Alphabet changes results format to separate Google, other bets

Hoping to provide greater clarity into the performance of its many holdings, Alphabet Inc said it would report financial results under two segments, Google and "Other Bets," when it releases fourth-quarter earnings on Monday. 

PHOTO: REUTERS

JAN 29, 20168:44 AM

[SAN FRANCISCO] Hoping to provide greater clarity into the performance of its many holdings, Alphabet Inc said it would report financial results under two segments, Google and "Other Bets," when it releases fourth-quarter earnings on Monday.

Under Google, Alphabet will report the results of its main Internet and related businesses such as search, ads, maps, YouTube, Android, Chrome and Google Play, and hardware products such as Chromecast, Chromebooks and Nexus, as well as its virtual reality offerings.

"Other Bets" will detail Alphabet's other businesses including Access/Google Fiber, Calico, Nest, Verily (formerly known as Google Life Sciences), GV (once known as Google Ventures), Google Capital and X, better known as Google X.

Alphabet said there would be no changes to its consolidated financial reporting but some changes would be made to how it breaks out revenue.

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Investors and analysts had praised the move to the Alphabet structure as a shift toward greater transparency and fiscal discipline when it was announced in August.

It will provide investors their first detailed peek into the finances of the parts of Google outside its highly profitable search engine.

In a blog post announcing the changes, Alphabet's chief executive, Larry Page, said the change allows the company to take the "long-term view" of its holdings and invest "at the scale of the opportunities and resources we see." "Fundamentally we believe this (structure) allows us more management scale, as we can run things independently that aren't very related." Since the Aug. 10 announcement, Alphabet's stock price has climbed almost 13 per cent, closing at US$748.30 on Thursday. In addition, the company is close to displacing Apple Inc as the most valuable US tech company.

REUTERS

    
 

Update: Amazon's Jeff Bezos steps up spending again to chase new growth

After delighting investors with a surprise profit in the middle of 2015, chief executive officer Jeff Bezos has decided to boost spending again, betting that speedier shipping, intelligent home gadgets and Web technology and services will deliver robust sales growth down the road.

PHOTO: AFP

JAN 29, 20169:15 AM

[SEATTLE] Amazon.com Inc just reminded everyone it's perennially in investment mode.

While fourth-quarter net income more than doubled to US$482 million, or US$1 a share, it was much less than what analysts' had projected and Amazon's shares plummeted as much as 15 per cent after the the Web retailer reported results Thursday for the busy holiday quarter.

After delighting investors with a surprise profit in the middle of 2015, chief executive officer Jeff Bezos has decided to boost spending again, betting that speedier shipping, intelligent home gadgets and Web technology and services will deliver robust sales growth down the road. He isn't shy about spending money: Amazon ramped up same-day deliveries in the latest period, driving up fulfillment costs by 33 per cent; the company will also air its first-ever Super Bowl ad next week.

All this is line with Mr Bezos's argument that Amazon is still in the early stages of growth: "It feels every bit like Day 1," he said in the earnings statement. 

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"I've been following Amazon for a very long time and I've seen people doubt this stock before," said Victor Anthony, an analyst at Axiom Capital Management. "They are investing to get closer to the customer and continue to take meaningful share of retail. Investors who stick with the stock will continue to be rewarded as they have been in the past five years." While revenue rose 22 per cent to US$35.7 billion in the fourth quarter, the stronger dollar subtracted US$1.2 billion, pushing it below analysts' average projection for US$35.9 billion. Net income fell short of analysts' prediction for US$742.9 million, or US$1.55.

Amazon's shares, which more than doubled last year, fell as much as 15 per cent in extended trading. The share slide erased more than US$5 billion from Bezos's net worth, to US$50.3 billion.

This was the first shopping season following Amazon's Prime Day promotion in July, an effort to boost the company's US$99-a- year subscriptions that include delivery discounts and convert occasional shoppers into devotees. It was also the first season that Amazon offered same-day deliveries in most big cities around the country to cater to last-minute shoppers. E-commerce is on track to make up 9.8 per cent of all US retail sales in 2019, up from 7.1 per cent in 2015, according to EMarketer.

