Uber should have given court an ex-employee's letter about 'fraud and theft' in Waymo case

SAN FRANCISCO (Reuters) – Ride hailing company Uber was obligated to turn over to a U.S. federal judge a letter from a former employee that told of the company’s “fraud and theft” and mentioned evidence of stolen trade secrets nailed “like a scalp” to the wall, a court official said Friday.

Special master, John Cooper, assigned to a lawsuit against Uber Technologies Inc [UBER.UL] by Alphabet Inc’s (GOOGL.O) self-driving car unit, Waymo, released a report on Friday stating the company should have produced the letter and was wrong in keeping it from the court.

The letter, from former Uber security analyst Richard Jacobs alleging Uber engaged in illegal and unethical competitive tactics and had stolen trade secrets, is at the heart of Waymo’s lawsuit against Uber.

The letter was sent to Uber’s in-house lawyer in May and shared with executives and board members, who could easily access it, special master Cooper said in his report.

“This needle was in Uber’s hands the whole time,” he said.

Cooper’s determination marks another setback for Uber in a case in which the judge has blamed Uber for withholding evidence and masterminding a coverup.

U.S. District Judge William Alsup will determine what, if any, consequences Uber faces for not turning over the letter.

The 37-page letter from Jacobs was released publicly for the first time Friday, partially redacted, although its contents had been discussed in detail during court testimony last month.

Because Uber had not disclosed it, the letter turned up just last month when the U.S. Department of Justice notified Alsup about it. The Justice Department has opened a criminal investigation into the matter.

Waymo sued Uber in February, alleging it had stolen trade secrets from Waymo’s self-driving car designs, and estimates damages in the case at $1.9 billion. Uber has said no Waymo designs have been used in its cars and rejects the financial damages claim.

In the letter, written by Jacobs’ lawyer, the ex-Uber employee said Uber’s security team had a unit that “exists expressly for the purpose of acquiring trade secrets, codebase, and competitive intelligence,” and a second unit that “frequently engages in fraud and theft.”

His letter says that Uber stole trade secrets from Waymo, but in court testimony last month he recanted that statement.

Jacobs’ letter also describes surveillance operations in which Uber employees bugged meetings with transportation regulators and recorded executives of rival companies, and says that former Uber CEO Travis Kalanick directed these operations.

In a statement on Friday, Uber said it has not substantiated all of the claims in Jacobs’ letter, but “our new leadership has made clear that going forward we will compete honestly and fairly, on the strength of our ideas and technology.”

Dara Khosrowshahi replaced Kalanick as CEO in August, and has been critical of Uber’s behavior under its old leader.

Jacobs named Mat Henley, who is on medical leave from Uber, Nick Gicinto, a manager on the security team, as instrumental in Uber’s clandestine intelligence-gathering operation. Security chief Joe Sullivan, and legal director Craig Clark, who were both fired last month for their role in concealing a massive data breach, were also involved, the letter said.

Sullivan said in a statement on Friday his team “acted ethically” and an attorney for Clark said has he “acted appropriately at all times.”

Matthew Umhofer, an attorney for Henley, Gicinto and other members of Uber, said: “Jacobs’ letter is nothing more than character assassination for cash.”

Jacobs was forced to resign in April after a demotion, and sent the letter the following month. He struck a deal with for Uber a $7.5 million settlement, and Jacobs continues to work for Uber as a consultant.

Additional reporting by Joseph Menn and Dan Levine in San Francisco; editing by Clive McKeef

Gadget Lab Podcast: Our Favorite Gadgets From 2017

Deep Dive: Ripple/XRP Edition Part I


Those familiar with my other articles (here & here) regarding the crypto-space will know I am a holder of XRP, the digital currency created by the company Ripple. While I have spent some time comparing Ripple and XRP to other blockchain technologies such as Ethereum and Bitcoin (COIN) (OTCQX:GBTC), I thought that it was appropriate to examine just Ripple in more depth and examine ways to invest in this private company. Before we get into XRP itself, the use-case, the viability and the adoption, first let us look at the company responsible.

Ripple Co Logo

(Image Source)

Ripple (The Company)

Ripple is a private company based in the U.S. with offices around the globe in London, India, Singapore, Luxembourg and others (Visit their website here for more information). They have raised money with a variety of prominent companies and potential customers such as Seagate (STX), Santander (SAN), Andreessen Horowitz and Google Ventures (GOOG), (GOOGL) among others.


In September 2012, Chris Larsen and Jed McCaleb co-founded Ripple (called OpenCoin at the time). They also incorporated ideas and technology created by Ryan Fugger, who had developed a system called RipplePay that was “decentralized and empowered individuals and communities to create their own money”. The three joined forces, but by July 2013, Jed McCaleb left the company (this is important and I will address it in a future article).

Ripple’s CEO is Brad Garlinghouse, who has a long history working at Yahoo!, AOL and other communications companies.

David Schwartz (known to the crypto-community as “JoelKatz” on various social media) is Ripple’s chieg cryptographer. He has developed similar software to that Ripple provides (encryption and purpose wise not blockchain) for prominent organizations such as CNN and the NSA.

Ripple recently added Benjamin Lawsky as a board member. This is notable because Mr. Lawsky was one of the primary contributors to the “BitLicense” regulation passed in New York State. Interestingly, Ripple was the fourth company to receive a BitLicense.

The company also hired a new CFO at the same time as appointing Mr. Lawsky to the board, Ron Will. Mr. Will has previously worked as a senior financial executive, investment banker, and lead the successful acquisition of “TubeMogul” by Adobe last year. Both of the aforementioned hire’s were announced in late November, 2017.


Since being founded in 2012 under the name OpenCoin (changed to Ripple in 2015) Ripple has developed a variety of software solutions that utilize blockchain technology. Currently all of the products that are production ready are geared towards financial institutions like banks and credit providers with the goal of making it faster and cheaper for them to move money.

To see where Ripple fits in in the blockchain realm, I found this graph informative:

different types of blockchain(Image Source)

One thing important to note is that although Ripple is listed under the centrally issued and controlled section, while that is currently true and will remain so overall, they do have a plan in place to decentralize the control of the network nodes as more people utilize the technology. This involves them shutting off two nodes they control for every one that comes online elsewhere. Additionally, as I will explain later, they are releasing XRP into the wild from their control.

Their current suite of products (collectively called RippleNet) includes xCurrent, xRapid and xVia of which I will describe below:


xCurrent is an “enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end-tracking.” It’s underlying technology is powered by the ILP, or interledger protocol, which “enables interoperation between different ledgers and networks” offering “cryptographically secure, end-to-end payment flow with transaction immutability and information redundancy.”

The four components of xCurrent are the bi-directional messenger (allows banks to determine FX rates, KYC [know your customer] verification, fees, etc.),the validator (confirms success or failure of payment), the ILP ledger and the FX ticker (provides rates for foreign exchange).

Basically ILP allows for different block chains to communicate with each other and the xCurrent software built upon it allows financial institutions to utilize it to send, track, and verify payments in any currency very quickly (less than a minute). This technology can be thought of as very similar to companies like SWIFT, which currently handle messaging for financial institutions to complete payments between each other.

ILP was developed by Ripple and subsequently open-sourced (see more information on ILP here).

Here is a video by Ripple explaining their xCurrent software process:

(Video Source)


Ripple explains xRapid as a solution “for payment providers and other financial institutions who want to minimize liquidity costs while improving customer experience”. Basically, it allows for cross-border payments between banks in a way that moves the funds much quicker, tying up less money for less time.

xRapid utilizes XRP to move the funds around, unlike xCurrent which can use XRP but it is not baked-in or required. This is advantageous for banks because instead of having to send money through 3 or 4 intermediary banks to get it from one country to another, with the amount of money being sent being ear-marked at each stop along the way and “tied up” in that transaction until all parties can verify the money has reached the destination (and left the sender), banks can simply swap the value into XRP and out of XRP into the recipients bank directly. This also utilizes ILP and is currently in “early access” mode.


Also in “early access”, xVia is Ripple’s product tailored towards corporations and banks “who want to send payments across various networks using a standard interface”. It allows the payments to have attached invoices, and is basically the same thing as xRapid or xCurrent but geared mostly towards business to business payments. This technology can utilize XRP but does not require it.

Recent Developments

In one recent development that I was going to discuss in a future article but has occurred since I initially submitted this article is escrow for Ripple. Mentioned in my past articles, this means Ripple has tied up 55 Billion XRP in smart contracts that will unlock 1 Billion XRP each month.

This was announced several months ago but the follow through is important for Ripple. In the recent days since the escrow has occurred XRP has climbed from .22-.29 cents on US exchanges.

Upcoming Headwinds & Catalysts

Ripple has a number of significant developments approaching that are potentially good and bad for the company. These are as follows:

1) Ongoing lawsuit with R3

2) Deployment of xRapid & xVia beyond testing

3) Ongoing development of regulation

4) Competitors catch-up or surpass technology (SWIFT, R3, Santander, Stellar, etc.)

5) Continued expansion of client base (exchanges and other FI’s)

6) Implementation of Codius (smart contract software on the RippleNet)

In order to keep this article as focused as possible, now that we have covered the main technology, background and leadership for the company I will discuss one past event that is important to be aware of before making an investment decision and then discuss alternative ways to gain exposure. Future articles on Ripple will examine each of these catalysts in much more detail in regards to the company, the companies investors and XRP directly. To be notified upon their release, please consider following me by clicking the appropriate button at the top of this page.

FinCEN Fine

One thing that any potential investor in XRP or Ripple should be aware of is the FinCEN (Financial Crimes Enforcement Network) Fine Ripple received in May of 2015. Ripple was fined $700,000 for violation of the Bank Secrecy Act in regards to anti-money laundering additions to the act.

Ripple was deemed to be in violation of the act due to practices through which they were selling/buying XRP and were told to make changes to the Ripple Protocol and conduct all “Ripple Trade” activity through “registered money services businesses” instead. This basically means that since 2015 third parties have been in charge of buying and selling XRP into the market for Ripple and should be seen as very important for investors who are skeptical that Ripple is manipulating the price.

XRP token symbol

(Image Source)

Ripple (The Token)

Now that we have laid-out the ground work for understanding the origins of the company, their products, leadership team and mentioned some of the potential catalysts (good and bad) for the company, let us attempt to come to a reasonable valuation for XRP the token to see what the potential price ceiling is for it in their current product suite. Why do we (or Ripple) care what the price is of XRP is? Because Ripple currently holds the vast majority (over 60 Billion units) of XRP. If the price appreciates before Ripple sells it, this translates into direct revenue realization for the company.

Taking the 100 Billion XRP in existence (and the highest number that ever can exist due to the fixed supply) and SWIFTS transaction volumes (international only) you get a market of $153 Trillion dollars. If all of this is stored in XRP at once (ignoring any funds that are used to create a wallet and are not in circulation) the value of each of the 100 Billion XRP would be $1,530. Assuming average volume each day of the year, this would be $4.19. If one were to suppose the transactions only occur on roughly 250 business days a year this would equate to $6.12 per XRP. What if only 10% of SWIFTS business uses XRP? This would result in a value of $150.30 if it was all stored in XRP at once, or .41 cents at 365 days of average volume or .60 cents if calculating at 250 business days. With XRP at a price just below .25 cents currently, even the most conservative estimate made above (10% of SWIFTS market spread evenly though 365 days with all 100 billion XRP available) represents an increase of just over 60%.

Share of SWIFT

Price of XRP (assuming 365 days)

Price of XRP (assuming 250 days) Potential Upside from Current Price
10% $0.419 $0.612 67%-145%
25% $.98 $1.44 292%-476%
100% $4.19 $6.12 1,575%-2,348%

Of course, with peer to peer payment applications a possible future offering and other applications like for the internet of things, the market for Ripple and XRP is much larger than outlined above. I have used SWIFTS annual transaction volume as a peg in order to arrive at a realistic valuation based on the companies current agenda. With gains between 67% and a mind boggling 2,348% when just targeting one competitors annual transaction volume, it seems if XRP is adopted in any meaningful way it is wildly undervalued today.

As more and more banks sign up to use xCurrent and make the switch to xRapid, and more businesses start utilizing xVia the adoption trend should only accelerate. If Ripple partners with Google, Alibaba (BABA) or another company to provide xRapid as a backend for their payment app like AndroidPay, AliPay, SamsungPay, Venmo, Square (SQ) the total addressable market will rise quite rapidly.

In Conclusion

There are a lot of ongoing or upcoming events and decisions that will effect the quality of Ripple or XRP as an investment going forward. Since XRP being adopted is not required for Ripple’s success (since xCurrent does not use it), it is inherently riskier to invest in XRP and not the entire company. Due to the risk that xRapid (and subsequently XRP) or other software they provide that utilizes XRP is never adopted in a meaningful way, it may be best for conservative investors to hedge an investment in Ripple by investing in Santander, Google, or another Ripple investor like Seagate or SBI Holdings of Japan.

For those looking for long-term (2-5+ years) higher growth opportunities and more direct exposure, one could investigate purchasing XRP, but I would advise you to consider hedging with an investment in a competitor like Stellar’s XLM.

