Business Updates: WeWork Stock to Begin Trading Thursday - 22 minutes read
Facebook’s Oversight Board said the company’s lack of transparency about a program that gave some users special treatment had harmed its ability to rule on Facebook’s decisions.Credit...Kelsey McClellan for The New York Times
The panel appointed by Facebook to review its policy decisions sharply criticized the company on Thursday for not being transparent about an internal program that gives prominent users preferential treatment on the social network.
The group, known as the Facebook Oversight Board, said Facebook failed to provide relevant information about a system called cross check, which was first disclosed by The Wall Street Journal and exempts high-profile users from rules like those prohibiting harassment or incitement to violence that others on the platform must follow.
The board said the lack of transparency had harmed its ability to rule on Facebook’s decisions to remove or keep online content posted by users, including when the company banned former President Donald J. Trump.
The Oversight Board is a court-like body that consists of about 20 former political leaders, human rights activists and journalists picked by Facebook to consider the company’s content decisions.
“The credibility of the Oversight Board, our working relationship with Facebook, and our ability to render sound judgments on cases all depend on being able to trust that information provided to us by Facebook is accurate, comprehensive, and paints a full picture of the topic at hand,” the group said in a blog post after publishing the report.
On Thursday, the group criticized Facebook for not being open with users about policies that led some content to be deleted. The group said it had received more than half a million appeals from users trying to understand why something was taken off the site.
“We know these cases are just the tip of the iceberg,” the group said. “Right now, it’s clear that by not being transparent with users, Facebook is not treating them fairly.”
Facebook’s chief executive, Mark Zuckerberg, has repeatedly referred to the board as the “Facebook Supreme Court,” but in practice, the group has no legal or enforcement authority. It was founded and is funded by Facebook, and critics have questioned whether the board has true autonomy. Others have pointed out that it gives Facebook the ability to punt on difficult decisions.
In a statement, Facebook thanked the board for issuing its transparency report.
“We believe the board’s work has been impactful, which is why we asked the board for input into our cross-check system,” the company said, “and we will strive to be clearer in our explanations to them going forward.”
Facebook is under pressure from regulators to explain more clearly its policy decisions and recommendation algorithms. European policymakers are drafting new laws that would require the company to make it easier for users to appeal content-related decisions and to share more details about how its system works with outside auditors.
Calls for regulation have increased after disclosures made by Frances Haugen, the former Facebook product manager who shared scores of documents and information about the company’s internal workings with journalists and policymakers.
After Ms. Haugen’s documents revealed the existence of the cross check program, the Oversight Board said Facebook asked the group to offer recommendations about how to change the program.
Federal investigators have concluded that two men killed in a Tesla crash in Texas last spring were sitting in the front seats of the car with seatbelts on, contradicting initial statements by local police that no one was driving the vehicle during the accident.
The new information comes from a notice the National Transportation Safety Board posted on its website on Thursday and suggests that the driver of the Tesla, a Model S sedan, had not put the car on the company’s driver-assistance system, known as Autopilot, and gone into the back seat — something other Tesla drivers have done.
A Harris County sheriff’s constable said in April that evidence at the scene of the accident suggested that no one was driving the car when it crashed.
In its notice, the federal safety board also indicated that Tesla’s Autopilot driver-assistance system was likely not in use when the crash occurred. A critical component of Autopilot called Autosteer is not normally active on the unmarked, residential roads where the crash took place in Spring, Texas, a suburb north of Houston, the board said.
Data from the car showed the driver had the accelerator pedal depressed almost all the way and the car was going as fast as 67 miles per hour in the five seconds before the crash. The road has a speed limit of 30 m.p.h.
The car drove off the road at a curve and then hit a drainage culvert, a raised manhole and a tree. The crash damaged the car’s battery pack and it ignited. It took firefighters four hours to douse the high-intensity blaze. The Tesla’s occupants — who were 59 and 69 years old — were fatally injured by the crash and the fire, the safety board said.
The board noted that its investigation was ongoing and that it was still looking at Autopilot; the fire that consumed the car after the crash; whether the occupants were able to exit the car; and whether the driver was under the influence of alcohol or drugs.