At the end of 2015, there were more than 54 million Prime members, who get two-day deliveries and access to online movies and music, according to Consumer Intelligence Research Partners. That's an increase of 35 per cent, the researcher said, adding that the average US Prime shopper spends US$1,100 annually with Amazon, compared with US$600 for non-members.

For the first quarter, Amazon forecast revenue of US$26.5 billion to US$29 billion, compared with analysts' average estimates of US$27.6 billion.

One bright spot was Amazon Web Services, the cloud-computing division, which had fourth-quarter sales of US$2.4 billion, up 69 per cent from a year earlier. The unit, built on Amazon's expertise in running its Web store and handing massive amounts of data and analysis, represents a fast-growing and profitable part of Amazon's business, even though it makes up only about 7 per cent of revenue, the company said.

On the spending side, operating expenses increased 21 per cent to US$34.6 billion, Amazon said. Mr Bezos' biggest challenge is balancing Wall Street's thirst for profits against his own ambitions of using new technology - such as unmanned drones and intelligent household gadgets. Mr Bezos is also eager to replicate his US success abroad, including challenging Flipkart Online Services Pvt for India's fast-growing e-commerce industry. Spending on delivery fulfillment and technology jumped, according to Kerry Rice, an analyst at Needham & Co.

"They were well below what people were expecting on earnings because they spent more than what people were expecting," Mr Rice said. "Amazon reached this new level of profitability in 2015 that we hadn't seen previously. If they don't keep that trend going in the right direction, the stock goes down."

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Singapore shares open slightly higher on Friday

By

Nisha Ramchandaninishar@sph.com.sg@NishaBT

PHOTO: REUTERS

JAN 29, 20169:20 AM

SINGAPORE shares opened slightly higher on Friday, after Wall Street gained ground on Thursday.

The benchmark Straits Times Index (STI) edged up 3.64 points or 0.14 per cent to 2,566.09 by 9.05am, with 54.4 million shares worth S$101.9 million changing hands.

Gainers outnumbered losers 81 to 46.

Actively traded stocks when the market opened included City Developments, Singtel, DBS, Global Logistic Properties and United Overseas Bank.

    
 

The Swiss Sovereign Money Initiative: Answers to Critisisms

The Swiss Sovereign Money Initiative: Answers to Critisisms

 1) Won’t the Sovereign Money Initiative lead to a reduction of the banking sector in Switzerland? On the contrary! With sovereign money the Swiss Franc will become the safest currency in the world. That’s a huge competitive advantage for Swiss banks, so they’re likely to win lots of new business in the area of wealth management. The sovereign money reform will encourage a higher standard of quality controls in the financial industry, as is normal for industries in the real economy. This will ensure that Swiss banking jobs are “future-proofed”. After a sovereign money reform, banks will no longer be able to trade with money they have created for themselves. This is likely to lead to a reduction in the number of people employed in investment banking. This has already been observed over the last few months, as this business model is becoming less and less viable. Banking will be profitable and stable with the traditional business model. Jobs in banking will be safe. This model has already been shown to work as it is in use by “PostFinance” (the financial service run from Post Offices in Switzerland) which is operating successfully without being able to create money. PostFinance doesn’t have a banking licence, so it can’t create money: instead it has to work with money it has from savers or by borrowing from other banks. Over the last few years PostFinance has made an average profit of about CHF 600 million. Other financial firms and insurance companies are also profitable businesses without being able to create money.

2) Is it possible for Switzerland to bring in a sovereign money reform alone? Yes! Fundamentally it’s irrelevant to organisations outside Switzerland how money is created in Switzerland – whether it’s backed with gold or not, or whether the minimum banking reserve is 2, 10 or 100%. For them it’s more important that the Swiss National Bank has a “good” monetary policy which maintains price stability. International business partners from outside Switzerland won’t notice anything different when Switzerland changes over to sovereign money. Foreign exchange trading will continue as now, and foreign currencies will continue to be able to be exchanged with Swiss Francs. Switzerland will profit from the advantages of sovereign money, regardless of whether other countries bring in a sovereign money reform or not.