Moving forward in this series we will look at upcoming catalysts for Ripple both internally (new products, new clients, new employees) and externally (competitors, regulation, etc.) and determine if investing in the company at all is a good idea.

If you wish to receive more information regarding cryptocurrencies such as Ether, XRP or Bitcoin, please take a second to follow me so you can be notified of future articles.

Disclosure: I am/we are long GOOGL, GOOG VIA ETF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am a long-term holder and trader of BTC, LTC, ETH and XRP.

Iron Mountain Makes $1.3 Billion Data Center Acquisition

Document storage company Iron Mountain said on Monday it would buy the U.S. operations of IO Data Centers for about $1.32 billion, giving it access to the lucrative colocation data center services business.

Under the deal, Iron Mountain will acquire the land and buildings associated with four data centers in Phoenix and Scottsdale, Arizona; Edison, New Jersey; and Columbus, Ohio.

A colocation is a data center facility in which a business can rent space for servers and other computing hardware.

The existing data center space in the four facilities totals 728,000 square feet, providing 62 megawatts (MW) of capacity with expansion potential of an additional 77 MW in Arizona and New Jersey, Iron Mountain said.

The company—which manages digital and physical records, including storing and shredding of physical documents—will also pay up to $60 million based on future performance to IO Data, subject to customary adjustments.

“The addition of IO’s data centers enhances our geographic diversification and provides market-leading exposure to Phoenix, the fourth fastest market for absorption in the U.S. in 2017, and the 12th largest data center market globally,” CEO William Meaney said.

Iron Mountain said it expected the deal, expected to close in January, to add to adjusted funds from operations (AFFO) in 2019.

China video game craze drives booming e-sports market

WUHU, China/SHANGHAI (Reuters) – In an industrial park on the edge of Shanghai, a dozen Chinese teenagers are taking a break from battling digital armies to focus on their yoga.

People watch the League of Legends 2017 World Championships Grand Final esports match between Samsung Galaxy and SK Telecom T1 at the Beijing National Stadium in Beijing, China, November 4, 2017. REUTERS/Thomas Peter

They are members of EDG, one of China’s top electronic sports teams, who spend six days a week in a military-style training compound to become world beaters in video games.

EDG’s players – when not doing yoga to stay limber – spend most of their time at the camp wielding virtual weaponry playing multi-player battle games like “League of Legends” or Tencent Holdings Ltd’s popular “Honour of Kings”.

The team’s top players can rake in up to 30 million yuan ($4.54 million) a year each from tournament prize money, commercial endorsements and payments from avid fans who spend hours watching them play online.

China’s craze for e-sports is being propelled by the country’s booming video game market, the world’s largest and one that is expected to register $27.5 billion in sales this year, according to the gaming consultancy Newzoo.

Game developers like Tencent and NetEase Inc, and others like Alibaba Group Holding Ltd, are competing to market video games, fill stadiums with fans and sell broadcast rights to the matches.

“We have found the fastest-growing and biggest demand is in e-sports, and we are following that trend,” said Wang Guan, general manager of e-sports at Alisports, an Alibaba subsidiary.

Cities around the country are looking to cash in on the market’s fast growth with video game theme-parks and e-sports venues. Some universities are even rolling out gaming degrees.

Alisports, which organizes the World Electronic Sports Games, successfully lobbied the Olympic Council of Asia to include e-sports at the 2022 Asian Games in Hangzhou.

The extent of the e-gaming boom was on display in Beijing in November at the world final of League of Legends, with a prize of over $4 million at stake.

A crowd of more than 40,000 people packed into the city’s Olympic Bird’s Nest stadium to watch the South Korean gaming stars Faker and CuVee go head to head.

The raucous crowd, a bigger turnout than most local soccer games, underlined how popular gaming as a hobby and spectator sport has become in China.

Jiang Ping, 17, a university student in Beijing, paid 4,000 yuan to watch the final with his aunt. They were lucky: tickets sold on the gray market reportedly rose to more than 20 times the original price due to high demand.

“When I started playing this game five years ago, there weren’t that many people,” Jiang said. “Now the numbers are huge, and even the game itself is now owned by a Chinese firm, Tencent.”

Tencent owns the League of Legends developer Riot Games.


The city of Wuhu, a backwater three hours away from Shanghai, is a symbol of China’s gaming potential – as well as its risks.

Zhang Shiyu, a 18-year-old student majoring in esports and management, practices in her dormitory room at the Sichuan Film and Television University in Chengdu, Sichuan province, China, November 19, 2017.REUTERS/Tyrone Siu

Many local governments have been seeking to develop more specialized industries, and Wuhu has targeted e-sports. In May, the city signed a deal with Tencent to build an e-sports university and a stadium for events. Other cities, like Zhongxian in the municipality of Chongqing, are also building facilities to profit from the e-sports boom.

Some industry participants, however, are already worried about a bubble forming, and rising debt levels as local governments jump into e-sports investment.

“Maybe some of the developers don’t have pure intentions, they are just using e-sports as an excuse to get land at a cheap price from local government,” said Tao Junyin, marketing director of VSPN, a leading e-sports content company.

Han Li, manager of Wuhu’s e-sports association, said the city had discussed ideas including an e-sports-themed hotpot restaurant, bar and cinema, in addition to the gaming school and arena.

Ultimately, though, China’s gaming giants are the ones calling the shots, he said.

“Tencent has a controlling power in the whole industry, so we have to find a way to work with Tencent. You either die or you go Tencent,” he said.

Slideshow (7 Images)

Tencent declined to comment.


Local gamers also face tougher regulation than peers in the United States, South Korea or Japan, with a recent government push to emphasize “core socialist values” in entertainment products including songs, online streaming and video games.

This year, Tencent limited the time children could play its popular Honour of Kings game after coming under fire over gaming addiction. In November it said it would bring the top-selling game “Playerunknown’s Battleground” to China, but would tweak the game to fit with “socialist core values”.

Tencent’s main local rival, NetEase, has already embedded banners with patriotic slogans into one of its popular battlefield games to head off official criticism.

“In China, you have to follow the government’s decree,” said Tao of VSPN. “But you can always make moderations to the games so that it will pass the censor.”

Nonetheless, China’s youth seem enthralled, prompting some universities to start offering e-sports degrees, from professional gaming to e-sports commentating and graphic design.

Liu Xuefeng, a freshman from Anhui province, applied for a gaming degree program in the western city of Chengdu – despite facing push-back from his concerned parents.

“I am very interested in this program, and they couldn’t stop me, so they had to cave in the end,” he said, adding that he wanted to be an e-sports commentator. “There is great potential in the development of the gaming business.”

The allure of becoming the next big gaming star is already sparking fierce competition to get into the market, said David Ng, head of Super Generation Investment, which owns the EDG e-sports team.

“Sometimes we will have a thousand application letters in our mail box to join our team on a single day.”

($1 = 6.6132 Chinese yuan renminbi)

Reporting by Pei Li and Adam Jourdan; Additional reporting by Thomas Suen; Editing by Philip McClellan

Our Standards:The Thomson Reuters Trust Principles.

Bitcoin: Not Your Ordinary Bubble

Source: fortune.com

Not Your Ordinary Bubble

Bitcoin (COIN) (OTCQX:GBTC) has surged by over 50% following its roughly 20% correction a week ago. The resilience of the cryptocurrency is remarkable as BTC continues to hit new highs seemingly each day. With prices up by over 2,000% in the last year alone, people are often equating Bitcoin to former bubble like phenomenon, the Nasdaq Bubble, Tulip Mania, and other hype induced crazes throughout history. However, is it possible that “The Bitcoin Mania” is only in the opening stages of this historic run? If so, how high could the price go? And what if Bitcoin is not in a bubble at all?

What Bitcoin Is

Bitcoin can be considered many things, a store of value, a digital commodity closely resembling a digital version of gold, a speculative trading instrument, a form of currency…

BTC The Store of Value

With a roughly 2,000% increase over the last year Bitcoin has become an enormous source of value as well as a store of wealth for people who own BTC and believe the digital commodity will keep appreciating going forward. These individuals are different from speculators, as they own their Bitcoins with the expectation that BTCs will be worth a lot more in the future.

A Speculative Instrument

On the other side of this equation BTC has clearly become a speculative trading tool for other individuals. With such astronomical gains traders and speculators are flocking to BTC to buy high and sell even higher.

Digital Gold

Perhaps the most fascinating aspect of Bitcoin is its commodity like properties. Just like all physical metals BTCs must be mined to come into existence. Moreover, Bitcoin mining is difficult, expensive, and comes with proof of work. This phenomenon is what inherently makes BTC a valuable commodity, much like gold. Conversely, what makes it different from gold and all other physical commodities on earth is BTC’s finite amount, only 21 million Bitcoins can ever be mined.

Therefore, Bitcoin is a speculator’s dream in this respect. Can you imagine how much gold would be worth if market participants knew that only 21 million ounces could ever be pulled out of the earth, and we were in the process of mining close to the 17 millionth ounce? That’s kind of the sweet spot BTC is in right now, and that limited amount makes the digital commodity extremely desirable to own.

Source: naturalnews.com

Moreover, a recent report reveals that between 2.78 and 3.79 million BTCs appear to have been lost forever. This implies that the overall pool of Bitcoin is likely to be scarcer than previously expected and a mere 17 to 18 million will ever be in circulation instead of the previously thought 21 million.

BTC as The World’s Currency

In addition to being a legitimate digital commodity, and a store of wealth, Bitcoin also has extremely strong currency like characteristics. It explicitly exhibits traits like durability, divisibility, transportability, scarcity, recognition, is believed to be impossible to counterfeit, and in time should gain stability as well as consistency. Moreover, it can’t be printed continuously like fiat currencies, is not controlled by a central authority, and has a genuine possibility of becoming the currency of the world one day.

Transactions using Bitcoin continue to increase and with roughly 280,000,000 transactions BTC could hit 300 million total Blockchain transactions by the end of 2018. Furthermore, Bitcoin is being recognized as legal tender by Governments, which is a huge step towards mainstreaming BTC as a legitimate world currency. Recently Japan officially recognized BTC as legal tender in April 2017, a move which is likely to be followed by other nations around the globe.

Source: geekfence.com

What Bitcoin Is Not

So, now that we have looked at what Bitcoins is, let’s look at what it is not. Bitcoin is not a fraud, a Ponzi scheme, a mirage, the dotcom bubble, a company, and it is definitely not a tulip bulb.

There have been numerous respectable business people and captains of industry who have had some rather negative things to say about BTC. For example, Jamie Dimon, CEO of JPMorgan recently called the digital currency a “fraud” amongst other degrading things. The Oracle of Omaha, Warren Buffett called it a “mirage”, and warned people to stay away from it years ago. DBS Group’s David Gledhill, recently went as far as to call BTC a “Ponzi scheme” (by far not the only prominent business person to call it that). And although Mr. Gledhill didn’t elaborate on why he thought BTC was a Ponzi scheme, he did say that “we don’t spend that much time on it”.

Also, analysts, news anchors and other high profile individuals are constantly comparing BTC’s overall value to market caps of companies. And of course, comparing the BTC phenomenon to Dutch Tulip Mania of the 1630s appears to have become a favorite amongst many Bitcoin skeptics in the financial industry.

So, is Bitcoin a Fraud or a Ponzi Scheme?

Bitcoin is becoming widely accepted as a store of value, a digital commodity, and a legitimate form of currency. Moreover, to my knowledge the cryptocurrency does not appear to share any common characteristics associated with fraud or a Ponzi schemes. Furthermore, I have yet to hear any specific compelling evidence as to why BTC may be a fraud or a scheme of any kind. Therefore, claims classifying BTC as a fraud, or a Ponzi scheme are preposterous in my view

Is the Bitcoin Phenomenon Like the Nasdaq Bubble?

Nasdaq is a stock market, comprised of companies whose share prices reflect value on the basis of income and other metrics. Bitcoin is a completely new phenomenon, a digital commodity, with store of value, and currency type attributes. Therefore, it is very difficult to compare BTC and its price appreciation to anything and comparing it to Nasdaq in the 90s may not be that applicable. Nevertheless, people sometimes forget that the Nasdaq is now over 40% higher than at it’s highs during the Dotcom boom.

Source: fred.stlouisfed.org

The Dutch Tulip Mania Bubble

Bitcoin is a worldwide phenomenon, while the Tulip Mania was confined to a small area of the globe. Tulips were valued for their status symbol attributes, and had no actual functional value like Bitcoin does as a medium of exchange, or a store of wealth. During the height of “Tulip Mania” a single bulb could be traded for a mansion and some bulbs went for multiple times (roughly 8x) the average yearly salary. By these metrics a single Bitcoin would cost about $400,000. So, when comparing Bitcoin to the Tulip Mania phenomenon analogy it appears that even if BTC is an a bubble like state it is nowhere near the level of craze tulip bulbs were in the 1630s and is very likely still towards to opening stages of its ascend.