WeWork’s Wall Street location in New York, one of its biggest markets.Credit...Hilary Swift for The New York Times
Two years after WeWork’s attempt to become a public company flamed out spectacularly, the co-working giant started trading on the stock market on Thursday, hoping that investors will now believe in its prospects.
The earlier effort collided with concerns about WeWork’s breakneck growth, its huge losses and the alarming management style of its co-founder Adam Neumann. WeWork has new leaders who have pared back its expenses and hope to exploit an office space market that has been upended by the pandemic. But the company still has lofty growth targets, big losses and many empty desks in its 762 locations around the world. And WeWork made it through the last two years only because of huge financial support from SoftBank, the Japanese conglomerate that is WeWork’s largest shareholder.
“We got here on a different road than we anticipated, but we’re here,” Marcelo Claure, WeWork’s executive chairman and a senior SoftBank executive, said in an interview Thursday with CNBC.
Instead of an initial public offering, WeWork entered the public markets by merging with a special-purpose acquisition company, or SPAC, something of a craze these days. It is expected to raise as much as $1.3 billion from the deal, a sum that includes stakes held by the investment firms BlackRock and Fidelity. At the stock price on Thursday, WeWork is worth around $9 billion, a fraction of the $47 billion valuation placed on the company before investors soured on it in 2019. Shares in the acquiring SPAC, called BowX, were issued at $10. In early trading on Thursday, shares in WeWork — with the ticker symbol WE — were trading as high as $11.10.
WeWork leases office space and charges membership fees to customers — including freelancers, start-ups and small and large businesses — to use it. Its business rests on the belief that people might prefer the flexibility of such an arrangement over a traditional office lease, which can last for years and have other burdensome conditions.
The pandemic, which emptied office towers around the world, also crushed WeWork’s business.Credit...Hilary Swift for The New York TimesThough flexible office space was not new, WeWork said its business could not only revolutionize how people worked, but also change how people lived and thought. Mr. Neumann attracted billions of dollars in investments, with the biggest coming from SoftBank, which ended up bailing out WeWork when it withdrew the 2019 I.P.O. and was in danger of bankruptcy.
Investors in WeWork must judge whether SoftBank will use any increase in the stock price to sell some of its 61 percent stake.
SoftBank may be eager to recoup the $16 billion it has sunk into WeWork, a sum that combines nearly $11 billion of equity investments, $5 billion of debt financing and payments to Mr. Neumann.
“I made a wrong decision,” Masayoshi Son, SoftBank’s chief executive, said last year. “I didn’t look at WeWork right.” SoftBank has agreed to cap its voting power in the company below 50 percent. SoftBank and other investors have to wait several months before they can sell their shares.
The pandemic, which emptied office towers around the world, also crushed WeWork’s business.
Traditional landlords survived because tenants were legally obliged to keep paying their yearslong leases, most of which remain in effect. But WeWork’s customers were able to cancel their much shorter-term agreements as they expired. WeWork’s revenue in the second quarter of this year was $593 million, well below the $988 million in revenue it reported for the first quarter of 2020, its peak quarter.
And this partly explains why the company is using up cash rather than generating it. In the first half of this year, WeWork consumed $1.31 billion of cash running its operations and purchasing property and equipment, more than the $1.15 billion in the same period of 2020.
Still, WeWork has made strides in cutting its operating expenses — and hopes it will become profitable if its revenue grows. Some of the biggest savings have come from renegotiating leases with landlords or getting out of them.
Sandeep Mathrani, WeWork’s chief executive, said this month that the company had exited more than 150 full leases and done 350 lease amendments so far this year. “What we did through the pandemic was correct the cost structure, right size the company,” he said in an interview with CNBC on Thursday.
Perhaps the biggest question hanging over WeWork is whether it will suffer in the downturn that is pounding some of the biggest office space markets or find an opening in a work world reshaped by the pandemic.
Occupancy levels in office towers in cities like New York, Chicago and San Francisco, among WeWork’s biggest markets, are still well below prepandemic levels — and may never return to what they were, with many companies letting employees work fully or partly from home. In this environment, companies are vacating their spaces when leases expire or subletting them. As a result, record amounts of office space are being dumped onto the market, and rents have plunged.
This could hurt WeWork in a few ways, industry experts say. Fewer workers coming into cities means less business for all office space operators, co-working companies included. Falling office rents could undercut WeWork’s appeal and reduce what it can charge.
