ServiceNow fell short of its third-quarter revenue guidance according to regular accounting standards, while also lowering its full year forecast on Wednesday. But like many companies reporting earnings this week, the SaaS giant was susceptible to foreign exchange impacts, and CEO Bill McDermott was pleased with its results.

ServiceNow reported subscription revenues of $1.74 billion for the quarter, a tad under its projected $1.75 billion, while also forecasting $6.87 billion in revenue for the year, down from its previously lowered guidance of $6.92 billion in 2022 revenue. In an interview with Protocol, McDermott’s explanation was that when adjusted for constant currency, the company actually exceeded its guidance and Wall Street expectations for subscription revenue, gross profit, and net income with results of $1.83 billion, $1.51 billion, and $398 million, respectively.

“You guide in constant currency, and you operationally are judged by your constant currency performance, which is why it's a beat,” he said. ServiceNow also had the highest operating margins in its history at 26%, which McDermott was quick to point out is not adjusted for constant currency.

ServiceNow can’t control the macroeconomic environment or currency exchange rates, much of which has been caused by geopolitical uncertainty in Europe. But ServiceNow is still mostly focused on the U.S. market, with plans to expand globally over the coming years to reach $11 billion in sales by 2024.

Regardless of the world around him, McDermott is, as usual, unfazed. “We’re built for this moment,” he said. McDermott has no plans to slow down, saying ServiceNow will continue to hire, stay the course with its M&A strategy of tuck-in acquisitions, and double down on organic innovation.

But to reach those goals, ServiceNow did feel the need to make a few changes. McDermott has long been the face of ServiceNow, but now he is taking ownership in a new way: McDermott will replace founder Fred Luddy as chairman of the board of directors, the company said Wednesday. Luddy will remain on the board.

“I think this is a long-term commitment signal of Fred and me,” said McDermott. Already, McDermott is thinking about making board appointments to accelerate the company’s future. “We have to make bold moves: Japan, India, certain industry verticals, and there might be operators, considering we have a highly desirable board, that can strengthen us over time,” he said.

As McDermott takes an even firmer grip over ServiceNow, he will increasingly mold the company into his image. Part of that image comes from being a consummate salesman who remains optimistic, even when the numbers might suggest otherwise.

A follow-up to the Quest 2 virtual reality headset is arriving next year, Meta said in its most recent earnings announcement. The device will be a consumer-grade headset unlike the recently released Quest Pro, which costs $1,500 and comes with mixed-reality features designed to be useful in the workplace.

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Meta snuck the detail into a paragraph concerning the ballooning costs of developing its vision for the metaverse. "Conversely, our growth in cost of revenue is expected to accelerate, driven by infrastructure-related expenses and, to a lesser extent, Reality Labs hardware costs driven by the launch of our next generation of our consumer Quest headset later next year," the company wrote.

Meta's AR and VR roadmap has been shifting of late, though the company has long hinted at an eventual successor to the Quest 2, which has sold an approximate 15 million units per estimates from industry tracker IDC.

For the quarter, the Reality Labs division, which includes AR and VR hardware as well as software platforms like Horizon Worlds, incurred a loss of $3.7 billion, up from $2.6 billion a year ago and increasing by nearly $1 billion from fiscal Q2. Those losses contributed to a more than $10 billion expenditure on the metaverse in Meta's last fiscal year, which ended in December. The costs are rising, too, though Meta says there is a light at the end of the tunnel as it plans beyond next year.

"We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run," the company wrote.

Brad Gerstner, CEO of activist investor Altimeter Capital, recently called on Meta to cut its head count and limit metaverse spending to $5 billion a year.

It’s impossible to raise the dead. But Mobileye's Wednesday IPO demonstrates that the market to list public companies hasn't lost all of its vital signs just yet.

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Mobileye stock had a nice first day, rising nearly 40% to close at $28.97. The Intel-controlled company sold roughly $860 million worth of stock at the IPO and sold an additional $100 million to General Atlantic. It priced the issue at $21, a dollar above the top end of the $18 to $20 a share it was hoping to get.

Intel CEO Pat Gelsinger was careful not to call Mobileye's return to the public markets a capital raise at an event earlier this week, describing it instead as a decision designed to move it into the market.

There’s truth to what Gelsinger is saying: The original reason Intel planned the IPO was for financial engineering — to unlock for Wall Street the value in the fast-growing autonomous driving unit while the rest of Intel figures out how to correct years of dysfunction. Two separate stocks, but still one company (Intel controls Mobileye still).

Intel had once hoped to bank a valuation of $50 billion but later revised that down to $30 billion before settling on the roughly $20 billion market value that it actually managed to achieve. For context, Intel bought the then-public Mobileye for $15.3 billion in 2017.