Source: greenline401k.com

Comparing BTC to Companies

Bitcoin is obviously not a company, and the functionality it provides as a commodity like store of value resembles gold much more than it does a company. Also, the currency like attributes Bitcoin possesses and the possibility of the cryptocurrency to one day become the currency of the world warrants a comparison to the total value of fiat currencies or gold much more than it does to a company.

In that case, the approximate value of all the gold in the world is roughly $7.5 trillion, and the M0 to M3 money supply of the world’s fiat currencies is about $5 trillion to $75 trillion. So, with BTC prices at around $16,000 Bitcoin’s market cap is about $265 billion. This is only about 3.5% of the entire gold market. So, for Bitcoin to have a comparable market cap to gold the price would have to increase to approximately $450,000 per Bitcoin. This seems a lot more logical than gaging Bitcoin’s to Boing, or other corporations.

Is it Possible That Bitcoin is Not a in a Bubble?

The fact that BTC is used as a currency on a daily basis, and the fact that numerous people use BTC as a genuine store of value, suggests that Bitcoin may not be in as much of a bubble as some skeptics would have you believe. Moreover, transaction volume in BTC has not increased all that much over the past 2 years. Daily Blockchain transactions have increased from about 200,000 to roughly 300,000 over the last two years, hardly a bubble-like surge. In addition, BTC doesn’t appear to be exhibiting many of the characteristics witnessed at the height of other craze infused manias. Also, If we observe a logarithmic chart which goes by percentage change, we can see that Bitcoin appears to have plenty of room to run in this current leg higher.

Source: bitcoincharts.com

Many people are simply holding on to their Bitcoins to create value and store wealth, not flipping them just to make a buck. BTC continues to be used as a world currency and is continuously becoming ever more adopted. And although there are some bubble-like attributes associated with the hype and increased interest surrounding Bitcoin, the cryptocurrency is very likely still in the opening stages of a possible “bubble”, second or third inning. Therefore, as events continue to unfold and the Bitcoin surge progresses the price is likely to go a lot higher before it crashes, if it crashes at all.

Price Target

I don’t see why Bitcoin can’t eventually have a combined market value comparable to gold or to the M0 money supply. Therefore, my end of year 2018 Bitcoin price target is $50,000 and my 2022-2023 price target for Bitcoin is $400,000$500,000.

Important Note: Bitcoin remains a very speculative investment and has significant underlying risks associated with it. Possible government intervention, hacks, and other detrimental developments could cause a drastic price decline in a relatively short time period. Investing in bitcoin comes with significant risk to loss of principle.

Additional Note: This article expresses solely my opinions, is produced for informational purposes, and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions very carefully.

This idea was discussed in more depth with members of my private investing community, Albright Investment Group. To get access to exclusive articles, receive trade triggers, obtain price targets, and discuss specific trade strategies Become a member today >

Disclosure: I am/we are long COIN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long Bitcoin as of recently (late November).

Alibaba redraws retail fault lines with bricks-and-mortar push

HANGZHOU, China (Reuters) – In a small village shop near the eastern Chinese city of Hangzhou, store owner Lu Qiwei uses his smartphone to place orders to refill stocks of instant noodles, rice and drinks.

FILE PHOTO: A sign of Alibaba Group is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017. REUTERS/Aly Song/File Photo

Lu, 61, says he didn’t own a phone two years ago, but he’s now one of 600,000 people using a supply chain app made by e-commerce giant Alibaba Group Holding Ltd (BABA.N), aimed at drawing millions of Chinese mom-and-pop stores into its orbit.

The app is one part of a multi-billion dollar drive by Alibaba to extend its dominance of online shopping into physical stores, and build a data fingerprint for every consumer in China, where 85 percent of retail sales are still made offline.

“We’re working to make the net in the sky and the net on the ground,” CEO Daniel Zhang said last month after Alibaba took a $2.9 billion stake in top grocery chain Sun Art Retail Group Ltd (6808.HK). “We will cover all consumers seamlessly.”

Alibaba’s strategy echoes Amazon Inc’s (AMZN.O) $13.7 billion deal this year for organic offline grocer Whole Foods Market Inc – but with a twist.

China’s fragmented market means Alibaba is spreading itself wider and thinner, hooking an array of mall operators and stores to its mobile payment, logistics and inventory management tools.

Alibaba said it had no immediate comment on how the two companies’ strategies compare.

Over the past two years, Alibaba has acquired major stakes in big box retailer Suning Commerce Group Co Ltd (002024.SZ), Lianhua Supermarket Holdings Co Ltd (0980.HK) and Intime Retail Group Co Ltd (INTIF.PK).

It all adds up to a vital – but expensive – gamble as Alibaba looks to maintain rapid growth and meet huge investor expectations even as the broader online retail market slows. Alibaba shares have more than doubled this year.

“It definitely needs to be a priority for Alibaba,” said Jason Ding, partner at Bain & Company’s Beijing office, adding it would help the firm tap an older demographic that prefers to shop offline, and cut reliance on internet sales.


Alibaba’s offline push gives it reach and influence over China’s broader retail market. Its Tmall and Taobao stores have upended e-commerce in the market, and ties to many of the top bricks-and-mortar chains extend that influence offline.

The push would add at least thousands of supermarkets and malls, and potentially millions of small local stores. Amazon’s Whole Foods Market has about 500 outlets in the United States and UK.

Despite overseeing a mass of offline sale points, analysts say Alibaba still has to piece them together – integrating data, managing personnel and protecting consumers’ privacy.

“These are areas Alibaba doesn’t necessarily have amazing expertise in, they just happen to have really good access to data and really good connections with brands,” said Ben Cavender, Shanghai-based principal at China Market Research.

Getting shop owners on board takes resources and time.

Behind Alibaba’s Ling Shou Tong supply chain app is an army of some 2,000 foot soldiers, who work purely on commission to convince store owners to use the app, the firm says.

The workers, called ‘chengshi paidang’ – or city partners – train at Alibaba and pay a 3,000 yuan ($454.47) deposit and a 3,000 yuan annual platform fee to act as salespeople in small cities, earning a commission on products sold via Alibaba apps.

And there are logistical hurdles, said Yu Wenze, 21, who worked as a city partner in a rural area of Shandong province.

“First, awareness of the technology is too low and the replacement cycle for goods is too long. Also, the logistics aren’t good enough yet. We have to commit to next-day delivery if the shop ordered before 4.00 p.m., but in most cases we can’t do it.”

Alibaba’s efforts are further complicated by questions over ownership of individuals’ data, as it extends its offline network into highly varied offline environments.

“They need that personal information in order to create more targeted offline stores, and all of that will require additional data to be shared across different locations,” said Bain’s Ding.

“There are a lot of new rules that need to be defined if they want to strike the right balance.”


Store owners were mixed about the impact on their business.

“They give us storefront decorations and come out to give in-store training and other help,” said one store owner in eastern Hangzhou, who converted his shop to an official “Tmall Store”. He didn’t want his name used as he’s not authorized by Alibaba to speak to the media.

The store is part of a drive launched in August to transform 10,000 convenience stores outside China’s major cities into Tmall-branded stores within four months.

Near the shop’s till, goods have digital price tags that change to match online prices. Outside, Alibaba’s Tmall mascot – a black cat – looms over the shop front.

On the top floor of an Intime department store in downtown Hangzhou, Alibaba’s IKEA-like “Tmall Home Selection” uses electronic tags that allow shoppers to browse sofa cushions and vases before paying online and getting goods delivered.

On a recent Friday afternoon, the store was quiet.

“People still buy in the store… but the concept is still very new,” said a saleswoman who declined to be named. “It’s empty because people are working right now, but they can always buy online.”

Back in his store, Lu is quietly happy with his new system, which he says has cut his costs by knocking local re-sellers out of his supply chain. Customers can now also pay more easily on their smartphones with Alibaba-linked Alipay.

“Now we all work for Alibaba,” he said.

Reporting by Cate Cadell in BEIJING, with additional reporting by Sijia Jiang in HONG KONG; Editing by Adam Jourdan and Ian Geoghegan

Our Standards:The Thomson Reuters Trust Principles.

Walt Disney Makes Two Big Additions to Its Board

Media company Walt Disney on Thursday named Oracle’s chief executive, Safra Catz, and her counterpart at Illumina, Francis A. deSouza, to its board.

Disney said their election would be effective Feb. 1 but it was yet to decide on which committees they would serve on.

The company currently has 12 members on its board, including Facebook’s Sheryl Sandberg and Twitter’s Jack Dorsey.

The election of the two new members comes at a time when Disney is said to be in the lead to acquire much of Twenty-First Century Fox’s media empire.

Disney CEO and chairman Bob Iger contemplates on extending his tenure past 2019 to facilitate the integration of Fox’s assets if a deal is completed, the Wall Street Journal reported on Wednesday.

Australia's ASX selects blockchain to cut costs

(Reuters) – Australia’s ASX Ltd (ASX.AX) said on Thursday it would replace its registry, settlement and clearing system with blockchain technology to cut costs for customers.

FILE PHOTO – An investor looks at a board displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, July 17, 2017. REUTERS/Steven Saphore

The decision to replace the Clearing House Electronic Subregister System (CHESS) on Australia’s main bourse follows two years of testing of distributed ledger technology, also known as blockchain.

“We believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs,” ASX Managing Director and CEO Dominic Stevens said.

The move will make the Australian Securities Exchange one of the biggest mainstream financial markets to use the relatively new ledger system, best known as the technology underpinning the bitcoin crypto-currency.

Blockchain is a shared, verifiable and permanent record of data that is maintained by a network of computers.

Banks and other large financial institutions have ramped up their investments in the technology over the past few years, hoping it can simplify and cut the cost of back-office processes.

The new system should be operational for market feedback at the end of March 2018, ASX said. The timing of its final implementation would depend on consultation with stakeholders.

The system would be designed without access barriers to non-affiliated market operators and clearing and settlement facilities. It also would give ASX customers choice over how they use its post-trade services.

ASX bought a minority stake in U.S. blockchain developer Digital Asset through a A$14.9 million ($11.27 million) investment in January last year, to design a new post-trade solution for the Australian equity market.

The market operator’s decision is a win for the young technology company led by Blythe Masters, a former senior JPMorgan banker.

Founded in 2014, Digital Asset has raised more than $115 million from large firms including ASX, Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), CME Group Inc (CME.O), Deutsche Boerse (DB1Gn.DE) and Citigroup (C.N). “After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential,” Masters, Digital Asset’s chief executive, said in a statement.

ASX shares gained as much as 0.88 percent by 0039 GMT, while the index was up 0.5 percent.

($1 = 1.3217 Australian dollars)

Reporting by Susan Mathew in Bengaluru; Additional reporting by Anna Irrera in New York; Editing by Stephen Coates

Our Standards:The Thomson Reuters Trust Principles.

New York Attorney General Wants Net Neutrality Vote to Be Delayed

New York’s attorney general urged the Federal Communications Commission to delay a vote rolling back net neutrality rules because of the large number of fake comments submitted to the agency on the issue.

The FCC is expected to vote on Feb. 14 on Chairman Ajit Pai’s plan to scrap the 2015 landmark net neutrality rules, moving to give broadband service providers sweeping power over what content consumers can access. Pai is a Republican appointed by President Donald Trump.

New York Attorney General Eric Schneiderman has been investigating allegations that more than half of the 21.7 million public comments submitted to the FCC about net neutrality used temporary or duplicate email addresses and appeared to include false or misleading information.

Schneiderman said the FCC agreed on Monday to assist in the probe. “We’re going to hold them to that – and, in the meantime, it’s vital that the FCC delay the vote until we know what happened,” said Schneiderman.

The 2015 rules changed the designation of internet service providers, or ISPs, usually big cable and telephone companies, so they were banned from blocking or throttling (slowing) legal content or from seeking payments to speed delivery of certain content, called “paid prioritization.”

FCC Commissioner Jessica Rosenworcel, who opposes the net neutrality rollback, agreed that the vote should be delayed.

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“The integrity of the public record matters. The FCC needs to get to the bottom of this mess. No vote should take place until a responsible investigation is complete,” she said.

Under Pai’s proposal, the Obama-era rules would be reversed and ISPs would only have to disclose blocking or throttling.

Bill and Melinda Gates Foundation Just Donated to This Tech Non-Profit

The Bill and Melinda Gates Foundation is doubling down on improving computer science education.

The private foundation, formed in 2000 by the former Microsoft (msft) CEO and his wife, has contributed an unspecified amount of a $12 million donation to the non-profit Code.org. PricewaterhouseCoopers and the non-profit foundation arm of Indian IT company Infosys also donated, Code.org said on Monday.

Code.org focused on making computer science education more available in schools and to people from underrepresented communities. In addition, it is involved in trying to get more girls interested in computer science.

The Code.org non-profit also said Monday that it reached a milestone of signing up 10 million girls to use its several online courses intended to teach them software development skills.

In October, Bill Gates said his foundation would invest $1.7 billion in U.S. public education, with the funds intended to explore new teaching techniques.

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“The role of philanthropy here is not to be the primary funder, but rather to fund pilots, to fund new ideas, to let people — it’s always the educators coming up with the ideas — to let them try them out and see what really works super well and get those to scale,” Gates reportedly said at the time.

