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The Economy Is in Record Decline, but Not for the Tech Giants

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A day after lawmakers grilled the chief executives of the biggest tech companies about their size and power, Amazon, Apple, Alphabet and Facebook reported surprisingly healthy quarterly financial results, defying one of the worst economic downturns on record.

Even though the companies felt some sting from the spending slowdown, they demonstrated, as critics have argued, that they are operating on a different playing field from the rest of the economy.

Amazon’s sales were up 40 percent from a year ago and its profit doubled. Facebook’s profit jumped 98 percent. Even though the pandemic shuttered many of its stores, Apple increased sales of all its products in every part of the world and posted $11.25 billion in profit. Advertising revenue dropped for Alphabet, the laggard of the bunch, but it still did better than Wall Street had expected.

“The strong continue to get stronger,” said Dan Ives, managing director of equity research at Wedbush Securities. “As many companies are falling by the wayside, the tech stalwarts continue to gain muscle and power in this environment.”

The tech companies’ financial performance was a remarkable contrast to the overall health of the U.S. economy. The Commerce Department said on Thursday that the country’s gross domestic product fell 9.5 percent in the second quarter of the year as consumers cut back spending. It was the steepest drop on record.

Combined, the companies reported $28.6 billion in quarterly net profit, underscoring how regulatory scrutiny remains more background noise and a distraction for them rather than an imminent threat to their businesses.

On Wednesday, a congressional antitrust panel questioned the companies’ leaders — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet — about their market power and business practices.

It was part of a broader inquiry by regulators and lawmakers into the dominance of the tech giants, with open investigations from the Justice Department, the Federal Trade Commission and state attorneys general.

The spectacle of the chief executives of the four companies, worth nearly $5 trillion by market capitalization combined, appearing before a House subcommittee was historic. But antitrust investigations often take years, especially if regulators seek more drastic measures like breaking up companies.

The pandemic has reinforced the advantages held by the big tech companies. As consumers stay home, demand for Amazon’s shopping site surged, while companies are turning to its cloud computing products to keep their services up and running. Apple said the shift to working and learning from home had led more people to splurge on Apple’s devices and use its services.

“Our products and services are very relevant to our customers’ lives, and in some cases, even more during the pandemic than ever before,” Luca Maestri, Apple’s finance chief, said in an interview. He noted, however, that Apple could have made several billion dollars more if not for the pandemic.

Facebook and Google continue to be important to marketers and they are weathering the downturn in advertising better than rivals. Facebook shrugged off a spending slowdown, hailing record levels of engagement with its products.

Alphabet said revenue from Google search ads fell 10 percent — pushing the company’s overall revenue lower for the first time in the company’s history — but that still was better than rivals. Last week, Microsoft reported an 18 percent slide in search advertising revenue.

Since the beginning of March, the companies’ stock prices have risen by an average of 35 percent, compared with a 10 percent rise in the S.&P. 500.

Buoyed by a pandemic-induced surge in online shopping, Amazon had $88.9 billion in quarterly sales, up 40 percent from a year earlier. Profit doubled, to $5.2 billion, even though the company invested in expanding warehouses and other ways to increase capacity.

“Simply put, Covid-19, in our view, has injected Amazon with a growth hormone,” Tom Forte, an analyst at the investment bank D.A. Davidson & Company, wrote in a recent note to investors.

In April, Mr. Bezos told investors to expect no operating profit, and maybe even a loss, as the company planned to spend about $4 billion on coronavirus-related expenses like temporary pay increases, declines in warehouse efficiency because of social distancing, and $300 million for testing its work force for the virus.

But even those costs did not compare to the immense surge in demand, with online retail sales up 48 percent.

On a call with reporters, Amazon declined to say if it would give its warehouse workers virus-related bonuses or raises in the current quarter, but added that pandemic-related expenses would fall to $2 billion in the quarter.

Sales at Amazon’s lucrative cloud computing business, whose customers include major corporations and small start-ups, grew 29 percent, to $10.8 billion, falling short of analyst expectations, though it was more profitable than they had expected.

Facebook’s revenue for the second quarter rose 11 percent from a year earlier to $18.7 billion, while profits jumped 98 percent to $5.2 billion. The results were well above analysts’ estimates of $17.3 billion in revenue with a profit of $3.9 billion, according to data provided by FactSet.

