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Optimism has essentially buoyed the economy for the past several months. While interest rates remain at a 23-year high—and even though the Federal Reserve elected not to cut them at their meeting last week—most consumers, analysts and investors are expecting that they will get cut soon. Consumers’ positive outlooks may have been one of the drivers of record holiday spending in 2023. Tech businesses have been booming, with Microsoft, Google parent company Alphabet and Meta reporting their best-ever quarters last week.
But are things actually as good on Wall Street as so many people wish they were? Federal Reserve Chairman Jerome Powell did a 60 Minutes interview last weekend, during which he basically talked about nothing but interest rates. The Fed increased rates in order to slow inflation, and Powell has said the Fed is carefully weighing when the time is right. They’re interested in making sure that inflation slows down to 2%. December prices, excluding food and energy, were up 3.9% compared with a year earlier. Powell told correspondent Scott Pelley he could not predict whether the Federal Reserve Board would have enough confidence in the interest rate forecast to cut rates by March, which will be its next chance to make that move.
“It’s really going to depend on the data. The data will drive these decisions,” Powell said. “And we can’t do any better than to look at the data and ask ourselves, ‘How is this affecting the outlook and the balance of risks?’ That’s what we’ll be doing.”
So what’s next? Watching and waiting—and downplaying what Powell said on television. Some analysts have been spinning Powell’s remarks as nothing new, and that they expect the Fed to cut interest rates sooner than expected. Others, including David Rosenberg of Rosenberg Research, feel that a recession could actually be just around the corner. The markets have stayed relatively stable on the whole during the last several days, showing that investors are also watching and waiting.
No matter what the markets are doing, it’s incumbent on CFOs to be able to keep a pulse on what’s going on with all things financial that concern a company. And while new technology like AI is often first thought of as a more significant help for departments such as marketing or HR, it can be extremely powerful when applied to the financial side. I spoke with Adobe CFO Dan Durn about some of the approaches his company is taking to integrating AI into the financial area.
TECHNOLOGY + INNOVATION
It’s been a very good year so far for Big Tech. Last week, Apple, Microsoft, Meta, Amazon and Alphabet all reported earnings with successful ends to calendar year 2023. Microsoft delivered its best ever quarterly earnings for the fifth quarter in a row. Google’s parent company Alphabet also reported its highest ever quarterly profits and revenues. And Meta joined the best-ever club as well, posting its most profitable quarter and year.
And though Apple and Amazon didn’t set any records, they both beat expectations. Amazon’s revenue was 14% higher year-over-year, sending its stock prices up 9% in after-hours trading following its earnings release on Thursday night. And Apple, which had warned of lackluster iPhone sales and slowing business in China, eked out an earnings win, marking 2% revenue growth year-over-year. While Apple still sells a lot of devices, and its Apple Vision Pro just hit the market last week, Forbes senior contributor John Koetsler pointed out that Apple’s future is likely to be boosted by its services sector, which returned a record $23.12 billion of revenue in the last quarter, with a 73% gross margin.
Smaller tech companies, however, have not fared so well. Snap announced it was laying off about 10% of its employees worldwide, just days after announcing the recall of every miniature drone camera it made in 2022 because they were fire hazards.
One number that exceeded expectations: total U.S. employment figures. According to the Bureau of Labor Statistics, the U.S. added 353,000 jobs in January, far above economists’ expectations of 185,000. Unemployment remained flat at 3.7%, and on an annual basis, hourly wage growth came to 4.5%.
Does this job and wage growth mean that the Fed will hold off longer on cutting interest rates? It’s too soon to say. However, higher interest rates are intended to slow down inflation growth, and data that shows the economy strengthening in spite of the interest rates could diminish incentives to cut rates. For what it’s worth, consumer confidence is also extremely high. The University of Michigan’s Index of Consumer Sentiment showed surging confidence among consumers, which is at its highest point since July 2021. And, as Forbes senior contributor Christian Weller writes, the consistently strong labor market is truly what has driven the economy’s success in recent years.