In a lot of ways, Mobileye’s was a textbook IPO for Wall Street. Mobileye ticked all of the boxes a banker would need to in order to achieve a successful offering in previous years, including lots of investor interest during the road show, pricing above the range, a healthy pop on the first trading day.

The market has changed this year. IPOs have dried up, with the amount of cash raised plummeting to the point where Renaissance Capital called 2022 the slowest in the firm’s history. Mobileye listed at a time of uncertainty — among chip companies themselves but also the broader economy.

But it doesn’t really matter how much Mobileye is worth on paper to Intel. The veteran chip manufacturer set up the IPO so Intel would receive a $3.5 billion dividend from the proceeds. But because the valuation was much lower than anticipated, Intel will receive less cash than it once hoped.

Hello, and welcome to Protocol Policy! Today we look at the regulatory pickle that comes with Big Tech entering the payments space. Also, Apple wants to take its 30% cut from boosted social media post purchases, and the Musk-Twitter deal is expected to close Friday.

Double-click to pay

With all the news coming out of the U.K. in recent days, you’d be forgiven for overlooking its latest probe into Big Tech. Yesterday the U.K. Financial Conduct Authority said it would solicit views on the potential competitive harms of Big Tech’s expansion into financial services. In a 61-page discussion paper, the financial regulator outlined its thinking on the matter, with scenarios exploring how Big Tech could impact the payments, deposits, consumer credit, and insurance industries.

When it comes to payments, the FCA thinks Big Tech competition could actually be a good thing. The paper argues that, in the short term, Big Tech could help consumers by challenging the dominance of Visa and Mastercard, which together make up virtually the entirety of the U.K.’s card payment market. The FCA pointed to the standoff between Amazon and Visa in 2022 as an example of this already happening: Fed up with Visa’s interchange fees, Amazon threatened to boycott the payment processor and ultimately used its market power to negotiate a new deal with undisclosed terms.

But most companies aren’t Amazon, and don’t have a large enough retail presence to negotiate toe-to-toe with Visa and Mastercard. Given how diverse their businesses are, it’s not clear how Big Tech will really make a splash in finance beyond its core strengths, like Meta helping process payments when an ad on Instagram results in a sale. The FCA imagines a few scenarios, none of which involve Big Tech trying to beat the payment processors at their own game.

• In the first scenario, Big Tech uses its dominance in digital wallets to bargain over fees with payment processors and merchants. To see this in action, look no further than the PayPal-Amazon deal announced yesterday, which will allow customers to pay for Amazon purchases using their Venmo wallets — potentially cutting out Visa and Mastercard.
• The second scenario involves more direct competition, with Big Tech facilitating payments via alternative interbank systems, possibly involving blockchain. Meta tried that with the Diem stablecoin it backed and its ambitious Novi wallet. Both projects are dead, and Meta seems burned out on blockchain, but another tech company could conceivably try it.
• And the third scenario has Big Tech going after payment use cases that aren’t consumer to vendor. This is a smaller market that’s already competitive — think Venmo, Zelle, Apple Pay, Cash App, Meta Pay, etc.

Yet even with tech’s well-documented stumbles, the FCA worries about Big Tech becoming too dominant. The agency describes this competitive risk as Big Tech companies — most likely Apple and Google — becoming gatekeepers of in-person mobile transactions that would give them “the ability and incentive to exploit their market power.” The FCA also warns companies could “lock consumers in” and then place data restrictions on incumbent providers.

But this dominance depends on mobile wallets taking over — which is still far from guaranteed. Mobile wallets still only accounted for around 5.8% of in-store transactions in the second quarter of 2022, even as more than three in four U.S. retailers now accept Apple Pay. So Apple and Google are still a ways away from having the market positioning the FCA envisions. The agency argues that “while initial forms of entry may be hard to predict, once momentum builds, we might see significant market changes occur quickly.”

This waffling on the merits of Big Tech disruption points to a larger regulatory problem. Regulators often talk about not wanting to pick winners. But what if they already have, and an existing anticompetitive market gets replaced with a different anticompetitive market? In the case of card payments, two firms control virtually the entire sector today. This puts regulators in a pickle, where their efforts to block Big Tech from capturing a new market would mean protecting companies they already see as anticompetitive. We’re likely to see this play out in other realms, especially health care, where the incumbents don’t exactly come off as helpless victims of disruption either. Big Tech makes for big targets, but our problems clearly go much deeper.

— Hirsh Chitkara (email | twitter)

In Washington

The FTC is forcing Uber subsidiary Drizly to boost its security posture after a breach exposed the information of 2.5 million people. The order marks one of the first times the agency successfully made an executive personally responsible for the firm’s conduct.

The U.S. program to help fund broadband access for low-income Americans prompted ISPs to introduce “price hikes, service cuts and fraud risks,” The Washington Post reports.