Despite increasing scrutiny from regulators, questions about its role in subverting elections and how people use the platform to spread misinformation, neither users nor advertisers have shown an inclination to stop using Facebook.

More than three billion people now regularly come to Facebook or one of its family of apps, as the services have overtaken much of the developed world. And some 2.47 billion people use one or more of Facebook’s apps every day.

The company said its number of monthly active users rose 12 percent from a year ago and added that it was seeing record levels of engagement and usage this year because of shelter-in-place orders around the world.

In late June, a grass-roots campaign, Stop Hate for Profit, rallied many of the top advertisers on Facebook to reduce their spending because of issues with hate speech on the site.

Facebook cautioned investors on Thursday that fallout from the ad boycott was noticeable in July and warned that greater economic turmoil from the pandemic could eventually hurt Facebook’s bottom line.

Despite the global economic slowdown, people kept buying Apple devices en masse and paid the tech giant billions of dollars more for apps and services on those gadgets.

Apple said its sales rose 11 percent to $59.7 billion and its profits increased 12 percent to $11.25 billion. Both figures handily beat analysts’ expectations, with Wall Street having forecast declines in both areas.

Sales were particularly strong for iPads and Mac computers, as the public was increasingly forced to work and socialize virtually. Revenue also surged in its internet-services business, which include Apple’s cut of sales from the App Store, the subject of antitrust investigations in the United States and Europe.

Even the iPhone, which remains the company’s biggest seller, had a slight increase in sales for only the second time in the past seven quarters.

Apple also announced a stock split on Thursday that would quadruple its number of shares, allowing people to buy a share in the company for a quarter of the current stock price, which closed at $384.76 on Thursday.

Google’s parent company, Alphabet, reported its first-ever decline in quarterly revenue, hurt by a slowdown in spending by advertisers. The company posted revenue of $38.3 billion and a profit of $6.96 billion — significantly higher than what Wall Street analysts had predicted.

Ruth Porat, Alphabet’s chief financial officer, said advertising revenue “gradually improved” as the quarter went on. The decline came largely from lower sales of advertisements that run alongside Google’s search results, but the company’s efforts to diversify its business paid off as revenue from YouTube ads and its cloud computing business grew.

When asked in a call with financial analysts about the congressional hearing, Mr. Pichai said the company would have to learn to live with the investigations.

“The scrutiny is going to be here for a while and we’re committed to working through it,” he said.

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Fifa 21 gameplay trailer: Agile dribbling and new features

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There’s loads of changes to gameplay in the new Fifa game

The official gameplay trailer for Fifa 21 has been released showing off loads of new features.

The new game comes out in October and follows Fifa 20 which received a lot of criticism after its release last year, with some players unhappy about overpowered player abilities, bugs and glitches.

EA Sports – which makes the game – says Fifa 21 will reward players for their “creativity and control with new features, in the most intelligent Fifa gameplay to date”.

Let us know what you think of the changes in the comments.

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TikTok is reportedly planning to challenge the Trump Administration ban

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TikTok, the video-sharing app that’s moved to the center of the economic conflict between the US and China, is planning to challenge the executive order issued by President Donald Trump that would force the sale or ban the service in the United States.

According to a report from National Public Radio yesterday, TikTok could file a federal lawsuit challenging the order as soon as Tuesday. The lawsuit is expected to be filed in the U.S. District Court for the Southern District of California, where TikTok has its American headquarters.

TikTok will challenge the constitutionality of the ban and its underlying claims that the video sharing service represents a national security threat to the country, according to NPR’s report.

TikTok did not respond to a request for comment at the time of publication.

On Thursday, the President signed executive orders that put a 45-day deadline on American companies to unwind their business relationships with TikTok’s parent company, Bytedance, and with WeChat, the messaging service owned by Chinse tech giant, Tencent.

TikTok had already laid out its opposition to the executive order when news first broke that the President had signed it.

As TechCrunch reproted, the company said the order was “issued without any due process” and would risk “undermining global businesses’ trust in the United States’ commitment to the rule of law.” The mechanisms the White House wants to use to ban the app include the International Emergency Economic Powers Act and the National Emergencies Act. But claiming that the operations of a subsidiary of a foreign business on US soil constitutes a national emergency is highly unprecedented.