John Arenas, chief executive of Serendipity Labs, a flexible-office company, said urban co-working companies are “facing competition from sublet, and resistance and uncertainty about going back to work.”
WeWork has plenty of empty desks. In the third quarter, it had 461,000 memberships and 764,000 physical desks, which translates into an occupancy rate of 60 percent. That’s down from 85 percent in mid-2019 but up from 45 percent at the end of last year.
WeWork could benefit if companies that cut back on traditional leases decide they need flexible spaces when they want employees to meet in one place.
And WeWork’s management says companies it interacts with want 20 percent of their total space to be flexible, in theory providing solid demand.
WeWork is projecting that revenue more than doubles by 2024 and that memberships surge by more than 50 percent.
If all this happens, Mr. Neumann, who departed WeWork in a cloud during the attempted 2019 I.P.O., would stand to benefit. He will have an 8.4 percent stake in the public WeWork. Mr. Neumann has also received payments from SoftBank relating to his exit that exceed $800 million.
“Adam is just another shareholder,” Mr. Claure told CNBC.
The Southwest Airlines check-in area at Midway International Airport in Chicago. The airline industry has shown progress despite the spread of the Delta variant of the coronavirus.Credit...Tannen Maury/EPA, via Shutterstock
American Airlines and Southwest Airlines reported profits for the three months ended in September, reflecting the industry’s recovery despite the spread of the Delta variant of the coronavirus. But the airlines aren’t entirely out of the woods: Both would have reported losses were it not for federal pandemic aid.
Still, the financial results show that the industry is on the mend as travel steadily resumes and both American and Southwest said they expected to do even better in the final three months of the year, lifted by corporate, international and holiday travel.
“We made good progress in our pandemic recovery in third quarter 2021, and I expect more in fourth quarter,” Gary Kelly, Southwest’s chief executive, said in a statement. “I’m very excited about the demand recovery and our prospects for 2022.”
Southwest reported a profit of $446 million for the third quarter, with revenue of $4.7 billion. The Delta variant robbed the airline of an estimated $300 million in revenue over the summer, but Southwest also suffered from operational challenges, including a three-day stretch of widespread flight delays and cancellations in June that was echoed earlier this month.
“Available staffing fell below plan and, along with other factors, caused us to miss our operational ontime performance targets,” Mr. Kelly acknowledged. As a result, the airline has reined in plans for 2022 as it looks to hire 5,000 people before the end of this year. Mr. Kelly said Southwest was more than halfway toward that goal.
Ticket sales have started to improve in recent weeks, but the Delta variant and the operational challenges will weigh on Southwest’s fourth-quarter results. The airline said the virus has cost it an estimated $40 million this month, while a dayslong stretch of disrupted flights that ended last week will cost it $75 million. The rest of the quarter looks strong, though, with trends in holiday ticket sales in line with 2019.
American, which reported a profit of $169 million bolstered by federal aid, also said it expected strong holiday demand, which the airline expects will help it end the fourth quarter with about 80 percent as much revenue and nearly 90 percent as many seats sold as in the final three months of 2019.
American received nearly $1 billion in federal aid during the third quarter to help pay employee salaries, while Southwest received $763 million.
Both airlines said they were optimistic about the recovery in corporate travel and a rebound in international travel with the United States expected to ease travel restrictions early next month. Delta and United, which both recently reported profits for the same quarter, have also expressed optimism for the months ahead, though rising fuel costs could weigh on those improvements.
Customers browse cars at an AutoNation car dealership in Fremont, California, in February.Credit...David Paul Morris/Bloomberg
The global shortage of computer chips has wreaked havoc on auto production, but it is also helping to pump up the bottom lines of auto retailers.
The latest example came on Thursday, when AutoNation, a chain of more than 350 new-vehicle franchises, reported its profit doubled to $362 million in the third quarter. The result, the company’s sixth-consecutive record quarter on a per-share basis, stemmed mainly from higher prices and rising sales of used cars.
Because of the chip shortage, automakers have had to idle plants for weeks at a time, leaving consumers with fewer new cars to choose from. The lack of inventory has pushed up prices and allowed both manufacturers and dealers to cut back on profit-eating discounts and incentives they once had to offer to move cars off the lot.