While employment growth has been surging, January was also a month that saw many layoffs. According to a report by Challenger, Gray & Christmas, more than 82,000 people—largely in the tech and financial services sectors—lost their jobs last month. The firm said January was one of the biggest months for layoffs in almost 15 years.
- Electric car maker Tesla hit a nine-month low this week. Its year-to-date loss is 27%, and the company has the dubious honor of being the worst-performing stock on the S&P 500 index. The drop began almost two weeks ago when the company missed estimates in its most recent earnings report. It continued to fall as CEO and cofounder Elon Musk made news as a judge voided his compensation package, and Musk made repeated fringe right-wing claims on his social network X. As trading began on Tuesday, Tesla was worth less than pharmaceutical company Eli Lilly, which saw a big boost in its earnings from injectable weight loss drugs.
- McDonald’s had already warned that viral misinformation about the Israel-Hamas war was cutting into its performance in the Middle East. Claims that the restaurant chain—which is keeping a neutral political stance—supports Israeli soldiers in the war already led CEO Chris Kempczinski to put out a statement last month. Those troubles came through in its earnings report this week, when the company outperformed the year-ago period, but missed analysts’ expectations. Growth in the Middle East region was just 0.7%, far less than the 4.7% forecast by analysts.
- Big Oil continues to make big profits. ExxonMobil and Chevron both beat expectations in their most recent earnings. ExxonMobil saw $36 billion in 2023 revenues, while Chevron’s annual revenues were $21.3 billion. Both companies were well below their record earnings, set last year, but were successful given a drop in gas prices and large impairment charges due to California regulatory laws.
OFF THE LEDGER
Adobe CFO Dan Durn On Bringing AI To Finance
As a company, Adobe is just about synonymous with the software solutions and formats it has created, which have set standards for digital documents as well as image and video editing. But how does that technological innovation apply to the company’s other operations? Dan Durn has been Adobe’s CFO and executive vice president for finance, technology services and operations since 2021. I spoke with him about how Adobe is working to bring generative AI technology to the finance department. This conversation has been edited for length, clarity and continuity.
Is finance generally seen as one of the places that generative AI can really help a business?
Durn: Generative AI is one of those inflections that has the opportunity to dramatically reshape the finance industry. And as you think about rules-based work, you have an opportunity not only to automate, but to inject intelligence into the process. And what this does is it has a tendency to free up bandwidth. People can focus on upskilling their capabilities, focus on more strategic work. And then [the] velocity with which those insights are gathered and pushed at the edge of the organization to help feed the business and sharpen business decision-making. There’s a whole velocity at the core of how fast we get to those insights, and then democratize access to data that’s at the core of this inflection. I think this has the potential to dramatically reshape finance organizations in virtually every company, and we at Adobe want to lead on this front.
What have you done at Adobe?
Durn: Our finance organization, I think we’re uniquely positioned to think about this technology inflection, and re-architecting how we work. What I mean by that is, we’re a team with technology-inclined problem solvers, so we already lean into technology and solutions and automation as a part of our day-to-day. The environment that this technology inflection is coming into life is right in the finance organization.
One of the big initiatives we’ve driven recently over the last several months is we’ve conducted a hackathon. Consistent with [the idea that] innovation can come from anywhere, we wanted to create this grassroots sourcing of opportunities to improve how we operate across the finance organization. We got over 100 submissions from the team about how we can adopt these technologies, improve how we operate.
Prioritization is a really important principle at a time of a major inflection. You see the way we’re prioritizing from an R&D and product portfolio standpoint, we’re prioritizing within finance. We can’t do 100 things well, so what we did was we sorted through all of these submissions from the team. We narrowed it down to 20 that we felt were the highest quality potential opportunities, had the team then present to my executive team on where we thought the opportunities were. We distilled it down to five top priorities that we were going to action first, and the teams are actively pushing those projects forward to dramatically change how we operate. …When they are successfully implemented inside the organization, we have a pipeline where we bring into the sixth and the seventh opportunity. Periodically we will refresh the pipeline of opportunities with additional hackathons so that we’re always connected with the broad population of the organization.