Under the International Emergency Economic Powers Act, which was passed during the Iran hostage crisis in 1976, the President has sweeping authority to issue tariffs and suspend economic relationships with other companies.

Any challenge to the executive order needs to come soon, because Bytedance, TikTok’s parent company is also looking at how to unwind its US operations through a sale.

After the President’s executive order was announced, Microsoft said in a statement that it was in talks with Bytedance about acquiring TikTok.

Micrsofot said:

“Following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump, Microsoft is prepared to continue discussions to explore a purchase of TikTok  in the United States. Microsoft fully appreciates the importance of addressing the President’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury.”

Analysts and bankers have said that TikTok’s US business could be worth anywhere from $20 billion to $50 billion, thanks to the company’s user base of over 100 million customers in the US, according to reports in Fortune.

And other bidders are emerging for TikTok’s US business as well. According to The Wall Street Journal, TikTok has also engaged in preliminary discussions with Twitter over a possible combination.

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Trump advisers Mnuchin and Navarro fought over the fate of TikTok inside the Oval Office

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Navarro pushed back, demanding an outright ban of TikTok, while accusing Mnuchin of being soft on China, the people said, speaking on the condition of anonymity to discuss private discussions freely. The treasury secretary appeared taken aback, they said.

The ensuing argument — which was described by one of the people as a “knockdown, drag-out” brawl — was preceded by months of backroom dealings among investors, lobbyists and executives. Many of these stakeholders long understood the critical nature of establishing close connections with key figures in the Trump administration.

But over the past few weeks, they also were reminded of the unpredictable and precarious nature of business dealings under a Trump-led government — and how the winner of a heated debate in front of the president could help decide the fate of a multibillion-dollar deal that may reshape the technology business landscape for years to come.

Over the past two weeks, TikTok’s future has been publicly tossed about, first as it appeared the president would agree to a sale, then that he would ban it outright, then that he would allow a sale again — but only if a fee were paid to the U.S. Treasury.

Behind the scenes, an enormous amount of scrambling has happened in response to each twist and turn. And an executive order signed by the president Thursday night while on Air Force One — which would essentially shutter the U.S. operation of TikTok in 45 days unless it was sold — has sown more confusion about the future of one of the fastest-growing social media start-ups in the world. Few on the East or West coasts knew the order was coming.

The chaotic approach dates back to Trump’s days as a business executive, said Douglas Holtz-Eakin, president of the American Action Forum, a nonprofit, conservative issue advocacy group.

“It’s only effective in the moment, and it wears off in the long term,” said the former director of the Congressional Budget Office and former economic policy adviser to John McCain’s presidential campaign. “It’s hard for the business community to figure out the direction of our policies.”

White House spokesman Judd Deere said in a statement that the administration “is committed to protecting the American people from all cyber related threats to critical infrastructure, public health and safety, and our economic and national security.”

Treasury Department spokeswoman Monica Crowley said in a statement that the department does not comment on the specifics of meetings with the president, although she confirmed that the secretary did participate in a meeting with the president to update him on national security recommendations.

“One of the great strengths of the Trump administration is the president’s reliance on strong, often opposing views, to reach decisions which are invariably in the best interests of the American people,” Navarro said in a statement. “Because this is true, it is critical for a strong America that ‘what happens in the Oval Office, should stay in the Oval Office’ so I have no comment on what is clearly a malicious leak riddled with hyperbole and misinformation.”

A tech finance giant shudders

TikTok is considered one of the biggest technological success stories to come out of China. People around the world use the app to make short videos about their lives, pets and dance moves. Parent company ByteDance CEO Zhang Yiming calls it a “window” into the world.

TikTok has 100 million U.S. users, many of whom are under 25 years old. Its success has drawn interest from prominent investors, including Sequoia Capital, a leading Silicon Valley venture capital firm. In 2014, its China arm made a prescient $35 million investment in TikTok’s parent company, giving it a stake that today is reportedly valued at more than $800 million. TikTok’s owner also acquired Musical.ly in 2017 for $1 billion, making it even more attractive to young users.