How to Make Sure Your Boss Thinks You're Essential to The Team

Make yourself indispensable to your clients and employers. You’ve heard it before. But we live in a fast paced, global economy. And it’s  easier and faster than ever to replace a talented individual. This means it’s harder than ever before to become indispensable. There’s an easier way that doesn’t involve being a super talented genius.

You don’t need to be indispensable to be indispensable. You need merely to hold the only set of keys to essential elements of ongoing business.

The Problem With The Indispensable Argument

Even if you are indispensable, do your clients really believe that?

Companies large and small fire people all the time without knowing how critical they were to the business. People are irrational. And if so motivated, they’ll fire you even at considerable harm to their business. It’s not enough to be indispensable, you need to back it up with strong, material leverage.

What is material leverage?

In business terms, material leverage in business terms is an assisted advantage that exists outside of yourself but is perceived by others. The principle is simple. You legitimately own or control the linchpin of an ongoing transaction, or business and use it to influence terms of an engagement.

Examples include effective control over partnerships, pipelines, websites, apps, platforms, or databases. Or perhaps you have contacts that are essential to the other party’s operations.

Strong vs. Weak vs. No Leverage

The key to understanding the power of leverage usually rests on the amount of time, energy and attention required to replace whatever linchpin you own or control. The more time required, the more powerful the leverage.

No or Weak Leverage

If the resource that you own or control can be easily replaced in a day, you effectively have no leverage. If there is a whole marketplace full of easy alternatives, or the perception of one, you have no effective leverage or at best weak leverage.

Perception is more powerful than the reality. If the other party doesn’t perceive or understand the leverage, they won’t respond to your influence over it.

Strong Leverage

A good measure of strong leverage is if its value is worth more than your annual salary or fee. If your leverage is perceived to be worth 5x your fee, then they will likely bend your way. Not doing so would risk costing them considerably more. That’s strong leverage.

When & How to Use it

Basically if someone isn’t paying their tab, trying to cut you out, or you feel you’re about to be fired, strong material leverage can come into play.

Step 1. You have to decide what your goal is.

Are you trying to use your influence to keep a good deal going and growing, or is it time for you to cut ties? Decide now.

Step 2. Let them hear the branch creak.

Use your leverage as influence to resolve issues and negotiate, not to bully anyone. Do this by letting those involved hear the branch creak. This means to hint just enough of your potentially hazardous move to cause them to rethink their course of action.

If your goal is to keep things going, then you need to think of the use of strong leverage as more of a dance. It’s not a battle, it’s about keeping the appropriate amount of tension and pressure to move with your partner.

If the goal is to keep profitable engagements going as long as possible, don’t wield your leverage like a sword in battle. You may feel superior to the other party in the moment but you’ll lose the value of ongoing transactions with those involved in the process.

This is a more subtle art. The other party needs to hear the branch creak and contemplate their own peril. You need merely hint at your leverage and let them worry about perilous outcomes.

Remember, leverage only works if they and you both stay in the tree.

Step 3. Make the corrective action clearly known.

If you’re too aggressive, the other party may see no path forward and impulsively jump out of the tree on their own. They need to hear both the branch creak and know the corrective solution to make it stop.

Cutting Ties

If you decide to cut ties, the first move is usually not to pull the rug out from anyone. A longer exit, is often more profitable. Leverage allows you to negotiate the terms of an exit. You may have the other party simply pay you to keep your resources in play. This is more amenable as it buys everyone time to decide what to do next.

No one likes being under someone else’s thumb. But leverage buys you a seat at the table and an engaged audience, ensuring you can be heard out. Tread softly and carry a big stick.

2 Telecom Giants… 1 Trade, 1 Investment

In today’s low interest environment, investors seeking high-yielding investment vehicles have limited options. One such option is a pair of telecom giants in AT&T Inc. (NYSE:T), and Verizon Communications (NYSE:VZ). Each stock has a juicy dividend yielding north of 4.5%, yet they are not created equal. AT&T is much more fundamentally sound, and poised for growth, which will position it for higher returns moving forward – regardless of how the pending merger with Time Warner Inc. (NYSE:TWX) shakes out. Verizon on the other hand, has a lot to prove in regards to its digital advertising strategy.

The dividends are juicy

Each stock well out-yields your typical 10-year notes, so each stock has been an obvious choice for income-oriented investors.


T Dividend Yield (TTM) data by YCharts

Verizon’s dividend yield is approximately double that of 10-year treasuries, while AT&T is even more so with a yield at 5.37% at current levels. These dividends have consistently risen with AT&T raising its dividend for 33 consecutive years, and Verizon having raised its dividend for 13 consecutive years. These dividends represent a rare find in today’s investing environment – that is a stock that pays a dividend out-yielding inflation. With the historical inflation rate in the United States at 3.18%, US Treasuries are still a rip-off, with investors losing buying power on an annual basis.

Cash flows tell the true story on dividend funding

When you first look at the payout ratio with a basis from earnings per share, Verizon seems to be much more well off.


T Payout Ratio (NYSE:TTM)) data by YCharts

The dividend consumes more than 90% of AT&T’s earnings per share. Meanwhile, only about 60% of Verizon’s earnings are paid out towards the dividend. However, telecom companies – specifically AT&T and Verizon are very CAPEX-intensive as the infrastructure to maintain and upgrade the networks over time is very cost-intensive. At the end of the day, dividends are paid with cash so we will compare the payout ratios based on free cash flow per share instead.

Going back five years, the payout ratios based on cash flows are vastly different than what is paid out of earnings. The dividend paid by AT&T is easily covered by cash, while Verizon’s drop in cash flows over the past couple of years has put stress on the dividend. Quite a flip of the story from the chart above.

AT&T FCF/share AT&T Dividend Payout Ratio Verizon FCF/share Verizon Dividend Payout Ratio


$3.39 $1.77 52.2% $3.97 $2.03 51.1%
2013 $2.92 $1.81 62.0% $6.23 $2.09 33.5%
2014 $2.16 $1.85 85.6% $4.29 $2.16 50.3%
2015 $2.61 $1.89 72.4% $2.18 $2.23 102.3%
2016 $2.64 $1.93 73.1% $2.68 $2.29 85.4%

While AT&T is not yet at the high end of its cash flow payout ratio, cash flows have been relatively stagnant for the past five years. Meanwhile, you could probably surmise from the drastic change in payout ratio, that Verizon’s cash flows have degraded over that same time span.


T Free Cash Flow Per Share (TTM) data by YCharts

For both companies, growth is needed over the long term – at least a little (hard to drastically move a revenue needle that is well over $100B) to aid cash flows. The dividends don’t grow very fast – both have grown between 3.4% and 3.7% per annum over the past decade (and they really don’t need to grow much given the high yield).

Similar growth strategies, each with bumps in the road

Both companies have taken a similar (not identical) approach to growing the businesses in recent years. AT&T has vertically branched out to unify its existing network and new media (both content and delivery) to form a fully contained ecosystem that it can profit from at each phase. Sort of an all inclusive media experience if you will.

The first leg of this was the 2015 deal for AT&T to acquire DirecTV. This has enabled AT&T to begin bundling TV services with the wireless business. Its growing “DirecTV Now” service has grown to about 800K subscribers in under a year, and can be bundled as a value-add with the wireless business to attract new customers, while simultaneously reducing churn.

The second leg of this has been the pending, and high profile potential acquisition of Time Warner. Time Warner is a media company that contains an umbrella of brands including Warner Bros. movie studios, HBO, and various top cable networks.Aside from the obvious addition of content to complete the concept (full system with wireless/TV as vehicles for delivery of in-house owned content), Time Warner would also give AT&T as shot in the arm with robust revenue and free cash flow growth over the past several years.


TWX Revenue (TTM) data by YCharts

Unfortunately, the Justice Department announced on November 20th its intent to sue in order to block AT&T’s acquisition of Time Warner. This will play out over the coming months as the two sides are currently posturing for court dates, and will no doubt further discuss concessions in order to avoid going the distance in court.

Even if the deal is ultimately blocked, the DirecTV acquisition will still help AT&T moving forward. Streaming services are a growth category compared to traditional cable packages bloated with channels that consumers don’t want 85% of. The value-add of bundling should also help the wireless business add and retain customers in what is a very competitive environment.

Verizon has tried a similar approach with more internet-based acquisitions that are not quite as synergistic as what AT&T has tried to do. Verizon’s first move was to acquire AOL in 2015. Various popular websites were under the AOL name including The Huffington Post, Engadget, MapQuest, and TechCrunch. The main benefit from this acquisition however is the advertising technologies business that were the main revenue driver for AOL. These advertising technologies could be utilized to profit from the existing pool of Verizon’s massive wireless customer base. Basically, “getting more” out of each wireless customer.

The second leg of these efforts was to acquire Yahoo earlier this year. Yahoo is a web services provider that includes the Yahoo search engine, Yahoo mail, various Yahoo news segments, and Tumbler among many others. It was the sixth most visited website globally last year. Similar to the AOL deal, the main underlying benefit Verizon is aiming for is the advertising technologies and businesses within the Yahoo name.

By pairing these two acquisitions together, Verizon is hoping to further monetize its established wireless business. But before the deal could close, it was disclosed that Yahoo had suffered a massive data breach that affected 3B accounts, making it the largest data breach ever recorded. The deal ended up moving forward after Verizon was able to reduce their offer by $350M.

After the Yahoo deal, Verizon lumped AOL and Yahoo into one company under the Verizon umbrella. The result is a summation of digital advertising services, brands, and technologies that Verizon has deemed as “Oath.” I see the potential downside of this strategy as twofold. First, is whether or not Oath can be large enough to make a significant difference to Verizon in the areas that matter. It is still early, so more time is needed before making final judgment, but the early returns are small.With quarter revenues of $2B, it is a metaphorical drop in the bucket to the $31.7B in revenues Verizon generated for the quarter. Verizon is obviously playing for future growth, but it potentially missed the mark with this strategy. Especially considering that it is worried about alienating its own customer base with ad services.Source: Statista

Secondly, with Verizon currently the market share leader in a massive United States wireless market, I would have liked to have seen Verizon proactively implement a means to further grow/retain market share in a way comparable to what AT&T can offer by bundling services. Even though Verizon has a competing media vehicle business in the form of Verizon Fios, the infrastructure is so cost prohibitive and time consuming to build that market penetration is very limited (which is a shame, because I live in one of these markets and LOVE the product).

Ultimately, Verizon needs to come up with an effective solution for boosting its revenue and cash flow growth. If this strategy built on digital advertising fails, it will be a massive setback to Verizon, and bring pain to investors. It is interesting that Verizon is kicking the tires on assets that 21st Century Fox (NASDAQ:FOX) is potentially divesting. I like AT&T’s growth prospects over Verizon’s moving forward with or without Time Warner. The key here is that AT&T is augmenting their wireless business with value-add, rather than simply trying to profit more from it, as Verizon appears to be doing.

High leverage can harm flexibility

Part of the importance of executing these high-dollar strategies (aside from the obvious waste of billions of dollar if they should fail), is the fact that the balance sheets for both companies are very heavy with debt. This is generally accepted in the cases of Verizon and AT&T because the telecom business is very capital intensive, but also generates enormous cash flows.


T Debt to Equity Ratio (Quarterly) data by YCharts

Verizon is very highly leveraged at more than 4X debt to equity. While AT&T is currently much less levered, this would change once the Time Warner deal goes through. Again, the problem for Verizon is that Verizon is highly leveraged DESPITE having unsolved cash flow issues, and a questionable growth engine in Oath. To do anything drastic from here without risking a credit downgrade would require divesting assets, which could be potentially disastrous for Verizon depending on the returns they get on said assets.

At least with AT&T, if the Time Warner deal is killed (even though it likely won’t be as it has been approved by all other regulatory agencies), at least AT&T would have fiscal flexibility to make other moves.

Don’t jump to conclusions based on price

At first glance, both stocks appear to be inexpensive.

Both stocks are at valuations significantly less than the market, which is priced at a steep 25X earnings.


T PE Ratio (TTM) data by YCharts

Then consider that over the past 10 years, Verizon has averaged a higher valuation than AT&T. Despite AT&T currently trading in line with its 10-year average P/E multiple, Verizon is trading at roughly 28% below its 10-year average multiple. Additionally, there is an approximate 37% gap in P/E multiple between the two while the historical gap is a single-digit spread.

But similar to the dividend payout ratio, this does not tell the whole story. If we again flip our attention to cash flows, AT&T is actually yielding more cash flow on price than Verizon – despite the gap in the P/E ratio.


T Free Cash Flow Yield (TTM) data by YCharts

Similarly, if we compare the enterprise to EBIT multiple between the two (because of the high CAPEX, I want to take the traditional P/E with a grain of salt), we will find that the valuation gap closes a bit, down to about 23%.


T EV to EBIT (TTM) data by YCharts

Lastly, we will compare the price to book value for each company.