3) Does it follow that there will be upwards pressure on the Swiss Franc? As sovereign money is so good and secure, there is a danger that funds will flow into Switzerland putting an upwards pressure on the value of the Swiss Franc. The Swiss National Bank already has experience of this, and can take appropriate measures in order to stabilise the exchange rate. In addition to targeted foreign exchange purchases there are also other proven interventions such as introducing negative interest rates for foreign investors, or capital controls. A weak currency is generally much more of a problem to a country than a strong one.

4) Won’t sovereign money result in a threat to the independence of the Swiss National Bank, or a concentration of power in the Swiss National Bank? No, it’s not that the Swiss National Bank will be given a major new mandate with the introduction of sovereign money, but rather that it will have more effective instruments with which it can fulfil its current mandate. The Swiss National Bank will only have responsibility for the total money supply, not for individual loans. The Swiss National Bank acts only in accordance with the Swiss Constitution and the law, and therefore acts independently from the Swiss Federal Council, politics and industry.

5) How can the Swiss National Bank know how much money is needed? The Swiss National Bank needs the sovereign money reform to be able to fully control the amount of money in circulation. The Swiss National Bank collects the best statistics on the economy, and therefore has the best overview as to how much money is needed. What’s new is that it alone can create money. This is a necessary precondition for it to be able to take on its full responsibility of acting in the interests of the country. Individual private banks don’t act on economic data for the country; rather they only act from a limited business perspective with the aim of maximising shareholder value. The information from finance and capital markets doesn’t disappear in a sovereign money system: these markets function as they do today making risk assessments and setting prices. Finally, if banks are lacking the funds they need to make loans, they can ask to borrow funds from the Swiss National Bank.

The Swiss Sovereign Money Initiative*: five questions with answers *known as the “Vollgeld-Initiative” in German

The Swiss Sovereign Money Initiative*: five questions with answers *known as the “Vollgeld-Initiative” in German

 1) What is sovereign money? Sovereign money is the money that a central bank brings into circulation. At the moment, this consists only of the coins and bank notes in circulation. This legal tender makes up only 10% of the money in circulation in Switzerland. 90% is electronic money or book-money, which is created by the banks at the click of a button to finance their business (bank loans, mortgages, financial products). Most people believe that the money they have in their bank accounts is real money i.e. real Swiss Francs (or pounds Stirling etc). This is wrong! Money in a bank account is only a liability of the bank to the account holder, i.e. a promise the bank makes to provide money, but it is not itself legal tender.

2) What would change with the Swiss Sovereign Money Initiative? The way the money system works today doesn’t comply with the intention of the Swiss Constitution (Article 99: “The Money and Currency System is a matter of the State”). The sovereign money initiative will correct this. The Swiss National Bank alone will be able to create electronic money. Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks, or even, if necessary, money that the Swiss National Bank has provided them.

 3) What are the fundamental advantages of sovereign money? Sovereign money in a bank account is completely safe because it is central bank money. It does not disappear when a bank goes bankrupt. Finance bubbles will be avoided because the banks won’t be able to create money any more. The state will be freed from being a hostage, because the banks won’t need to be rescued with taxpayers’ money to keep the whole money-transaction system afloat i.e. the “too big to fail” problem disappears. The financial industry will go back to serving the real economy and society. The money and banking systems will no longer be shrouded in complexity, but will be transparent and understandable.

 4) What will happen to banks after a sovereign money reform? After a changeover to sovereign money, the banks will continue to offer all the normal financial services (giving credit, enabling transactions, wealth management etc.). However, there will only be central bank money in our current accounts at the bank. This electronic money has value exactly like today’s coins and bank notes have value. The banks can only work with money they have from savers, other banks or (if necessary) funds the central bank has lent them, or else money that they own themselves. Banks won’t have an unfair advantage over all other market participants any more, as they won’t be able to create money any more.

5) What will be the effect of sovereign money for bank customers? From the moment that sovereign money is introduced, there’ll only be money guaranteed by the central bank in all transaction bank accounts. The banks must manage these accounts like they manage accounts for stocks and shares. The money will belong to the bank customer, and it won’t be lost if the bank goes bankrupt, but it won’t yield any interest. Anyone who would like to get interest rather than have “bank-crisis-safe” money can, as now, put their money in a savings account or in other investments that give interest.