But with that success came scrutiny. TikTok was first identified as a potential national security threat in summer 2019, when U.S. officials approached ByteDance about concerns regarding its acquisition.

That turned into a formal national security investigation this year. It was led by the Committee on Foreign Investment in the United States (CFIUS), an interagency body that screens foreign investment transactions for national security risks and recommends to the president on security grounds whether certain proposed acquisitions should be rejected or completed acquisitions reversed.

In TikTok’s case, the app has been downloaded more than 175 million times in the United States and, like other apps, accesses copious amounts of sensitive personal data, including Internet and browsing activity, location data and search histories. That information is potentially available to the Chinese government under a national intelligence law that requires any Chinese company to “support, assist and cooperate with state intelligence work.”

The news of the investigation sent shudders through the halls of Sequoia Capital. Global managing partner Doug Leone took the lead on advocating for TikTok with the Trump administration, telling people he could use his influence with Trump to help the company, according to a person familiar with the discussions who spoke on the condition of anonymity to describe a private conversation. Leone and his wife have given $100,000 to Trump’s reelection bid, and Leone sits on the president’s task force for reopening the economy, according to public records.

Leone also cultivated his relationship with Mnuchin and the president’s senior adviser and son-in-law Jared Kushner, the person said. Sequoia is a co-investor in a health-care company with Kushner’s brother Josh.

Sequoia spokesperson Natalie Miyake said in a statement it remains supportive of TikTok and the service it provides for millions of people, and looks forward to the company reaching “a win-win solution for all parties” involved that is acceptable to the U.S. government.

Meanwhile, TikTok hired roughly a dozen lobbyists this year, one of whom ran Trump’s campaign in Pennsylvania and has been described by the president as a good friend, according to a person familiar with the company who spoke on the condition of anonymity to discuss company matters. The lobbyist was a U.S. Military Academy classmate of Secretary of State Mike Pompeo, who is also seen as a China hawk.

Publicly, TikTok started a campaign to convince the U.S. government that it was not a threat. The company has said that its app is mostly used for entertainment and that the app’s software code does not contain a back door that could be used for government surveillance. It began issuing transparency reports showing law enforcement requests for data and published the company’s source code. In May, Zhang hired Disney streaming chief Kevin Mayer as TikTok’s new CEO.

Zhang also began trying to decouple the company’s technology from China, and has pointed out that all the data on U.S. TikTok users is stored in the United States and backed up in Singapore. He has worked to separate TikTok’s software code and algorithms from the larger ByteDance conglomerate, which owns several apps in China.

Throughout this year, Zhang and his investors were confident that the concerns of the U.S. federal government could be resolved without ByteDance having to spin off TikTok. But things changed quickly after India outright banned the app at the end of June. At that point, the company and investors started hearing a different message from the White House, and it seemed increasingly possible that the anti-China members of the administration would prevail in breaking up the company.

Throughout July, investors and TikTok’s lobbyists, working privately with the administration, scrambled to come up with other plans, and numerous ideas were floated in what one person familiar with the discussions called an “iterative process.”

One plan involved bringing in a third-party U.S. company with knowledge of technology as a contractor to assure the security of TikTok. In another plan, investors proposed spinning off TikTok from ByteDance, with the investors buying a large share of the new independent company but allowing Zhang to maintain control through a minority stake. That plan involved bringing in another technology company as an investor to ensure security, the people said.

Zhang at one point considered relocating ByteDance’s headquarters to London, and moving there personally, to showcase ByteDance as a global company that was not controlled by Beijing, according to another person.

But this summer, as it became increasingly possible that administration hard-liners could prevail in breaking up the company, Zhang grew disappointed with how the process was playing out and approached Microsoft about a sale, according to the people. Zhang had previously worked at Microsoft’s offices in China in 2008 for six months, and maintained an admiration for the company. Earlier this year, he hired 24-year Microsoft veteran Erich Andersen to be ByteDance’s general counsel.

Other tech giants that have the financial wherewithal to buy the company have regulatory challenges that could make an acquisition more complex. The chief executives of Google, Amazon, Facebook and Apple all appeared last week before a House subcommittee investigating tech giants’ abuse of their power.

