Goldman Sachs strategists expect earnings to narrowly beat estimates this year while margins come under increased pressure. Only the really big companies are likely to continue posting strong performance. For the coming year, Goldman analysts forecast S&P 500 EPS growth of 6% With that backdrop, let’s take a look at the top stories for the day:
EU Rejects Facebook’s Content Moderation Offer
Facebook’s FB Zuckerberg met with EU regulators including competition chief and digital EVP Margrethe Vestager, internal market commissioner Thierry Breton and online disinformation policy lead Vera Jourová, while also releasing its white paper titled "Charting a way forward on online content regulation."
Facebook’s rules essentially praise its own efforts, stress the importance of its own AI tools to fight disinformation and content moderation, while cautioning against overly strict regulation that could have unintended consequences, including the stifling of innovation.
At the meeting with EU officials, Zuckerberg said that Facebook was a platform somewhere in between a telecom and a content provider, so its regulation should be tighter than a telecom but looser than a content provider, or in other words, that it shouldn’t be punished for harmful content or fake news as long as it had adequate systems and procedures in place to fight it. He also wants the flexibility to develop and test content moderation technology.
The EU isn’t having it. Thierry Breton said, "I told him the comparison with telecoms is not relevant. A message [on Facebook] reaches hundreds of millions. On telcos you have one-on-one communications,” and "It's [Facebook's plan] not enough. It's too slow, it's too low in terms of responsibility and regulation."
IRS and Facebook Meet in Court
The Internal Revenue Service’s (IRS) lawsuit against Facebook commenced Tuesday.
The lawsuit is based on the assumption that Facebook undervalued technology licensed to its Ireland unit, allowing it to book lower royalties from these assets, thus lowering its tax liability in the country. The IRS figures Facebook owed it $9 billion in back taxes.
Facebook contends that since the case relates to the position in 2010 when the company wasn’t publicly traded, had less than a fifth of the users it has today and had no mobile revenue that generates billions today, there was no undervaluation. In fact, the company has suggested that the assets were overvalued and the IRS in fact owes it money.
“Throughout Facebook’s history, we have worked with the IRS and complied with all applicable tax laws,” Facebook spokesperson Bertie Thomson said. “Our business has had hits and misses but we stand behind the actions taken over a decade ago during a time of great risk and uncertainty for the company.”
The practice of using low-tax jurisdictions to lower a company’s overall tax burden isn’t new and is widely used by technology and non-technology companies alike. However, if the IRS loses, it would embolden the companies using these tactics. And if the IRS wins, the precedent could impact a lot of share prices.
Israeli Court Orders Facebook
Last year, Facebook discovered that an Israeli surveillance company NSO Group was involved in extensive hacking operations on behalf of the Israeli government, breaking into at least 1,400 user phones, including those belonging to diplomats, political dissidents, journalists and senior government officials in 20 countries, including Mexico, the United Arab Emirates and Bahrain.
Following the discovery, the company blocked several accounts belonging to NSO employees, who then took the matter to court. The court has now ordered Facebook to unblock one account and NSO employees are optimistic that others will follow.
"NSO Group has conducted cyber-attacks against human rights activists, journalists, and diplomats. We will continue to take appropriate action to defend our users and we look forward to participating in open court to document how NSO threatens the safety and security of users and needs to be held accountable," Facebook says.
Amazon Counters Oracle Claim on JEDI
The fight for the JEDI contract is on. While achieving a legal stay on Microsoft’s MSFT execution of the contract, Amazon AMZN is countering Oracle’s ORCL claim that the bidding process wasn’t completely clean because of relationships between Amazon employees and former Pentagon officials and violations of procurement law. The Pentagon eliminated Oracle and International Business Machines IBM from the competition in April 2019, and in July, the U.S. Court of Federal Claims ruled that there was no impact on the integrity of the acquisition process as claimed by Oracle.
The case specifically refers to Deap Ubhi who worked at AWS before joining the government and then, continued to work on the JEDI contract although he had already accepted employment at AWS in October 2017.
Amazon maintains that Oracle’s lawsuit is based on “suspicion and innuendo” and that it hadn’t received any “competitively useful” information from the people mentioned. Government lawyers said there was no major input from the mentioned employees.
Google Cloud Chooses AMD Epyc
Alphabet’s GOOGL Google Cloud Platform (GCP) has rolled out cloud computing instances on Advanced Micro Devices’ AMD second-generation Epyc server CPUs codenamed Rome. Both Microsoft’s Azure and Amazon’s AWS already offer Epyc-based instances. The devices enable both general purpose and high-performance workloads. It’s likely that these CPUs from AMD offer better performance benefits than offerings from Intel, which could help it gain market share. But it remains unclear whether there is a price-performance advantage as well.
Google Cloud Job Cuts
Google Cloud is reportedly looking to trim its workforce as it tries to play catchup to Microsoft and Amazon.
“We recently communicated organizational changes to a handful of teams that will improve how we market, partner, and engage with customers in every industry around the globe,” a company spokesperson said in a statement, per CNBC. “We made the difficult, but necessary decision to notify a small number of employees that their roles will be eliminated.”
CNBC expects the number to be less than 50 and Google hopes to absorb most of the workers elsewhere in the company.
Google Shuts Down Makani
A Google subsidiary working on wind energy, Makani was formed in 2006 to make flying kites to harness wind power and, eventually, replace more expensive turbines. “Despite strong technical progress, the road to commercialization is longer and riskier than hoped, so from today Makani’s time at Alphabet is coming to an end,” Fort Felker, Makani’s chief executive, wrote in a blog post. Falling prices of wind energy has made it difficult to deploy new technology, reducing the project’s viability.
Spain on Google Tax
The Spanish parliament has approved a proposal to impose a 3% tax on online ads, on deals brokered on digital platforms and on sales of user data by technology companies with global annual revenue of more than 750 million euros ($811.05 million) and more than 3 million euros in Spain, according to budget minister Maria Jesus Montero.
Spain is essentially going the same way as other European countries like France and the UK have gone. These taxes are expected to go into effect by year-end, by which a more detailed internal law is expected to be framed. The problem has arisen because of OECD’s delay in drawing a consensus among member nations on how to tax cross-border digital behemoths.
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