Was Instagram the Steal of the Century?

Good morning. President Trump boasted of an economic boom in his State of the Union address last night. Here’s the NYT fact check of his claims. (Was this email forwarded to you? Sign up here.)

In the same week that Alphabet drew back a curtain on YouTube’s money machine, we also now have a better sense of how big Facebook’s Instagram subsidiary is — and it’s even larger.

Instagram collected about $20 billion in ad revenue last year, Sarah Frier and Nico Grant of Bloomberg report, citing unnamed sources. That’s more than a quarter of all of Facebook’s sales last year — and a sea change from 2012, the year that Facebook bought Instagram, when the service had no ads.

YouTube’s reported ad revenue was $15.2 billion last year. And that’s a “gross revenue” figure including money meant to be shared with the service’s content creators. (Those video stars also now want a bigger cut from YouTube.)

And Instagram doesn’t share any revenue with users, as our colleague Shira Ovide points out.

The revelation underscores why Facebook is fighting critics who want the company broken up. The tech giant is under investigation from the antitrust authorities, and lawmakers like Senator Elizabeth Warren have said it shouldn’t be allowed to exist in its current form.

Question of the day: Which deal will be considered better 10 years from now: Facebook’s $1 billion takeover of Instagram, or Google’s $1.65 billion acquisition of YouTube? Send us your thoughts.


Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced in London.


The chaos of the Iowa Democratic caucuses came down not to hacking, but to a faulty app created by a company whose previous work was riddled with failures, the NYT reports.

• The app was created by Shadow, which was founded by veterans of Hillary Clinton’s presidential campaign.

• But the company almost went bankrupt when its previous products failed. It was bailed out by Acronym, a highly touted progressive digital advocacy group.

• Shadow took on a seemingly impossible task: creating an app to tabulate caucus results within two months. The work was so rushed that the company didn’t even have time for Apple to approve the app.

“Precinct leaders failed to access the app or reported being locked out as they sought to punch in numbers to report them to state party officials,” the WaPo reports.

The debacle raises questions about the Democrats’ digital strategy, which the NYT notes largely revolves around “enterprises that are intended to both boost the Democrats’ digital game and turn a profit, like Shadow.” (The Trump campaign keeps its digital operations largely in-house.)

The electric-car maker’s shares have been on a tear this year, prompting some to wonder whether it’s in bubble territory. Here are a few potential factors behind the company’s dizzying run.

Critics are getting squeezed. Short-sellers — investors who have borrowed Tesla shares and sold them, betting that the stock will fall when they buy back shares to cover their bets — are suffering as the stock rises. Many of them may be covering their bets by buying more shares, in what’s known as a short squeeze.

Hugely enthusiastic backers. The prominent investor Ron Baron added to the exuberant expectations for Tesla yesterday, saying that the company could have $1 trillion in total revenue over the coming decade.

The bottom line: “You can explain it with math,” Peter Cecchini, the chief market strategist at Cantor Fitzgerald, told the WSJ. “But you don’t need to explain it with math to know that it’s silly.”

More: Saudi Arabia’s sovereign wealth fund sold nearly all of its shares in Tesla in the fourth quarter — before the company’s stock began its current run.

Analysts and business executives have worried that the current coronavirus outbreak could affect global supply chains. That fear is increasingly becoming reality.

The carmaker Hyundai said it was idling plants in South Korea because of a shortage of Chinese parts. They are the first major factory lines outside China to be temporarily shut down.

“The global economy remains highly interconnected and interdependent,” write Jack Ewing, Neal Boudette and Geneva Abdul of the NYT. “Supply chains are finely tuned to deliver parts just as they are needed, so companies don’t need to waste money on big warehouses.”

Many manufacturers have stockpiles of Chinese parts — but “nobody planned to be down for a month,” Dan Hearsch of the consultancy AlixPartners told the NYT. “If it becomes six weeks, eight weeks, 10 weeks, that’s a real problem.”

More: The S.E.C. is warning investors about fraudulent claims tied to coronavirus treatments. And critics of Beijing are mocking the government’s response as a game of “tossing the wok.”

When the German lender began a business relationship with Donald Trump, it took on a borrower whom few on Wall Street were willing to work with. That has since put Deutsche Bank under a spotlight — and made it privy to Mr. Trump’s true finances, David Enrich writes in the NYT magazine.

From the article, which is based on Mr. Enrich’s new book, “Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction”:

Executives told me that the bank has, or at one point had, portions of Trump’s personal federal income tax returns going back to around 2011. (Deutsche Bank lawyers told a federal court last year that the bank does not have those returns; it is unclear what happened to them. The Trump Organization did not respond to multiple requests for comment.)

The bank has documents detailing the finances and operations of his businesses. And it has records about internal deliberations over whether and how to do business with Trump — a paper trail that most likely reflects some bank employees’ concerns about potentially suspicious transactions that they detected in the family’s accounts.

Mr. Enrich’s takeaway: “Deutsche Bank’s relationship with Trump, rather than being an odd outlier, is a kind of object lesson in how the bank lost its way.”

Bonus: Mr. Enrich has obtained the talking points that Deutsche Bank gave employees before his book’s publication.

Walt Disney’s earnings report yesterday may have been a mixed bag, but Wall Street mainly cared about one figure: the number of subscribers to its Disney Plus streaming service, writes Brooks Barnes of the NYT.

Disney Plus reported 28.6 million subscribers as of Monday. That’s impressive for a service that’s less than three months old and isn’t available in most countries. Bob Iger, Disney’s C.E.O., told analysts that it “exceeded even our greatest expectations.”

That number is expected to grow this spring as Disney Plus enters new markets beyond the U.S., Canada and three other countries.

Mr. Iger has bet Disney’s future in part on streaming, and the subscriber number puts the service in a strong position to compete with the likes of Netflix (167 million subscribers worldwide) and Amazon Prime (150 million subscribers worldwide).

Now for the bad news:

• Disney expects to lose over $300 million from the temporary closing of its Shanghai and Hong Kong theme parks because of the coronavirus outbreak.

Profit declined sharply at ESPN, long Disney’s biggest moneymaker.


• The owner of the New York Stock Exchange, Intercontinental Exchange, has offered to buy eBay, though talks appear to be off for now. (WSJ)

• Inside Brookfield, the secretive $500 billion investment firm that grew out of the Seagram family fortune. (FT)

• The hedge fund billionaire Steve Cohen is reportedly ending talks to buy the Mets. (NY Post)

Politics and policy

• Mike Bloomberg said that he didn’t agree with Senator Bernie Sanders on “virtually anything” — but that he would back him if Mr. Sanders became the Democratic presidential nominee. (Axios)


• Michael Ronen, a senior investing partner at SoftBank’s Vision Fund, is leaving. (FT)

• The White House is working with American tech companies like Microsoft and Dell to create software for next-generation 5G wireless networks that doesn’t rely on Huawei of China. (WSJ)

• The S.E.C. and the messaging app Telegram are heading to court over the company’s $1.7 billion sale of cryptocurrency in 2018. (WSJ)

• Protocol, the new tech site from the publisher of Politico, has gone live. (Protocol)

Best of the rest

• U.S. regulators barred a senior Goldman Sachs executive in Asia from the banking industry over his role in the 1MDB corruption scandal. (NYT)

• Macy’s plans to close 125 stores and lay off about 2,000 employees. (NYT)

• “Jeffrey Epstein’s Mystery Bank Came Alive After His Death.” (NYT)

• Netflix has spent millions marketing its movies for awards season, but it’s not expected to win many Oscars. (NYT)

Thanks for reading! We’ll see you tomorrow.

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