That gives Microsoft significant leverage. TikTok could help the 45-year-old software giant expand into social media, as well as bolster its ambitions to develop artificial intelligence systems, but the company has thrived financially in recent years on the strength of its business selling cloud computing services. That strengthens its hand as it negotiates to acquire TikTok.

Feeling increasingly boxed in, Zhang offered to sell to Microsoft.

A ‘vicious’ Oval Office fight

As the election approaches, Trump has increasingly lashed out at China, blaming it for the novel coronavirus and national security issues. Over the past few months, he has deployed a rarely used order to require the divestment of acquisitions by Chinese firms, as well as issuing executive orders to limit business dealings.

“I think Trump’s instincts are to be aggressive toward China,” said one former U.S. official. “Navarro’s like the devil on his shoulder, saying, ‘Do it, do it.’ Mnuchin is more like a governor, trying to slow everything down — ‘What about Wall Street? What about Phase 2 [of the trade deal]?’”

During the Oval Office meeting, the debate turned into a “vicious” fight, with Trump looking on, one of the people said. They noted that the two advisers have a contentious history: They got into an expletive-filled shouting match during a May 2018 trip to Beijing.

As of last week, the CFIUS agencies were unanimous that TikTok needed an American partner, according to a person familiar with the matter who spoke on the condition of anonymity to discuss internal negotiations. TikTok lawyers were working with the administration team on an orderly transition, according to the person. “The expectation at Microsoft and at TikTok was the president was going to sign off on what CFIUS said, and off we go,” the person said. “Instead, it’s just been this roller coaster.”

As Trump went to board the helicopter before flying to Tampa just over a week ago on July 31, he sounded unsure of his plans. “We may be banning TikTok,” Trump told reporters before leaving for Florida. “We may be doing some other things. There are a couple of options. But a lot of things are happening, so we’ll see what happens. But we are looking at a lot of alternatives with respect to TikTok.”

Later that evening, as he flew back aboard Air Force One to Washington, he told reporters he had made a decision to ban it, and that he was not in favor of a deal. By Sunday, Microsoft announced it had persuaded the president and would continue talks with a deadline of Sept. 15.

On Monday, Trump reiterated while speaking to reporters at the White House that he wants TikTok to be forced to cease operations in the United States by around Sept. 15 if it is not sold to Microsoft or another U.S.-based company. If that sale goes through, the president said, part of the proceeds should be paid to U.S. taxpayers as compensation for operating in America.

“A very substantial portion of that price is going to have to come into the treasury of the United States,” Trump said of the potential TikTok sale. “The United States should be reimbursed or paid because without the United States they don’t have anything.”

Tax experts say there is no legal way to take “a substantial portion” for the treasury. But the vague threat allowed him to appear to be imposing a punitive measure on China and TikTok — which some of his aides have pushed for fervently — without taking action so dramatic that it would cause a dangerous escalation.

Lawyers familiar with CFIUS reviews said the treasury does typically collect money during the process, because companies are required to pay modest fees to cover the cost of the review. The fees are based on the size of the proposed transaction and cannot exceed $300,000.

After Trump changed his mind to support a sale to Microsoft, Navarro on Monday accused the tech giant in a CNN interview of being too close to China, citing its prior cooperation with the government and the use of Bing and Skype in the country. He suggested Microsoft could divest its Chinese holdings.

“The question is, is Microsoft going to be compromised?” he asked.

With the clock ticking, analysts expect the purchase price to run into the tens of billions of dollars, a price tag only a handful of companies can afford. Microsoft had $136.5 billion in cash and easy-to-access funds at the end of June.

But those involved in a potential deal were thrown off balance again late Thursday, left in the dark about the president’s plans.

While flying on Air Force One, Trump issued two executive orders effectively banning U.S. transactions for TikTok parent ByteDance, citing national security concerns. An acquisition by Microsoft of TikTok during that period would still be allowed.

“We are shocked by the recent Executive Order, which was issued without any due process,” the company said. “For nearly a year, we have sought to engage with the U.S. government in good faith to provide a constructive solution to the concerns that have been expressed. What we encountered instead was that the administration paid no attention to facts, dictated terms of an agreement without going through standard legal processes, and tried to insert itself into negotiations between private businesses.”

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