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Facebook invests billions in metaverse efforts as ad business slows

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October 25, 2021

By Elizabeth Culliford and Nivedita Balu

(Reuters) -Facebook Inc said on Monday it will start publishing the financial results of its augmented and virtual reality labs as a separate unit, where it is investing billions in its ambitions to build the “metaverse” and as it reported that its main advertising business faces “significant uncertainty.”

Facebook, which reported third-quarter profit up 17%, warned that Apple Inc’s new privacy changes would weigh on its digital business in the current quarter. The social media company reported quarterly revenue below market expectations, which Chief Operating Officer Sheryl Sandberg told analysts was due to the iOS changes.

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David Wehner, Facebook’s chief financial officer, said the company expected its investment in its hardware division, Facebook Reality Labs, to reduce overall operating profit in 2021 by approximately $10 billion.

The financial commitment to this hardware-focused unit which will work on Facebook’s “metaverse” ambitions, https://www.reuters.com/technology/facebook-sets-up-new-team-work-metaverse-2021-07-26 comes as the company is swamped by coverage of documents leaked by former Facebook employee and whistleblower Frances Haugen which she said showed the company chose profit over user safety. CEO Mark Zuckerberg started Monday’s analyst call by issuing a defense against criticisms stemming from the documents, which he said painted a “false picture of our company.”

The CEO has said Facebook in the coming years will be seen not as a social media firm but as a company focused on the metaverse. The buzzy term refers broadly to a shared virtual environment which can be accessed by people using different devices.

Facebook, which has invested heavily in virtual reality (VR) and augmented reality (AR), including buying companies like Oculus, this year created a product team to work on the metaverse. This month, it said it plans to hire 10,000 employees in Europe over the next five years to work on this initiative.

“This is not an investment that is going to be profitable for us any time in the near future,” Zuckerberg told analysts. “But we basically believe that the metaverse is going to be the successor to the mobile internet.”

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Wehner said that starting in the fourth quarter of 2021, it would break out Facebook Reality Labs as a separate reporting segment from Facebook’s family of apps.

Shares of the company were up about 1% in after-hours trade on Monday. Facebook, whose shares have gained about 20% so far this year, is about $85 billion away from regaining a spot on the $1 trillion club and joining new entrant Tesla Inc.

RETOOLING

The world’s largest social media network is under scrutiny from global lawmakers and regulators, including from the Federal Trade Commission which has filed an antitrust lawsuit alleging anticompetitive practices.

The whistleblower documents, first reported by the Wall Street Journal, have intensified scrutiny of the company. They include internal research and reports about Instagram’s effects on the mental health of teens and about whether Facebook’s platforms stoke divisions, as well as its handling of activity around the Jan. 6 Capitol riot and inconsistencies in the company’s content moderation for users around the globe.

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For the third quarter, Facebook reported monthly active users of 2.91 billion, up 6% from a year ago but short of analysts’ estimates.

On the call, executives emphasized the company’s focus on attracting young adults, including through its short video feature “Reels.”

“We are retooling our teams to make serving young adults their North Star rather than optimizing for the larger number of older people,” said Zuckerberg, a shift he said would take “years, not months, to fully execute.”

The leaked documents show Facebook’s ongoing concerns about its appeal to younger users, as rivals like TikTok have enjoyed popularity with teens. They also show the company’s difficulties in dealing with users who create multiple accounts on its platform.

Facebook said it expects fourth-quarter revenue to be in a range of $31.5 billion to $34 billion. Analysts had forecast $34.84 billion in revenue, or a 24.1% jump, according to IBES data from Refinitiv.

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Its third-quarter revenue too faced the brunt of Apple’s privacy rules that made it harder for brands to target and measure their ads on Facebook. Sandberg, the COO, said Facebook expects it will solve “more than half” of the problems that led to the under-reporting by the end of this year.

“The changes to Apple privacy settings have not hurt Facebook in a major way, at least not yet,” said Haris Anwar, an analyst at Investing.com. “Though revenue and user numbers have taken a slight hit over the past quarter, the company’s earning power is still intact.”

The company’s total revenue, which primarily consists of ad sales, rose to $29.01 billion in the third quarter from $21.47 billion a year earlier, missing analysts’ estimates of $29.57 billion. Sandberg said Facebook’s advertisers were also affected by the global supply-chain disruptions and labor shortages, which hurt advertising demand across a range of sectors and regions.

Facebook said it repurchased $14.37 billion in stock during the third quarter and announced an additional $50 billion in share buybacks.

(Reporting by Elizabeth Culliford in New York, Nivedita Balu in Bengaluru and Sheila Dang in DallasEditing by Arun Koyyur, Peter Henderson and Matthew Lewis)

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Delta flight from South Africa to Atlanta diverted to Boston for “technical specifications”

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November 28, 2021

(Reuters) -Delta Air Lines said a flight from South Africa to the United States was temporarily diverted from Atlanta to Boston on Sunday for technical reasons.

Flight 201, an Airbus A350, from Johannesburg was initially set to arrive at Hartsfield–Jackson Atlanta International Airport on Sunday but was instead routed to Boston’s Logan International Airport, Delta said.

The diversion “has to do with technical specifications of our A350 aircraft and the payload of this particular flight,” the company said in an email.