“This is a result of the pandemic and then the chip shortage,” Mike Jackson, AutoNation’s chief executive, said. “There’s not enough supply to meet demand. Vehicles come in and they go out right away.”
At the end of September, AutoNation had about 5,000 new vehicles in inventory. At the same point in 2019, it had 56,000.
Mr. Jackson estimated about 60 percent of the vehicles AutoNation orders from manufacturers are earmarked as sold before they even arrive at its dealers. That is a far cry from the past, when cars sometimes sat unsold for six months or more.
The tight supply of new vehicles has caused many consumers to turn to used models. In the third quarter, AutoNation sold more than 77,000 used cars and trucks, a 20 percent rise from the same period in 2020.
The rush for used cars has also pushed up prices and left dealers rushing to acquire pre-owned cars and trucks. AutoNation has even begun approaching owners who post for-sale notices on eBay, AutoTrader, and other websites. “If you put a car up for sale, you’re going to hear from us,” Mr. Jackson said.
Dealer inventories will likely remain tight well into 2022 even if the chip shortage abates, Mr. Jackson added. “There’s tremendous pent-up demand, so it will take time before the manufacturers can build up dealer inventory,” he said.
Mr. Jackson, 72, won’t be at the helm to see it, however. He is about to retire as AutoNation’s chief executive after holding that position for most of the last 22 years. He will be succeeded on Nov. 1 by Mike Manley, the former chief executive of Fiat Chrysler.
A Tesla Model Y at an auto show in April in Shanghai. Sales of the car continue to rise in China, Europe and the United States.Credit...Alex Plavevski/EPA, via Shutterstock
Tesla made $1.6 billion in the three months ending in September, the second quarter in a row that its profit has exceeded the billion-dollar mark.
The bottom-line figure exceeded the $1.1 billion it made in the second quarter and was nearly five times its profit from the third quarter of 2020.
The automaker reported a big jump in revenue, to $13.8 billion from $8.8 billion a year ago, as sales of the Model Y continued to rise in the United States, China and Europe. The company delivered 241,000 cars to customers in the quarter, up from 140,000 a year ago.
Electric vehicle “demand continues to go through a structural shift,” the company said in a statement. “We believe the more vehicles we have on the road, the more Tesla owners are able to spread the word about the benefits of E.V.s.”
Tesla repeated a previous forecast that sales would grow about 50 percent per year on average for the next few years, but the company cautioned that “semiconductor shortages, congestion at ports and rolling blackouts have been impacting our ability to keep factories running at full speed.”
The company said it expected to begin production of the Model Y at new factories near Berlin and Austin, Texas, before the end of the year. “The pace of the respective production ramps will be influenced by the successful introduction of many new product and manufacturing technologies in new locations, ongoing supply chain-related challenges and regional permitting,” Tesla said.
In an important shift, the company said it would start using lithium iron phosphate batteries for all but its long-range cars. Those types of batteries, which are popular in China, tend to be cheaper because they do not use cobalt, an expensive mineral that is primarily mined in the Democratic Republic of Congo. Lithium iron phosphate batteries can store less energy than the lithium ion batteries that Tesla had been using in most of its cars.
A portion of Tesla’s profit comes from selling regulatory credits to automakers that need them to meet emission standards. Tesla reported $279 million in sales of such credits in the third quarter, compared with $397 million in the third quarter of 2020.
The strong earnings report indicates consumers are still flocking to Tesla even as the company faces questions about the safety of its Autopilot driver-assist system and as established automakers roll out electric cars and trucks.
Autopilot, a computerized system that uses cameras and other sensors to steer, brake and accelerate cars on its own, is the subject of an investigation by the National Highway Traffic Safety Administration, the top federal auto-safety regulator. The agency is looking into whether Autopilot fails to see parked police cars and other emergency vehicles with flashing lights. The agency has identified 12 accidents in which Teslas operating in Autopilot mode crashed into emergency vehicles.
Tesla recently sent a software update to Autopilot-equipped cars that was supposed to improve detection of emergency vehicles. The traffic safety agency asked Tesla to provide extensive data about the fix and to explain why it did not initiate a safety recall before distributing the update.
The traffic safety agency had come under criticism for a lax approach to regulating new technologies like Autopilot and self-driving cars. On Tuesday, the Biden administration appointed Mary Cummings, a Duke University expert in self-driving technology, to a senior auto-safety post at the federal agency, signaling that Tesla may now face tougher scrutiny.