T Price to Book Value data by YCharts

Interestingly enough, the price to book value is much higher for Verizon than it is for AT&T. AT&T appears to have held steady at a multiple just under two for several years. Meanwhile, Verizon’s price to book has actually been declining over the past couple of years – coming down from a high perch. As we know from the historical valuations, Verizon has traded at a premium to AT&T.

Wrap up

Both of these telecom giants have high-yielding dividends, and a storied reputation as income stocks. However, while the future is looking bright for AT&T, Verizon appears to have lost its way in recent years. It is highly leveraged, and banking on a strategy to further monetize its wireless business, which I deem questionable – both on impact, and effectiveness.

While Verizon used to command a premium over AT&T, times have changed, and it is now AT&T trading at higher valuations. You could justify Verizon as a short-term value play, but I would rather just put my money into AT&T. The dividend yields more, yet is much better funded. AT&T looks like it is going to succeed at generating growth by bundling DirecTV with the wireless business (things get even better if/when the Time Warner deal closes). If AT&T was overvalued, things might be different, but AT&T is priced to its past performance despite brighter days ahead.

Note: Charts sourced from YCharts. Unlabeled AT&T graphics sourced from AT&T. Unlabeled Verizon graphics sourced from Verizon.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

How Uber Is Going to Change the C-Suite in 2018

The C-suite is in for a sea change in 2018.

Given the mayhem perpetrated (and sometimes even disclosed) this year, things are going to change in 2018. Whether we’re talking about the recent Uber revelation, or the world’s cyber-elite meddling in elections, stealing data with impunity and infiltrating power grids–one change in particular seems like a safe bet: the rise of chief information security officer, or CISO for short.

CISOs are newcomers to executive row. In many organizations, the CISO post still doesn’t exist, or if it does, s/he tends to be tech-focused, reporting to the chief security officer or the chief information officer. With their fledgling C-status, the CISO’s influence over how an organization prioritizes data security–and deals with it when it inevitably becomes an issue–is too often insufficient.

Going forward, this will change. Given the beleaguered state of business networks, CISOs clearly require more power and influence to make a difference. And, in fact, this trend is already under way.

Speaking about security at big financial companies, John Dixon, principal at Denim Group, an application security consultancy, told me that CISOs have started elbowing their way into the C-suite’s uppermost tier, reporting to the board of directors and/or the CEO and/or the audit committee.

High-profile disclosures

The high-profile cyberattacks disclosed in 2017 assures this trend will accelerate in 2018. It truly has been a banner year for botched breach disclosures, most recently Uber . The car-ride giant admitted to paying hackers $100,000 to hush up the compromise of personal records belonging to 57 million consumers and 600,000 drivers.

Meanwhile, Equifax is still reeling from its astounding breach disclosure in early fall. They, of course, were not alone: the U.S. Security and Exchange Commission, the big four accounting firm Deloitte and the fast food chain Sonic also admitted to data losses.

And let’s not forget Yahoo’s confession that hackers actually managed to pilfer data for all 3 billion of its users in 2013, followed by the international Appleby law firm announcing the loss of 13.4 million legal documents known now as The Paradise Papers.

These breach disclosures affirm the wisdom of New York state implementing its trailblazing cybersecurity rules for financial services firms that took effect last March, and which were amended with the SHIELD act in November. New York mandates a prominent data security role for CISOs.  Colorado followed suit and has become the latest state to give sound direction on data handling rules on certain businesses. In the wake of all the mea culpas of 2017, more states are likely to follow.

Meanwhile in Europe, the EU is preparing to roll out its revised General Data Protection Regulation in May 2018, carrying stiffer data privacy rules that generally elevate consumers’ rights, and levy steep penalties against violators.

“What this means is that now the CISO has more hardcore business rationale for spending,” Dickson observes. “In the good old days CISOs would say, ‘We have to do this or we might get hacked.’ It was an abstract threat and risk that, candidly, most execs had a hard time quantifying or even understanding.

“Now they don’t have a choice, there’s less discretion, so the sophisticated CISO is going to take these compliance and regulatory frameworks and use them to get as much security coverage as they possibly can,” Dickson continued. “He or she can go to the chief counsel and say, ‘Hey, we’ve got to do this, we don’t have a choice; we’re doing business in New York.’ “

A security mindset

The specter of more regulation, combined with the steady drumbeat of high-profile breach disclosures is a godsend. That’s the CISO’s point of view. After all, it gives them a soapbox to stand on to enact better data security policies, practices and employee training.

It’s also means more cybersecurity conferences like RSA, DEFCON, and Black Hat where the latest, greatest technological defenses can be found.

One big challenge CISOs will continue to struggle with, even as they rise up the corporate ladder, is how to spread a security mindset from top to bottom, throughout the organization, says M. Eric Johnson dean of Vanderbilt University’s Owen Graduate School of Management.

The successful CISOs, he says, will be the ones who embrace these tried-and-true management principles: 

  • Stay positive. There’s a big difference, he says, between building awareness and incessantly prophesying doom. Taking a measured approach builds credibility.
  • Think critically. Understand and acknowledge everyone’s efforts to achieve broader business objectives.  “Considering alternative perspectives helps build trust,” Johnson says.
  • Do something. Waiting for a bigger budget or more authority can lead to atrophy, whereas making a series of small changes can influence the organization to take larger steps.

Winning budget approval to buy more malware detonation devices, threat intelligence dashboards and training curriculum is one thing. However, the truly successful CISOs will be the ones who “establish credibility, build trusted relationships, and persuade others to take action,” Johnson says.

A 20 Year Study Reveals the Most Effective 'Thinking Style' at Work. How Do You Measure Up?

We can search the world over for the “next big thing” in business, but none of it matters if we don’t first look into the most important place: The heart. That’s where real success is nurtured. And that’s not just some feel-good, do-good statement. It’s good business, and I can prove it.

Look around your workplace and answer this question: How would perfect employees behave? We all know there are no perfect employees, but answer the question anyway.

How would those you lead behave in their ideal states? How would those who lead you behave in their ideal states? And how would you behave in your ideal state?

Now the follow-up: If the behaviors you identified were truly lived out, would your employees, your leaders, and you be ineffective or effective?

The answer is pretty obvious, because we all know our behaviors determine our effectiveness. And while I don’t know what behaviors you picked as vital, I’m gonna go out on a very short limb and suggest that they all in some form or fashion are driven by one word: Love.

Those perfect employees you envisioned would be compassionate, selfless, and encouraging. They would achieve their goals, but not by being overly competitive or controlling. They wouldn’t be easily offended, nor would they avoid conflict.

But they would be authentic and relate well to others. In other words, they would behave in ways that demonstrated love. And in doing so, they would be effective.

That’s why I stress the mantra, “Do what you love in the service of people who love what you do.” It’s good business.

So, why don’t more organizations put a high priority on love as an indispensable business concept? In my experiences working with leaders and organizations around the world, it’s mainly because love isn’t something they can measure.

Ultimately, business comes down to the numbers, right? That’s how you verify success. To paraphrase Peter Drucker, what can’t be measured, can’t be managed or improved.

How do you measure love? How do you measure whether your organization has heart? Those things don’t fit nicely into a KPI or a financial spreadsheet.

Turns out, it’s not as impossible as we might think.

Stephen and Mara Klemich have spent nearly 20 years creating a validated assessment that measures what they call “heart styles.” They began with the simple premise that effective behaviors drive effective results. Then they researched what drives effective behaviors and came up with 16 “thinking styles” used in their assessment to measure effectiveness.

Ineffective thinking styles result from pride or fear, while effective thinking styles result from humility and love. The styles driven by pride are self-promoting, and include things like being sarcastic or controlling.

The behaviors driven by fear are self-protecting, and include things like being easily offended or dependent.

Those driven by humility, like authenticity or reliability, create personal growth, while love-based thinking styles like encouragement and compassion lead to growth in others.

These styles weren’t picked off the most convenient fruit tree. They were heavily researched and validated on a global scale by a team lead by Mara Klemich, who has a Ph.D. in clinical neuropsychology.

The result isn’t a personality test that tells you who you are, but what the Klemichs call a “life indicator” that describes where you are along a scale of effectiveness.

By measuring actual behaviors and the thinking styles that drive them, it’s possible to manage and improve them. Not perfect them, but make them more effective.

For instance, let’s say you feel you’re not so great when it comes to relating to others. Just being aware of this can help you trigger some important techniques, like looking people in their eyes or maintaining more relational body language (don’t cross your arms, lean forward or point).

You also might develop a standard set of questions to ask people you’ve just met to learn more about their personal interests. And you could make a point of stopping for at least five seconds when you pass by people, rather than rushing past with a meaningless, “Hi.”

Strengthening your relational skills will help you become more encouraging, more of a mentor, and someone known for an empathetic, compassionate heart. In other words, it will make you a leader who adds value to the lives of others and a leader others want to follow.

That’s otherwise known as good business.

Black Friday, Thanksgiving online sales climb to record high

CHICAGO (Reuters) – Black Friday and Thanksgiving online sales in the United States surged to record highs as shoppers bagged deep discounts and bought more on their mobile devices, heralding a promising start to the key holiday season, according to retail analytics firms.

Customers push their shopping carts after making a purchase at Target in Chicago, Illinois. REUTERS/Kamil Krzaczynski

U.S. retailers raked in a record $7.9 billion in online sales on Black Friday and Thanksgiving, up 17.9 percent from a year ago, according to Adobe Analytics, which measures transactions at the largest 100 U.S. web retailers, on Saturday.

Adobe said Cyber Monday is expected to drive $6.6 billion in internet sales, which would make it the largest U.S. online shopping day in history.

In the run-up to the holiday weekend, traditional retailers invested heavily in improving their websites and bulking up delivery options, preempting a decline in visits to brick-and-mortar stores. Several chains tightened store inventories as well, to ward off any post-holiday liquidation that would weigh on profits.

TVs, laptops, toys and gaming consoles – particularly the PlayStation 4 – were among the most heavily discounted and the biggest sellers, according to retail analysts and consultants.

Commerce marketing firm Criteo said 40 percent of Black Friday online purchases were made on mobile phones, up from 29 percent last year.

No brick-and-mortar sales data for Thanksgiving or Black Friday was immediately available, but Reuters reporters and industry analysts noted anecdotal signs of muted activity – fewer cars in mall parking lots, shoppers leaving stores without purchases in hand.

People shop for items in Macy’s Herald Square in Manhattan, New York. REUTERS/Andrew Kelly

Stores offered heavy discounts, creative gimmicks and free gifts to draw bargain hunters out of their homes, but some shoppers said they were just browsing the merchandise, reserving their cash for internet purchases. There was little evidence of the delirious shopper frenzy customary of Black Fridays from past years.

However, retail research firm ShopperTrak said store traffic fell less than 1 percent on Black Friday, bucking industry predictions of a sharper decline.

A cashier handles money in Macy’s Herald Square in Manhattan, New York. REUTERS/Andrew Kelly

“There has been a significant amount of debate surrounding the shifting importance of brick-and-mortar retail,” Brian Field, ShopperTrak’s senior director of advisory services, said.

“The fact that shopper visits remained intact on Black Friday illustrates that physical retail is still highly relevant and when done right, it is profitable.”

The National Retail Federation (NRF), which had predicted strong holiday sales helped by rising consumer confidence, said on Friday that fair weather across much of the nation had also helped draw shoppers into stores.

The NRF, whose overall industry sales data is closely watched each year, is scheduled to release Thanksgiving, Black Friday and Cyber Monday sales numbers on Tuesday.

U.S. consumer confidence has been strengthening over this past year, due to a labor market that is churning out jobs, rising home prices and stock markets that are hovering at record highs.

Reporting by Richa NaiduEditing by Marguerita Choy

Our Standards:The Thomson Reuters Trust Principles.

Jeff Bezos Is the World's Only $100 Billionaire. Will He Finally Start Giving his Money Away?

Black Friday was a particularly nice day to be Jeff Bezos. His company Amazon clearly won the day, pulling in an estimated half of all online sales. Those sales totaled more than $5 billion, so you do the math. Wall Street did, and Amazon’s stock price shot up almost $30 to $1,186. Bezos was already the richest man on Earth, having beaten out Bill Gates this past year. But now his net worth is north of $100 billion, an almost unimaginable number. It’s bigger than the GDP of most nations. It’s a 1 followed by 11 zeros. [Updated: Bezos’ worth dipped just below $100 billion based on after-hours stock trades but I’m willing to bet Amazon’s continued dominance of online sales puts him back at 12 figures next week.]

Unfortunately, Bezos is exceptional among billionaires in other ways as well. He’s conspicuous by his absence among signers of The Giving Pledge, created by Gates and Warren Buffett. Billionaires who sign the pledge promise to give away the majority of their wealth. So far, Bezos’ most high-profile bit of philanthropy is incorporating a 65-room homeless shelter into Amazon’s new Seattle headquarters. Don’t get me wrong–that’s a great move in many ways and I admire Bezos’ willingness to have homeless people mingling with Amazon employees. He and his family have also made donations in the millions to the Fred Hutchinson Cancer Research Center in Seattle, Princeton University (which Bezos attended), and more recently, a $1 million donation each to the Reporters Committee for Freedom of the Press and to St Mary’s Center in Massachusetts which provides lodging and job training to homeless women, children, and families. That’s all great, but it’s not much compared to the philanthropy of other American billionaires. The world’s only $100-billionaire can do better.