Gigi Sohn’s nomination to the FCC is still stuck in limbo on its first birthday. POLITICO notes that the lame duck period after the midterms could theoretically give previously reluctant senators more leeway to vote for her — but only if Majority Leader Chuck Schumer sets aside valuable floor time for her.

The U.S. intelligence community will “make meaningful investments in automatic declassification” tech and other efforts to modernize the classification system, Director of National Intelligence Avril Haines said in a letter to Sens. Ron Wyden and Jerry Moran.

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In the states

A Pennsylvania state legislator is poised to propose a bill that would require the registration of firms creating AI.

​On Protocol

If you’ve ever wondered how to stop those surprise marketing emails from shops where you paid through Square, Protocol figured it out — and showed how the company seems to don a variety of legal labels to keep its system going.

A top AWS executive accused of discrimination and harassment is leaving the company.

Around the world

Former Uber executive whistleblower Mark MacGann urged the EU parliament to do more to protect gig workers amid proposals to make sure more of them earn minimum wage.

Rishi Sunak, the U.K.’s latest prime minister, tweeted his plans to “build a new international alliance of free nations to tackle Chinese cyber threats and share best practice in technology security.”

Meanwhile, Sunak’s father-in-law founded InfoSys — and it appears to have made the PM and his wife even richer than the late Queen Elizabeth II.

​In the media, culture, and metaverse

Elon Musk has told his financial partners he plans to close the Twitter deal by week’s end, and even filed the requisite paperwork, according to reports. A Delaware judge had given Friday as the deadline.

Apple said it will start taking its usual 30% cut from boosted posts on social media, which had previously escaped the policy, despite extensive international regulatory scrutiny on its app store fees. The change is aimed squarely at escalating the company’s feud with Meta, but will also side-swipe dating apps. The company is also hiking the price of several subscriptions.

​In data

$17,500: The amount Amazon donated to nine GOP election objectors after saying it was cutting them all off.

​I am rubber, you are glue

The New York Times ran an article calling Elon Musk a “geopolitical chaos agent.” Musk, presently poised to be running Twitter, then tweeted that actually it’s the Gray Lady that’s the real “chaotic actor in global politics.” Take that!

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Thanks for reading — see you Friday!

Good morning, and welcome to Protocol Fintech. This Wednesday: The App Store tax expands to NFTs, Meta Pay scores a win, and Bill Harris explains Elon Musk’s X obsession.

Off the chain

I’m old enough to remember when Amazon, courting web-wary customers in the ’90s, let them call an 800 number and read their credit card numbers off to an operator. It’s been an innovator in payments since then, dating back to its purchase of Accept.com, the operation that eventually became Amazon Pay. If there’s one thing that’s held it back in payments over the decades, it’s a failure to play well with others.

So I think it’s a big deal that PayPal and Amazon just struck a deal for Amazon to accept Venmo. The most likely customers here are Venmo merchants who want to spend their balances right away rather than wait to sweep the funds into their bank accounts. But it also looks to me like a toehold for future dealmaking: The real win is when PayPal’s eponymous service gets accepted at Amazon, opening up Amazon’s customer base to its pay-later products. It’s a deal that would have been unthinkable back when eBay, once Amazon’s arch-enemy, owned PayPal. But times have changed, and Amazon shows signs of changing, too.

— Owen Thomas (email | twitter)

A tax too far?

Apple released new rules for the App Store this week, which could have major implications for NFTs and crypto payments companies. The rules confirm that the App Store’s fees on digital goods would also apply to NFTs. People are already touchy about Apple’s fees — it’s the same reason Epic Games has sued Apple, my colleague Nick Statt points out — but the idea of applying the App Store tax to crypto products has really riled some people up.

Apple is welcoming NFTs, which is big for the industry. But reading the fine print is crucial. Beyond the fees, Apple has made other rule changes that affect the tokens.

• Apple made it clear for the first time that apps can mint, list, and transfer NFTs in their apps. And apps can sell NFTs in their apps. That’s a positive for the NFT market.
• However, purchases of the NFTs must go through the App Store, which has a number of implications. That means that payments must be done in fiat since the App Store doesn’t accept crypto. The rules explicitly prohibit buttons, links, or other ways that customers can purchase outside of the App Store.
• That would appear to rule out other ways that consumers can purchase crypto and NFTs on crypto apps through crypto payments providers such as Wyre, Transak, or MoonPay.

The real effect may be to steer crypto app developers away from iOS. Since they’re so new, it’s unclear if the rules will limit their interest.