Ms. Cummings has criticized Autopilot, noting the system does not effectively monitor drivers to make sure they are paying attention to the road. In a message posted on Twitter, Tesla’s chief executive, Elon Musk, said on Tuesday that Ms. Cummings was “extremely biased” against Tesla.
Tesla does not appear to have lost many customers to competitors. Ford Motor began selling its Mustang Mach-E, an electric sport-utility vehicle, but its sales have been modest by the standards of the Model Y because the global shortage of computer chips has disrupted production for most auto manufacturers. Rivian, a start-up considered a potential rival to Tesla, has started producing an electric pickup truck, but so far it has only delivered a small number to customers; the company won’t say how many.
Porsche, the German automaker owned by the Volkswagen Group, has made inroads against Tesla with its Taycan electric sports car. In the first three quarters of this year, Porsche has sold more than 28,000 Taycans, which starts at about $82,000, about as much as a Tesla Model S or Model X costs. By comparison, Tesla sold 13,000 S and X vehicles.
U.S. stocks edged lower in early trading on Thursday, with the SP 500 just short of a record.
The SP 500, the U.S. benchmark, was down slightly in early trading, while the tech-heavy Nasdaq composite was slightly higher.
The index has gained 5.5 percent in less than three weeks, recovering its losses from September, which was the stock market’s worst month this year.
The co-working giant WeWork started trading on the stock market on Thursday after merging with BowX Acquisition Corp., a special-purpose acquisition company, or SPAC. WeWork was expected to raise as much as $1.3 billion from the deal. Earlier plans to go public fell through in 2019. Shares in WeWork — with the ticker symbol WE — started trading at $11.28 on Thursday.
American Airlines and Southwest Airlines both reported profits for the three months ending in September, though both carriers were dependent on pandemic aid for those results. Shares of American rose 0.9 percent in early trading, while Southwest was down 1.2 percent.
Tesla rose 2.2 percent it reported on Wednesday a big jump in revenue, to $13.8 billion from $8.8 billion a year ago. Sales of its Model Y continued to rise in the United States, China and Europe, despite a shortage in computer chips that has hobbled much of the rest of the auto industry. It was the carmaker’s second quarter in a row that its profit exceeded the billion-dollar mark.
Initial claims for state jobless benefits fell last week, the Labor Department reported on Thursday. The weekly figure was about 290,000, down 6,000 from the previous week, as it heads back to prepandemic margins.
Markets in Europe fell on Thursday, with the Stoxx Europe 600 ticking down 0.2 percent. Asian markets closed mixed.
Danielle Miess lost her job at a travel agency in the Philadelphia area. Her unemployment benefits have run out, but she isn’t looking for another office job. Instead, she is cobbling together a living from a variety of gigs.Credit...Kriston Jae Bethel for The New York Times
The labor force shrank in September. There were five million fewer people working than before the pandemic began, and three million fewer were looking for work.
The slow return of workers is causing headaches for the Biden administration, which has been counting on a strong economic rebound to give momentum to its political agenda, and confounding forecasters, Ben Casselman reports for The New York Times.
Conservatives have blamed generous unemployment benefits for keeping people at home, but evidence from states that ended the payments early suggests that any impact was small. Progressives say companies could find workers if they offered higher pay, but the worker shortages aren’t limited to low-wage industries.
Instead, economists point to a complex, overlapping web of factors, many of which could be slow to reverse.
The health crisis is still making it difficult or dangerous for some people to work, while savings that were built up during the pandemic have made it easier for others to turn down jobs they do not want. Psychology may also play a role: Surveys suggest that the pandemic led many people to rethink their priorities. And the glut of open jobs may be motivating some to hold out for better offers.
The net result is that, arguably for the first time in decades, workers up and down the income ladder have leverage. And they are using it to demand not just higher pay but also flexible hours, more generous benefits and better working conditions.
“It’s like the whole country is in some kind of union renegotiation,” said Betsey Stevenson, a University of Michigan economist who was an adviser to President Barack Obama. “I don’t know who’s going to win in this bargaining that’s going on right now, but right now it seems like workers have the upper hand.”
Source: New York Times
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