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“This can happen on ultra-long-haul flights when optimal operating conditions can’t be met,” it said.

The Federal Aviation Administration told Reuters it would investigate the situation.

The flight, which was initially scheduled to land in Atlanta at 8:15 EST (1215 GMT), was rescheduled to land at in Boston at 9:27 a.m. before departing for Atlanta at 10:40 a.m., it said.

The company did not cite the newly discovered Omicron variant of the coronavirus, which has been detected in South Africa, as a reason for the temporary diversion.

More than a dozen passengers on a flight from Johannesburg to Schiphol that landed Friday tested positive https://www.reuters.com/world/europe/dutch-set-announce-findings-omicron-cases-among-safrica-travellers-2021-11-28 for the new variant, Dutch authorities said on Sunday.

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(Reporting by Peter Szekely in New York and David Shepardson in Washington; Editing by Heather Timmons and Mark Porter)

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Chip shortage to cost Daimler Truck billions in revenues – Automobilwoche

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November 28, 2021

BERLIN (Reuters) – Daimler Truck Chief Martin Daum expects the global chip shortage to hit revenues by several billion euros this year and sees the problem continuing into next year, Automobilwoche reported on Sunday.

The world’s largest commercial vehicle maker, to be spun off from Daimler on Dec. 10, has outlined cost-cutting measure aimed at boosting profit margins as it struggles with chip shortages hurting the entire sector.

Daum said there would be a significant financial hit.

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“It is a huge sum,” Daum told Automobilwoche, saying the company would sell a “mid five-digit number” fewer vehicles than it could have.

With an average price of 100,000 euros ($113,170) per vehicle, this means several billion euros in lost revenues, reported Automobilwoche.

“We also have many vehicles sitting in the factory where just one part is missing. These deliveries are a priority because they are already sold,” said Daum.

He also told Automobilwoche that supply problems are likely to continue in 2022.

($1 = 0.8836 euros)

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(Reporting by Madeline Chambers, Editing by Louise Heavens)

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It’s raining dividends, hallelujah! Canadian banks set to post strong results

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November 28, 2021

By Nichola Saminather

TORONTO (Reuters) – Canada’s top six banks are expected to resume raising dividends and share buybacks after nearly a two-year hiatus and report strong quarterly earnings this week, which could boost the sector’s appeal to yield-hungry investors even as stocks trade close to all-time highs.

The market will also be looking for clues on the banks’ expected expense growth into next year as wage pressures intensify, and long-awaited improvements in net interest margins as interest rates rise.

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The “big six” Canadian banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia (Scotiabank), Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada – on average have a dividend yield of 3.3%, according to Reuters calculations.

That compares with the global sector median of 2.5%, according to Refinitiv data.

The dividend increases, which would be the first since the country’s financial regulator imposed a moratorium in March 2020 that was lifted earlier this month, could range from 10% for Scotiabank at the lower end to 34% at National Bank, Gabriel Dechaine, an analyst at National Bank Financial, wrote in a Nov. 22 note describing the coming hikes as a “dividend growth tsunami.”

The banks are also expected to announce repurchases of about 2% of their outstanding shares on average.

“It’s going to be a significant (dividend) increase, and will help them reduce excess capital on their balance sheets,” said Steve Belisle, portfolio manager at Manulife Investment Management. “That flows through to better ROE (return on equity).”

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Even without the higher dividends or buybacks, Canadian bank shares have rallied to record highs, driven in part by better-than-expected earnings due to the release of reserves set aside to cover loan losses that haven’t materialized.

LOAN GROWTH ACCELERATION

The Canadian banks will be reporting their fourth-quarter earnings, with Scotiabank kicking off the results on Tuesday.

Analysts expect adjusted earnings for the top six lenders to jump about 37% from the year-earlier period, helped by a pick-up in business and credit card lending, strong mortgage growth and continued reserve releases.

An acceleration in loan growth is expected, as savings built up during the COVID-19 pandemic have lifted consumers’ and businesses’ purchasing power even at higher prices, with the broader economic recovery adding fuel to the fire, said Philip Petursson, chief investment strategist at IG Wealth Management.

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The one blot on the horizon may come in the form of non-interest expenses. They could be 1% higher than in the third quarter, with much of the anticipated rise driven by variable compensation, and up 4% in fiscal 2022 on rising labor costs and continued investments in technology, CIBC Capital Markets analysts wrote in a note.

Earnings from capital markets earnings could also decline, although higher-than-expected trading revenues could help offset lower investment banking fees, some analysts said.

Profits are expected to be 6.6% lower than in the third quarter, largely due to releases of reserves, which are difficult to estimate and have driven better-than-expected results in past periods, and could again lead to positive surprises, analysts said.

The banks’ improving revenue growth, strong capital positions and expectations for returns on equity to remain in the mid-teens for longer than expected are positives, National Bank’s Dechaine said.

Wealth and asset management units are also likely to have seen further growth, as consumers continued to deploy cash piles they’ve amassed during the pandemic, Petursson said.

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“It’s really hard to see where the warts would be on the banks’ earnings,” he added.

(Reporting by Nichola Saminather; Editing by Denny Thomas and Paul Simao)

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