What are some of the specific areas that you’re pursuing to use AI to make the financial organization more efficient and powerful?
Durn: There’s five general categories that [hackathon submissions] tended to gravitate towards, which I think is instructive about the opportunity space.
There’s a lot of unstructured data out there. PDF is the most common file format on the planet. Getting structured data extracted from that unstructured file format is a huge opportunity in the insights that you can get. So unstructured to structured data.
The second category is a predictive forecasting engine. How do we take all of the information that’s available to us as an enterprise, synthesize it, weight it appropriately, and get a predictive forecasting engine built that accurately reflects the performance of the business that runs alongside the normal planning cycle and get insights quickly.
Third is what I call an analyzer engine. At the core of that is just anomaly detection in the data. We have certain expectations for how our business performs, and when you think about the complexity of Adobe as a company, we’ve got multiple product lines, we’ve got multiple lines of business. We’ve got customer relationships that span a very broad surface area. …When you think of geographic footprint across that business, the number of intersections of where you can analyze business performance, expectations to actuals, it gets pretty complex pretty quickly. We can get the analyzer engine in place to surface those anomalies faster. The teams can really then focus on what’s driving the insights that are driving those business outcomes.
…Then there’s the fourth category. I put this in the category of chatbots. When you think about our employment manuals, if you think about compensation and how we operate, if you think about our equity program, there’s a lot of policies and procedures in place that define how a company operates. When you can ring-fence that data and use a chatbot as your first line of engagement with employees to surface the standard questions you get, employees efficiently get the answers that they’re looking for, and the capabilities we put in place as a company can then be used to go really deep with the complex set of questions that employees have. The velocity inside the company goes up, but the quality of the interactions go up because our employees can then really spend time on those complex issues that they really need answers on to take care of their families, get clarity on things like compensation.
…The fifth category I would call just general productivity. There’s a number of things that we will do day in and day out. It’s a bit of a catch-all category. How do we adopt technology to get at things faster?
What advice would you give to a CFO who is excited about the possibilities of generative AI and needs to convince the rest of their organization?
Durn: It’s not adoption of intelligence and automation for the sake of adopting technology. It’s about solving business problems. Keep the business focus. What business problem are we solving? Keep that at the forefront. That’s how you get business leaders excited about supporting [and] adopting these technologies. I keep coming back to faster time to insight, sharpen the business decision-making, drive impact and get better outcomes for the company. Be closely connected to business outcomes, as you think about a prioritization standpoint.
…In times of inflection like this, having a point of view and conviction is super important. If you drift on your point of view, it tends to oscillate organizations, and the execution around putting some of these initiatives in flight to see if you can generate tangible business impact becomes compromised. It almost becomes a self-fulfilling prophecy. So be very thoughtful, have a sharp point of view, have conviction around your point of view, and then go drive change where it makes sense.
FACTS + COMMENT
YouTube’s Premium and Music paid services for ad-free streaming hit a key milestone last week.
100 million: Paid subscribers to the Google-owned platforms
$13.99: Monthly cost for Premium, which includes ad-free video and music, some video downloads and early access to experimental features
‘We have also worked very hard to build up a subscription business’: YouTube CEO Neal Mohan told Forbes, acknowledging the importance of its free ad-supported content
STRATEGIES + ADVICE
Controller and CFO are both vital financial jobs in a company, but their functions are starkly different. It is possible for a controller to become a CFO, but there are some skills and qualities to master in order to get there.
Nintendo reported its earnings on Tuesday. What did the Japanese video game giant say about its seven-year-old Switch gaming console?
A. It will remain Nintendo’s central focus heading into 2024
B. It’s obsolete and an upgraded version will be unveiled next month
C. Some consoles are being recalled for a graphics card glitch
D. It’s recently been targeted by ransomware
See if you got the answer right here.