Last summer, Bezos stirred a lot of interest with a tweet asking for philanthropic suggestions. Some believed it signaled a new focus on charitable activity, but it more likely signaled a fear of embarrassment. The tweet came only after the New York Times asked the about-to-be world’s richest human about his charitable plans. He got more than 50,000 suggestions in response to his tweet and so far does not seem to have acted on many of them.

Bezos has never openly declared a political affiliation but friends say he has libertarian leanings. If so, he’s failing to live up to libertarian ideals, which argue that private donations can and should replace government programs for helping those in need. But his non-philanthropy may change in the future. Back when Bill Gates ran Microsoft, he himself was once criticized by his mother for giving too little away. He responded that he would get around to giving once his role as CEO was behind him, and he’s kept that promise in a big way. 

Some who know Bezos say the same will happen with him. For the moment, he’s too absorbed in achieving world domination for Amazon to put much thought into a philanthropic strategy or direction. But in time, he will come to focus more on philanthropy and then we may all see some impressive giving. 

I certainly hope that’s true. The world is full of really big problems his money could help to solve. 

Virtual reality boom brings giant robots, cyberpunk castles to China

GUIYANG, China (Reuters) – Giant robots and futuristic cyberpunk castles rise out of lush mountain slopes on the outskirts of Guiyang, the capital of one of China’s poorest provinces.

A view of the Oriental Science Fiction Valley theme park at sunset, in Guiyang, Guizhou province, China November 16, 2017. Picture taken November 16, 2017. REUTERS/Joseph Campbell

Welcome to China’s first virtual reality theme park, which aims to ride a boom in demand for virtual entertainment that is set to propel tenfold growth in the country’s virtual reality market, to hit almost $8.5 billion by 2020.

The 330-acre (134-hectare) park in southwestern Guizhou province promises 35 virtual reality attractions, from shoot-‘em-up games and virtual rollercoasters to tours with interstellar aliens of the region’s most scenic spots.

“After our attraction opens, it will change the entire tourism structure of Guizhou province as well as China’s southwest,” Chief Executive Chen Jianli told Reuters.

“This is an innovative attraction, because it’s just different,” he said in an interview at the park, part of which is scheduled to open next February.

The $1.5-billion Oriental Science Fiction Valley park, is part of China’s thrust to develop new drivers of growth centered on trends such as gaming, sports and cutting-edge technology, to cut reliance on traditional industries.

In the push to become a center of innovative tech, Guizhou is luring firms such as Apple Inc, which has sited its China data center there, while the world’s largest radio telescope is in nearby Pingtang county.

Staff members stand underneath a giant robot statue at the Oriental Science Fiction Valley theme park in Guiyang, Guizhou province, China November 16, 2017. Picture taken November 16, 2017. REUTERS/Joseph Campbell

The park says it is the world’s first of its kind, although virtual reality-based attractions from the United States to Japan already draw interest from consumers and video gamers seeking a more immersive experience.

The Guiyang park will offer tourists bungee jumps from a huge Transformer-like robot, and a studio devoted to producing virtual reality movies. Most rides will use VR goggles and motion simulators to thrill users.

Slideshow (9 Images)

“You feel like you’re really there,” said Qu Zhongjie, the park’s manager of rides. “That’s our main feature.”

China’s virtual reality market is expected to grow tenfold to 55.6 billion yuan ($8.4 billion) by the end of the decade, state-backed think-tank CCID has said.

Farmers in the nearby village of Zhangtianshui said they were concerned about pollution from big developments, but looked forward to the economic benefits a new theme park would bring. Most were less sure about virtual battles or alien invasions, though.

“There are lots of good things that come out of these projects,” one farmer, Liu Guangjun, told Reuters. “As for the virtual reality, I don’t really understand it.”

($1=6.5849 Chinese yuan renminbi)

Reporting by Joseph Campbell in GUIYANG; Editing by Adam Jourdan and Clarence Fernandez

Our Standards:The Thomson Reuters Trust Principles.

Miramax, Weinstein, Hollywood and Sexual Harassment The number one way to gut-check your company's culture.

The flood of women coming forward in recent weeks to tell their stories of “Me Too” has shed a light on the fact that it’s not only Miramax, Harvey Weinstein, and Hollywood but our country at large that has created a culture of mindlessness when it comes to sexual harassment.

These revelations are raising awareness across the business sector as companies try to make sure they and their employees do not fall prey to a mindless culture.

Brenda’s story.

Brenda was a newly minted VP on her first business trip with Miramax. She had turned in early after dinner as to make a good impression on her boss and fellow employees leaving them in the bar downstairs.

When she woke up to a knock on her hotel room door, the voice on the other side was a familiar one, so she opened it.  

Before she knew what was happening, her boss pushed the door open and threw her on the bed. He pinned her down but was drunk and she managed to wriggle away, locking herself in the adjoining room.

Weeks later her boss had not spoken a word to her about that night. No conversations, no “I’m sorry,” it was business as usual.

When she mustered up the courage to confide in her boss’ boss, he apologized for the unfortunate incident, but he let her know that if she went public, he would deny their conversation ever happened.

I asked Brenda if the fear of it happening again stayed with her while she was at Miramax. She said, “Oh yeah, it wasn’t if, in my mind, it was when. I learned that’s how it was there.”

In business, we talk about culture. It’s a buzzword. How do you create a good, a healthy, a positive, a winning–the adjectives abound followed by the 4, 5 or 6 steps you need to create that culture.

But the culture of your business doesn’t live in your mission statement or in your HR manuals, it’s a living breathing thing. It lives in the decisions you make and in the way you handle people, especially those who have less power.

A culture is a set of set of norms, values, and behaviors of a group. One definition says it’s the way we do things around here. However, if those ideals are left to collect dust in the pages of your mission statement, your mission will get lost.

The biggest reason the culture of a business will fail is mindlessness. When a group or a company of people go mindless, they begin to accept things they would not normally accept under the banner of this is the way it’s done around here, regardless of what it says in the manuals.

In a mindless culture, all manner of bad, unsafe and repugnant behavior can become part of a company’s tacit traditions, including sexual harassment. These behaviors infect and redefine a group’s stated core values.

Mindlessness can become systemic, as employees old and new become acceptant of the prevailing culture that is practiced, not preached.

Brenda experienced the real values held at Miramax. At minimum, her bosses were supporting a culture of mindlessness with respect to women and they expected Brenda to drink the Kool-aid.

The systemic mindlessness of Hollywood is being exposed as scores of actresses are coming forward with remarkably similar stories of sexual abuse.

Many of these women, like Rachel Mcadams, were sent to hotel meetings with predators by their own agents, some of whom were also women, aware of the danger but gave no warning.

In order to weed out systemic mindlessness and any accepted norms that go against their core values, companies need to gut-check their culture.

Introducing mindfulness, the practice of being present and attuning to the people around us can help employers better monitor the direction their company’s culture has taken.

Employees trained in mindfulness are not as susceptible to the priming of a culture, especially if it is wrought with questionable values. Mindfulness practitioners are proving to be more compassionate toward others and are prone to make moral choices.

One surprising study showed that mindful people are less likely to fall prey to the “bystander-effect” and are more likely to speak up when confronted with the suffering of others or injustice.

Some of the old guard in Hollywood has admitted to knowing about the sexual misconduct of Weinstein and others but did nothing. The “bystander-effect” was a key reason so many in Hollywood stayed quiet for so long.

Creating a space that is safe and supportive for employees to speak openly and honestly about their experiences goes a long way toward maintaining a company’s integrity.

While sensitivity training is important, it falls short of creating a culture that is aware, compassionate and attuned to others.

We have an opportunity in this moment to become mindful of how power is wielded and lorded over others. It’s time for a gut-check, not only of our business culture but the culture of our country at large.

American Airlines Asked 59,000 of its Employees What They Really Thought. This Was Their Answer

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

It’s time to take a pause in our series called Passengers Whining About Airlines

Today, we introduce Airline Employees Whine About Airlines.

Specifically, employees of American Airlines.

It seems that, though they’ve received raises recently, they’re not all that happy.

American conducted a survey, obtained by View From The Wing. 59,197 American employees happily replied and some of those responses seemed to have been typed by frustrated fingers. 

This was the first companywide survey in 10 years, so perhaps there were a few pent-up feelings just waiting to be aired. 

This, for example: a mere 32 percent of American employees believe that the management listens to them and wants to understand their feelings.

Actually, this should have been “an astonishingly high 32 percent.” How often, after all, do big company leaders really listen to their employees? 

They might pay lip service, but that’s no more costly to them than a baggage fee. 

Let’s continue with the grim replies. 

38.9 percent of American’s employees believe that there’s an atmosphere of trust and respect at the airline.

Still, a majority believe that they celebrate their successes with their co-workers. I wonder what those successes are. A flight arriving on time? A record number of change fees charged?

I’ve been saving the most fascinating parts.

Less than half these employees believe that they have “the flexibility to meet the needs of our customers who fly American.”

Yes, you like to complain about airline employees. But as I may have mentioned once or twice, the airlines deliberately puts them in the position of jailers and police officers, rather than customer service staff.

The employees know it. In this survey, only 41 percent believed that management takes “the right decisions that take care of customers.”

Again, I say, that’s a remarkably large number, given the evident truth that most airlines behave as if they have very little interest in their customers, other than their customers’ wallets.

Recently, American’s CEO Doug Parker admitted that he’d only begun to think twice about shoving more seats into planes when employees told him: “What the hell are you doing?”

Working for an airline isn’t all bad, of course.

Indeed, more than 75 percent of these American Airlines employees said they were proud to work for the airline. And, in a fit of contradictory humanity, more than 57 percent said American is headed in the right direction. 

I contacted the airline to ask whether it views these results with glee or grim realization. It sounded like the latter.

A spokesman told me: “We know we need to work to regain the trust of our team members and consider it a privilege to do so. American Voice is our first company-wide survey in more than a decade, and we needed exactly this type of insight to measure against in future surveys. We’re excited about this opportunity and see this as an incredibly helpful tool as we cre­­ate the culture our team members want and deserve.”

Clearly, it’s difficult to keep tens of thousands of people happy. 

But American — as well as its competitors — knows that having a positive workforce goes a long way toward customer satisfaction and, here’s an idea, repeat business.

It will be moving to see how American might react to these results and whether, in some fanciful future, the customers might see some positive results. 

Peloton, Hulu, and Goop Have This in Common–and It's Made Them Extremely Powerful Marketers

It’s a title that didn’t exist ten years ago–and was relatively unknown even five years ago–but the Chief Content Officer has gradually earned a prominent position in the C-suite. Major brands including Peloton, Dun & Bradstreet, Goop and Hulu have a chief content officers (along with countless agencies and publishers)

As more brands grow their content marketing presence, they look to a Chief Content Officer to not only steer the ship, but also to map out the content strategy and how it fits into the overall brand picture. 

So, what is it that a Chief Content Officer really does? And how does it differ from other marketing, PR, and creative executive positions? Here’s what you need to know:

What does a Chief Content Officer do?

According to the Content Marketing Institute, a Chief Content Officer “oversees all marketing content initiatives, both internal and external, across multiple platforms and formats to drive sales, engagement, retention, leads, and positive customer behavior.” This person is the big picture thinker that liaises between PR, communications, marketing, customer service, IT, and human resources departments to help “define the brand story as interpreted by the consumer.” Essentially, if any department is creating content, it should stem from the Chief Content Officer’s strategy and direction.

So, what’s the difference between a Chief Content Officer and a Chief Marketing Officer?

Though the two will often work closely, there are subtle–yet important–differences between the two positions. In short, a Chief Content Officer should think like a publisher, while the Chief Marketing Officer should think like a salesperson. The goals for a Chief Marketing officer are to attract, convert, and retain customers, and to convince them of the brand or product’s worth.The scope of content the CCO oversees, on the other hand, isn’t exclusively for marketing use. The goals of this content also include establishing a brand’s role as a thought leader, recruiting talent, growing brand awareness, and enhancing brand communications (PR).

Who does a Chief Content Officer report to?

It depends. The Chief Content Officer’s position in the company hierarchy is still evolving. Early on, this position reported to the Chief Marketing Officer, but–as brands are understanding better the depth of the role–it’s now more likely that the Chief Content Officer will report directly into the Chief Executive Officer.

How Much Does a Chief Content Officer Make?

According to Glassdoor, a chief content officer–which may also come with an SVP title–gets paid between $292K and $315K. By comparison, a Vice President of Content might make somewhere in the range of $175K to $185K.

Does my brand need a Chief Content Officer?

It’s worth considering, especially if you are increasing the role of content in your marketing mix. If an investment in a new C-level executive isn’t feasible in the near future, though, you can seek outside help from a content marketing agency to help you develop a content strategy, execute it, and measure its success.

