of-sale payment terminals, for $8.6 billion. (TechCrunch)

• The bankrupt retailer Forever 21 agreed to sell itself to two major landlords and Authentic Brands for $81 million, subject to higher offers. (WSJ)

• Asana, the productivity software company co-founded by a founder of Facebook, filed to go public through a direct listing of its shares. (TechCrunch)

Politics and policy

• The U.S. auto industry wanted more lenient emissions rules. Instead, it got chaos. (WSJ)

• Britain plans to ban the sale of new gas- and diesel-powered cars by 2035. (BBC)

• Washington is again abuzz with speculation over the identity of the anonymous Trump administration official who wrote an NYT Opinion piece and a book criticizing Mr. Trump. (Politico)

Tech

• Recent earnings reports show that the tech industry is increasingly divided between a few big giants and everyone else. (NYT)

• Makan Delrahim, the Justice Department’s antitrust chief, is said to have recused himself from the department’s competition review of Google because of past work he did for the company. (NYT)

• Drew Houston, the C.E.O. of Dropbox and a friend of Mark Zuckerberg’s, has joined Facebook’s board. (Business Insider)

• Democrats may be taking shots at the tech industry, but Silicon Valley moguls are still among their biggest donors. (Recode)

Best of the rest

• Citigroup reportedly suspended a senior bond trader in London over accusations of theft from the office cafeteria. (FT)

• The conservative radio host Rush Limbaugh said he had advanced lung cancer. (NYT)

• The Super Bowl broadcast on Fox drew 102 million viewers, up slightly from last year. (Bloomberg)

Thanks for reading! We’ll see you tomorrow.

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