• One scenario: While NFTs may become more common on iOS apps, some developers might opt to keep them in web browsers. Or they might just limit their iOS apps to avoid the App Store’s fees, which run as much as 30% on transactions. OpenSea, the biggest NFT marketplace, does not allow in-app purchases on its iOS app.
• In addition, the new Apple rules prohibit the use of NFTs to “unlock features or functionality within the app.” This type of token-gated content or commerce has become an area of interest for a range of companies in ecommerce, gaming, and online communities.
• Shopify recently launched a token-gated commerce effort, which Alex Danco, head of blockchain at Shopify, told me this summer would bring new forms of loyalty and new experiences for consumers. It has worked with NFT projects such as Doodles and Cool Cats. Shopify declined to comment on Apple’s new NFT rules.
• Other apps and games that use NFTs to access parts of the app or game play would also appear to be affected. For example, Stepn and YDY are sweat-to-earn apps in which consumers connect an NFT to earn tokens for working out. The content of the app is dependent on a connected NFT, which Apple might view as a token-gated setup. Stepn declined to comment. YDY CEO Jason Baptiste said Apple’s recognition of NFTs was “a big step” but there are unanswered questions that won’t be resolved “until we start seeing new App Store reviews using these rules.”

Apple has opened up a can of worms. It’s not the first time Apple has attempted to expand its definition of what constitutes digital goods for which it charges App Store fees. In 2020, Apple asked Eventbrite to pay its 30% fee when classes went online due to COVID-19. Meta, which was at the same time launching an online events service, criticized Apple for charging the fee, saying it hurt event organizers at a time when they were already suffering. Apple’s policies on online events and ticketing could collide with its new NFT rules, since companies like Ticketmaster are either planning to or already using NFTs as tickets for physical events. Apple doesn’t charge fees for real-world tickets. But what if the NFT is a digital good that unlocks the physical ticket? It’s exactly that blurring of the lines between the real world and the digital that NFTs promise, and Apple’s attempts to draw sharp divisions may stumble here.

— Tomio Geron (email | twitter)

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The news is out! Join the Financial Technology Association’s inaugural Fintech Summit: Shaping the Future of Finance, produced in partnership with Protocol. Taking place in Washington, D.C., on November 16th, the Summit will examine the most pressing issues in fintech.

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On the money

A16z is taking a big hit from its crypto bets. The firm’s flagship crypto fund shed around 40% of its value in the first half of this year, The Wall Street Journal reports.

Fundbox has cut 40% of its staff. The fintech lender to small businesses laid off about 140 employees in its U.S. and Israel offices.

FTX is raising money. CEO Sam Bankman-Fried confirmed at The Wall Street Journal’s Tech Live conference that it’s in talks with investors, and could use the funds to expand its reach among retail crypto traders.

On Protocol: Caroline Butler, CEO of BNY Mellon’s custody services, explains why it’s getting into crypto.

Meta Pay is now available through JPMorgan Chase. J.P. Morgan Payments merchants can add Meta Pay — the former Facebook Pay — to their websites as a checkout option.

A record number of Americans have bank accounts. About 4.5% of Americans — roughly 5.9 million households — were without a bank account in 2021, the lowest level since the FDIC started tracking the data in 2009.

Sen. Elizabeth Warren wants to know why former regulators keep joining crypto firms. Warren and a group of other progressive lawmakers wrote to several agencies asking how to stop the "revolving door" between crypto and the government.

Matt Levine has 40,000 words to say about crypto. Bloomberg Businessweek dedicated its entire latest print issue to the finance writer's piece, "The Crypto Story."

Companies are citing the Fifth Circuit's ruling to challenge CFPB enforcement. The court's ruling that the CFPB's funding structure is unconstitutional is already an enforcement headache for the agency.

​Overheard

Kim Seo-joon, CEO of Hashed, a VC firm that invested in Terraform Labs and suffered big losses from the failure of its luna cryptocurrency, was reportedly a no-show at a hearing of the Korean National Assembly’s Political Affairs Committee about the debacle. "After the luna-terra incident, I was under extreme stress, and my health deteriorated and I needed to stabilize,” he said in a statement.

Just one question for … Bill Harris, CEO, Nirvana Money

Harris just launched Nirvana Money, a fintech that aims to rebundle fragmented financial services into a single, easy-to-use account. Before that, he was the first CEO of PayPal and founded Personal Capital and several other fintechs. He was also CEO of Intuit.

Why might Elon Musk be thinking about creating a super app with Twitter called X?

First of all, I have no idea. The only thing that I can comment on is the letter X has been a fascination of Elon’s as long as I’ve known him. In fact, the original name when Elon and I partnered to start PayPal was X.com. That was Elon’s: He had purchased that domain. It was [one of] the only one-letter domain[s] in the world because whoever was managing domain names pretty early on made the decision that there would not be single-letter domains on the .com TLD. But somehow X slipped out, he got it, and because it was special, that’s what we used. And I think that was the genesis of his fascination with the letter X.

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Thanks for reading — see you tomorrow!