Marvell Technology clinches roughly $6 billion deal to buy Cavium: sources

(Reuters) – Chipmaker Marvell Technology Group Ltd (MRVL.O) has agreed to acquire smaller peer Cavium Inc (CAVM.O) for around $6 billion, as it seeks to expand in the networking equipment sector, people familiar with the matter said on Sunday.

The deal will allow Marvell to diversify away from its traditional storage devices business following an agreement with Starboard Value LP last year to accept three new directors nominated by the activist hedge fund to its board.

Marvell plans to announce its cash-and-stock acquisition of Cavium on Monday, the sources said, asking not to be identified ahead of an official announcement. Marvell and Cavium did not immediately respond to requests for comment.

Marvell CEO Matt Murphy, who took the reins of the chipmaker last year, has embarked on a restructuring of the company, slashing jobs and seeking to add offerings in areas such as data centers and wireless communications.

Based in San Jose, California, Cavium produces network, security, server, and switching processors and systems. Last year it acquired QLogic Corp, a manufacturer of interface devices for storage area networks, for about $1.3 billion.

Marvell has a market capitalization of $10 billion while Cavium, whose shares have risen more than 10 percent since the Wall Street Journal reported earlier this month that the companies were in advanced talks, has a market capitalization of $5.2 billion.

Mergers and acquisitions activity in the semiconductor sector has been picking up. Earlier this month, chipmaker Qualcomm Inc (QCOM.O) rejected rival Broadcom Ltd’s (AVGO.O) $103 billion takeover bid, one of the biggest ever in technology dealmaking, saying the offer undervalued the company and would face regulatory hurdles.

Reporting by Liana B. Baker in New York; Editing by Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.

IBM could be set for gains after long slump: Barron's

NEW YORK (Reuters) – International Business Machines Corp (IBM.N) could be the next blue-chip company with a rising valuation, according to a report in financial publication Barron‘s.

The logo for IBM is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. Picture taken October 19, 2017. REUTERS/Chris Helgren – RC14185AA8E0

Some analysts expect IBM to return to growth this quarter, Barron’s said in its Nov. 20 edition.

IBM reported higher quarterly revenue from social, mobile, analytics, cloud and security technology last month, and a long decline in gross profit has slowed already, Barron’s said.

Shares are trading at about 11 times this year’s earnings forecast, well below that of the S&P 500 .SPX, Barron’s said.

Investors could get their first clear sign that IBM is turning the corner in January, when the company will probably give its 2018 outlook, the publication said.

Even with just some upbeat news, investors could make 30 percent or more over the next year, Barron’s said.

IBM’s shares shot up 8.9 percent on Oct. 18, the day after the company reported quarterly results, but have since given back most of those gains.

The stock closed on Friday at $148.97 and is down 10.3 percent for the year to date.

Reporting by Caroline Valetkevitch; Editing by Lisa Von Ahn

Our Standards:The Thomson Reuters Trust Principles.

MoviePass Drops Rates Even More – But Can It Make Money?

Movie theater subscription service MoviePass announced on Friday that it would offer a package letting subscribers go to the multiplex as often as once a day for an entire year for only $89.95 – which works out to $6.95 a month plus a small fee.

The service has been around since 2011, but attracted a huge influx of subscribers when it lowered its monthly charge to $9.95 in August. You might think MoviePass is able to offer such a good deal because it’s passing along discounts from theaters – but you’d be wrong. MoviePass pays full price for each ticket, meaning that a subscriber who goes to even two films a month is probably costing the company money. The new, even steeper rate cut signals a willingness to continue trading profit for market share as MoviePass crafts a sustainable business model.

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In the long run, MoviePass says it wants to turn losses into profits by selling subscriber data to studios and other advertisers, and cut deals to share concession stand revenue. Parent company Helios & Matheson Analytics’ stock has exploded on that premise. But despite denials from the company, it also seems likely to recalibrate prices and terms of service – the $6.95 a month deal will only be available for a limited time, suggesting this is a market test and expansion push backed up by deep pockets.

The new deal is also likely to renew theaters’ anxiety over the service. AMC Theaters has already floated the possibility of legal action, echoing the idea that MoviePass was a “shaky and unsustainable” money-losing proposition that would ultimately frustrate consumers when its prices inevitably changed. More to the point, AMC explicitly said that it “will not be able to offer discounts to MoviePass in the future, which seems to be among their aims.” The implicit plan to push down underlying ticket prices is one reason theater stocks dipped after MoviePass’s August rate cut.

But AMC doth protest too much. MoviePass is a hypothetical threat that is probably increasing attendance in the short run, while theater and studio stocks have been battered much more directly by the worst summer movie season in a decade. Under those circumstances, MoviePass’s aggressive expansion gives it increasing leverage to extract concessions (pun intended) from theaters looking to fill empty seats, but the opportunity only exists because so many movies have disappointed theatergoers. MoviePass’s CEO, in fact, has frequently referred to the service as “bad movie insurance.”

That makes MoviePass, like Rotten Tomatoes before it, a convenient scapegoat for an industry whose wounds are largely self-inflicted.

Twitter Will Ban User Ties to Violent Groups ‘Both On and Off the Platform’

Early Friday, Twitter announced changes to its policies on violent and hateful speech, some of them dramatic. Users will no longer be able to use “hateful images or symbols” in profile images or headers. And, in a step with few recent parallels, Twitter says users “may not affiliate with organizations that – whether by their own statements or activity both on and off the platform – use or promote violence against civilians to further their causes.”

The ban on violent affiliations, even when violent views aren’t promoted on Twitter itself, raises a number of questions about enforcement. Among those is whether or to what extent Twitter staff will monitor questionable groups’ behavior outside of the platform; whether only formally organized groups will be impacted; and where the line will be drawn between ‘official’ group stances and activity by group members.

Given the constantly-evolving way Twitter has enforced its existing rules, answers to those questions are only likely to be clear well after the new policies go into effect on December 18 — if ever.

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The ethical case for the new restrictions is likely straightforward to many – Twitter, along with Facebook and YouTube, have in recent years been accused of giving extremists including both Islamic terrorists and white supremacists a vast new platform. Under mounting public pressure, all three sites have taken increasingly stringent steps to limit access to extremist content or ban users who promote it.

But the business case for those moves is at least slightly more ambiguous. Earlier in its development, Twitter took an uncompromising free-speech stance, but over time it has become clear that such permissiveness bred harassment, which in turn may have alienated some users and throttled growth. By that logic, policing user affiliations could help build a larger, more mainstream user base.

On the other hand, at least some Twitter users have reveled in their ability to say whatever they wanted on the platform, for better or worse. Tighter restrictions could push away such users, and small upstarts – including the Twitter copycat Gab – are poised to poach them.

The FCC's Latest Moves Could Worsen the Digital Divide

When Ajit Pai became chair of the Federal Communications Commission earlier this year, he pledged to make bridging the digital divide a top priority. Thursday, the commission took several steps that could worsen the divide, by making it harder for poor and rural Americans to access telecom services.

In particular, the agency said it is considering changes to its Lifeline program that helps low-income Americans pay for telephone and internet service, and to allow telecom companies to decommission aging DSL connections in rural areas without replacing them. The proposed changes to the Lifeline program would reduce the available subsidies, make them available to fewer people, and cover fewer carriers.

During a busy meeting, the commission also approved, as expected, a controversial overhaul of media ownership rules, and reforms enabling telcos to crack down robocallers, amongst other proposals.

The Lifeline program, created during the Reagan administration, is funded by a surcharge on phone services. It initially subsidized landline phones, but was later expanded to mobile-phone service. Last year, the FCC voted to include broadband internet as well. In February, however, Pai reversed his predecessor’s decision and halted a planned expansion to nine broadband providers.

Thursday, the FCC voted to consider a proposal that would tighten eligibility rules for consumers to qualify for subsidies and strengthen audits of Lifeline providers. Republican members said they were responding to a Government Accountability Office report that found widespread abuse of the Lifeline program, including enrollments filed in the names of dead people, and wasteful spending.

Another part of the proposal suggests stopping Lifeline subsidies through carriers like Tracfone that sell access to networks owned by other companies, such as AT&T and Verizon. According to the advocacy group Public Knowledge, about 70 percent of Lifeline enrollees use these types of resellers. (Tracfone parent company América Móvil didn’t respond to a request for comment.)

Today, some Lifeline enrollees are able to pay their entire bill using their subsidies. The proposal suggests that these users should have to pay some portion of their service costs themselves. Critics like Public Knowledge point out that many low-income families and individuals don’t have bank accounts, which would make it difficult for them to make payments. The proposal also suggests limiting the amount of time that a household can receive subsidies. And it suggests capping annual spending on Lifeline, which critics argue could result in fewer people being covered by the program or reduced subsidies for each household.

Separately, as part of a proposal that also considers much-needed utility-pole access regulations, FCC staffers are considering a rule change that could allow telcos more freedom to abandon aging copper landlines without replacing them with similar or better infrastructure, such as fiber optic networks. The proposed rule changes, as reported by Ars Technica, would streamline the process for companies to decommission old infrastructure, leading to concerns that instead of upgrading copper networks, the companies will simply declare that mobile phone and internet services are adequate replacements. In an open letter to the FCC, critics such as the Center for Rural Strategies warn this could have hurt rural America, where high-speed cable internet access is less often available.

During the meeting, Pai dismissed these concerns as fearmongering, pointing out that telcos will still need permission from the FCC to decommission old infrastructure. But considering the Republican FCC members’ recent history of claiming that wireless internet services are an adequate replacement for home broadband, Pai’s assurances will be of little comfort.

Former Time Warner CEO and Investment Head Launch New VC Firm

In January, Rachel Lam retired from her longtime role as head of investments at Time Warner’s venture-capital arm, where she worked from 2003 to 2016. Less than a year later, she’s back investing in startups. Lam has teamed up with Richard Parsons, former Time Warner CEO, to launch a new venture-capital firm, WIRED has learned.

The firm is called Imagination Capital. Lam and Parsons plan to invest their personal money into early-stage startups, writing checks of $500,000 or less in seed rounds. Building on their backgrounds in media, they’ll target 20 to 25 investments in digital media, machine learning, big data, and esports companies over the next three years. Imagination Capital has already backed an esports startup called Boom.tv alongside existing investors First Round, Crosslink and Tandem Ventures.

After taking most of the year off, Lam was drawn back into investing by a desire to change the predominantly white, male venture-capital industry. “With all of the discussion around the scarcity of women-led venture firms, Dick and I wanted to do what we could to ‘change the equation’ just a little bit, and put one more example out there for other women that it can be done,” she told WIRED. “Instead of just complaining about the current situation, which is easy to do, we decided to do something.” The firm doesn’t have a specific focus on diversity, Lam says, but notes that pitching a venture fund run by an Asian-American woman and an African American man “is likely to be a bit different than when pitching your typical VC.”

As head of Time Warner’s venture capital arm, Lam backed media-related companies like video network Maker Studios, which sold to Walt Disney Company, and a social-media analytics company Bluefin Labs, which sold to Twitter. At the time, she noted a desire to have “one more adventure that will ideally have an impact on the women/diversity equation in venture investing.” Parsons left Time Warner in 2007.

A 12% Yield With Rising Coverage And Record Income For This Midstream LP

We circled back onto the midstream LP high-yield trail this week to cover Summit Midstream Partners LP (SMLP), one of many midstream companies we’ve written articles about.

Profile: Formed in 2012, SMLP provides natural gas, crude oil and produced water-gathering services, primarily via long term, fee-based contracts with its customers in these five unconventional resource basins:

– The Appalachian Basin, which includes the Marcellus and Utica shale formations in West Virginia and Ohio.

– The Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota.

– The Fort Worth Basin, which includes the Barnett Shale formation in Texas.

– The Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado and Utah.

– The Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado.

(Source: SMLP site)

SMLP reported its Q3 ’17 earnings last week, and the revenue and net income growth were robust year over year:

Revenues, net income and EPU all hit company records, while EBITDA and DCF were down -4% to -5% vs. Q3 ’16, but improved sequentially vs. Q2/17:

SMLP has had good revenue growth in its Utica, Williston, Piceance/DJ, and Marcellus segments in 2017:

However, this didn’t translate into EBITDA growth in the Ohio, Williston and Barnett segments, where some customers delayed completing new wells in Q1-2 ’17. The Ohio segment improved in Q3, but Williston and Barnett still lagged Q3 ’16 figures.

Management was upbeat though about Q4 activity thus far for its Williston, Barnett and Utica segments on the Q3 earnings call.

“We have already begun to see completion activity accelerate in the fourth quarter of 2017 from a number of customers across several of our gathering systems, including in the Utica, Williston, and Barnett. We continue to expect that these activities will lead to volume and cash flow growth across these assets throughout the rest of 2017 and into 2018.”:

“Total operated natural gas volumes averaged 1.83 bcf a day in the quarter, a new record for the Partnership, and a 2.6% sequential increase over the prior quarter. Gathered volumes for SMLPs Ohio gathering JV Utica averaged 763 million cubic feet a day in the third quarter, up 8% over the second quarter ’17.”

“This was primarily due to the completion of more than 20 wells across OGC system in July and August. Natural gas throughput on our operated asset was led by the Marcellus segment, which averaged 554 million cubic feet a day in the quarter, our highest quarterly volume ever and a 15% sequential increase over the second quarter ’17.”

“We are seeing an uptick in drilling and completion activity across our DJ Basin asset as operators experienced assess in drilling the Codell Niobrara formations in the northern extension part of the play. September volumes for this sub-system were up nearly threefold from year ago levels and are approaching our current 20 million a day of processing capacity. These are higher margin volumes and contributed to our sequential segment adjusted EBITDA growth in the overall Piceance/DJ segment.”:

(Source: SMLP Q3 ’17 Earnings release)

Looking back over the past four quarters shows a similar pattern – revenue and net income grew very well, but EBITDA and DCF not so much. The total distributions coverage fell from 1.27x to 1.16x, which is still a respectable figure, particularly as units grew by 7.69%, and bumped up total distributions by over 9%:


Management has kept the quarterly distribution at $.575 since November 2015. They commented on this on the earnings call, when asked if any distribution hikes might be in the offing:

“A distribution increase just really isn’t in the cards currently.”

Not very upbeat, but they did point out that, “Since 2014, 32 of the 50 Alerian Index constituents have effectively cut their distribution, either through an outright cut or a merger that resulted in a cut. Summit has not. And in fact, since 2014, we’ve grown our EBITDA by 12% per year. During that time, our distribution coverage has increased and our leverage metrics have remained constant.”

Like many of the LPs we’ve covered, SMLP pays in a Feb-May-Aug-Nov. cycle. Unit holders receive a K-1 at tax time. You can track SMLP’s current price and yield in our High Dividend Stocks By Sector Tables, (in the Basic Materials section).

Note: Investing in LPs and MLPs may present tax complications when done in an IRA. Additionally, since LPs usually make tax-deferred distributions, you’d reap more tax benefits by holding them in a non-IRA account. Please consult your accountant about this issue.

SMLP’s distributions/unit coverage got back to a more typical level in Q3, rising from 1.11x to 1.17x, and has averaged 1.17x over the past four quarters:


We just added this March 2018 trade for SMLP to our Covered Calls Table, which tracks over 25 other trades daily. The March $20.00 call strike is at the money, and has a $.90 bid.

This trade includes one quarterly distribution ($.575 most likely) coming in early February. It allows you to hedge your bet with SMLP by taking in the extra $.90 in option premium. But the trade-off is that the $20.00 call is only $.35 above SMLP’s $19.65 price/unit.

If your units get assigned before the February ex-dividend date, you’d end up with $1.25, the combo of the $.90 option premium and the $.35 assigned price gain. If they don’t get assigned, your income would be $1.48, the $.575 distribution and the $.90 call premium.

SMLP’s puts didn’t look that attractive at press time, but you can see details for over 25 other trades in our Cash Secured Puts Table.


Debt and Dilution – As with most LPs, which pay out the lion’s share of their cash flow, SMLP has to access the equity and capital markets in order to grow. They currently have an at the market unit sales program under which they’ve issued 763K units in 2017 (but none in Q3 ’17) for gross proceeds of $17.7M. Their net debt/EBITDA has risen slightly, from 4.23x to 4.46x over the past four quarters, but they’re currently within all of their debt covenants.

Commodity Cycle – Although SMLP’s contracts are fee-based, if there’s another protracted downturn in energy prices, the finishing of its customers’ DUC wells inventory could be pushed out further into the future, which would pressure SMLP’s earnings.

Deferred Payment Liability: In addition to its current debt load, SMLP has a deferred payment due in 2020 as a remaining payment due for a 2016 asset drop-down from its Summit Midstream Partners Holdings LLC. Management arranged new financing in Q1 2017, with an eye to preparing for the 2020 payment, which was listed at $508.67M on the balance sheet, as of 9/30/17.

“The Deferred Payment calculation was designed to ensure that, during the deferral period, all of the EBITDA growth and capex development risk associated with the 2016 Drop Down Assets is held by the GP, Summit Investments. The Deferred Payment was structured such that SMLP will ultimately pay a 6.5x multiple of the actual EBITDA generated from the 2016 Drop Down Assets in 2018 and 2019.”

“While we remain bullish about the outlook for volume growth for our Utica assets over the next several years, our current outlook for ’18 is flatter compared to previous expectations, primarily due to volume growth and associated CapEx projects being delayed to the second half of 2018. This is the primary reason why the undiscounted value of our DPPO decreased in the third quarter and now stands at an estimated $656 million.” (Source: Q3 earnings call)

New Developments:

New Preferred Units: Management just announced a new Preferred units offering today, 11/8/17. Normally, preferred offerings start out with a temporary ticker for the first few days, as institutional buyers accumulate them, (often at a price below the liquidation value). You can sometimes buy them under par also, and build in a small potential price gain, along with the yield.

However, Schwab had no ticker as of yet. The prospectus also had no yield data as of yet either, other than to mention that the units could be called in sometime in 2022, but that after 2022, they’d trade at a floating rate. There should be more information coming out over the next few days:

“Summit Midstream Partners, LP, announced today that it has commenced, subject to market conditions, an underwritten public offering of Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in the Partnership. The Partnership intends to use the net proceeds from the offering to repay outstanding borrowings under its revolving credit facility and for general partnership purposes.” (Source: SMLP site)

“Today, we are announcing an expansion of our existing 20 MMcf/d gathering and processing complex in northern Weld County, Colorado, with the addition of a new 60 MMcf/d processing plant. This $60 million expansion project is designed to support increasing volumes from existing customers. We are encouraged by the increased level of upstream development activity in and around our DJ Basin assets and we expect to place this project in service by the end of 2018. We plan to finance the project with excess distribution coverage and borrowings under our Revolver.” (Q3 earnings call)

When asked on the earnings call about new developments with its customer XTO in the Delaware Basin (is a more mature sub-basin in the Greater Permian Basin), management was upbeat. “The opportunity with XTO in the Delaware is large. They’ve (got) 275,000 acres – they dominate the Northern Delaware from an acreage position. It’s contiguous acreage as well too so that always helps. It’s in three different blocks of acreage, and we just acquired right of way that basically cuts right through it, and saves us about a year of timing from a permitting standpoint.”

Analysts’ Price Targets:

SMLP is currently ~18% below analysts’ average price target of $24.00.

Curiously, although it has received upward estimate revisions over the past month, actual EPS estimates have only risen for 2017 during this time. However, the estimates for Q4 ’17, 2017 and 2018 are all higher than they were 60 days ago:

(Source: YahooFinance)


SMLP has had a rough time of it in 2017, lagging both the Alerian MLP ETF (AMLP) and the market.


This updated valuation table includes some other midstream firms we cover on SA – Arc Logistics Partners LP (ARCX), PBF Logistics LP (PBFX), Holly Energy Partners LP (HEP), MPLX LP (MPLX), Green Plains Partners LP (GPP), Martin Midstream Partners (MMLP), Delek Logistics Partners LP (DKL), and Plains All American Partners (PAA).

SMLP has the second-highest yield in the group, at 11.68%, while its 1.17x coverage factor is in line with the group average. At 7.35, its Price/DCF is in the lower tier of valuations, as is its 1.34 price/book valuation:


Management has improved the company’s ROA, ROE and operating margin considerably over the past four quarters. Meanwhile, the debt/equity and net debt/EBITDA have both crept up a bit.

SMLP’s debt/equity ratio is one of the lower ones in the group, but they’ll need to ramp up EBITDA to bring the net debt/EBITDA more in line. The operating margin is above average, but the ROA and ROE are both below group averages:

Debt and Liquidity:

As of September 30, 2017, SMLP had $506.0 million of outstanding debt under its $1.25 billion revolving credit facility and $744.0 million of available borrowing capacity, subject to covenant limits. Based upon the terms of SMLP’s revolving credit facility and total outstanding debt of $1.306 billion (inclusive of $800.0 million of senior unsecured notes), SMLP’s total leverage ratio and senior secured leverage ratio (as defined in the credit agreement) as of September 30, 2017, were 4.16 to 1.0 and 1.61 to 1.0, respectively.

SMLP redeemed its 7.5% Senior notes in March ’17, which left it with no maturities coming due until 2022:

(Source: SMLP Q3 ’17 10Q)


We rate the SMLP common units a hold, but we may pursue a position in the new preferred series, depending upon the final yield structure. As is usually the case, the coverage for the preferreds will be even better than the common units. The long-term story for SMLP seems like it can work out, but we’d still like to see some growth in DCF and EBITDA in coming quarters before committing to the common units.

Preferred issuance by LPs seems to be on the rise in 2017. It makes sense, particularly if the market isn’t supporting the common units’ price. Issuing lower-yielding preferreds can offer the company a cheaper source of capital than doing a secondary IPO of common units, when their price has been depressed.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Articles posted on SA aren’t meant to be all-inclusive white papers by any means. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure: I am/we are long PBFX, MPLX, MMLP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Valeant Surges Post-Q3: A Reassessment

Why Valeant may have been treading water for months

As a bear on Seeking Alpha about Valeant (VRX) since October 2015, when the stock was around $100, I modified my views some months ago subsequent to the stock falling below $10, after which several positives emerged. These positives included:

  • Removal of the Ackman overhang,
  • pending or actual launch of Siliq,
  • expectations that Vyzulta would finally launch, and
  • rescheduling of the debt.

The modified trading views were to expect VRX to trade in a range rather than collapse immediately. After all, a 95% bear market since the Q3 2015 highs is plenty. Furthermore, the psychology of speculators gets very interesting when a stock with about a $5 B market cap has $25 B of net debt. In this situation, the enterprise value may be viewed as the $5 B value of shares outstanding X price, plus $25 B or $30 B. This is the amount the company needs to earn to pay back the debt and earn the value of the stated market cap. Thus, if the company can earn not just $30 B but $35 B, subtracting the same $25 B debt means that the equity is suddenly worth $10 B. This implies that the stock price doubles. From there, one can imagine an “up, up and away” move as Bausch & Lomb strengthens and new products succeed, one after the other. Meanwhile, interest costs decline as debt gets paid down, etc. So then one can think of a triple to, say, $40. All this upside, and the worst is that the stock can go to zero – but the usual speculator psychology is that one can limit one’s loss by selling at some predetermined point, such as $10.

Thus there is a pool of buying power that likes the reward:risk ratio. At the same time, there is a large pool of stockholders that is down on the stock and is perhaps grimly determined to wait for better times.

So the combination of the company offering hope from new products and receiving breathing space from its creditors led me to think of a range-bound stock price, but within a bearish big picture setting where I believed and said the major trend for the stock was probably still down, possibly to or near zero.

However, with VRX having rallied post-earnings to close the week at $15.38, this article explains why the earnings release, slide presentation, and conference call continue to support a bearish long term view

A personal note: I’ve never been long or short VRX, and am a long-only investor. I am not working with or in any other way aligned with a short seller, put buyer, etc.

As far as analysis of companies that have lots of debt and little cash, and which emphasize non-GAAP “earnings,” I look at them two ways to see if they correlate. If they point in the same direction, both bearish, then I can think about them bearishly and explain it both ways in an article. The two ways that cover the bases with VRX are GAAP EPS and balance sheet/cash flow analysis. It is the latter that allows me to join the bulls and ignore amortization charges, goodwill writedowns, etc. But because stock prices basically rise with earnings, I will begin first with earnings and ask if the core of VRX is, or is not, profitable, using generally accepted accounting principles that prevail in the United States of America.

Another complicated quarter for VRX, but at the core, VRX is unprofitable (and this may worsen)

As VRX’s CFO explained in his prepared remarks in the conference call, VRX showed a GAAP profit due to a very large tax benefit. There were also significant one-time events, which I will try to exclude. I will just try to get to a recurring core of the P&L. Thus I am excluding negatives that some other perma-bears on VRX mention, such as writedowns goodwill/intangibles/in-process R&D, and legal risk (I have never worried much about legal risk for VRX, though the legal fees are significant). I do this to try to accurately uncover the true story.

Now to my P&L analysis.

From the first table in the earnings release, we learn of $2.2 B in revenues for Q3. Here are the expenses I list as reasonably recurring, in millions of USD:

  • 659 = cost of goods and revenues
  • 623 = SG&A
  • 81 = R&D
  • 657 = amortization of intangibles
  • 456 = net interest expense.

Total recurring expenses: $2.48 B.

Loss from continuing operations, excluding tax expenses or benefits, about $300 MM.

So, VRX is unprofitable even after excluding writedowns and the like, and excluding one-time tax benefits.

The next question is whether this will change in future years. Only time will tell, of course. I discuss this later and explain why I have a point of view that is negative for VRX’s chances.

Why amortization charges are included in measuring profitability (or, “a false construct”)

Some VRX bulls dispute amortization as a continuing cost when doing a profit and loss analysis. I disagree: it is a real cost when doing P&L analysis. In addition, unlike writedowns, amortization charges are recurring; they end on schedule, or when changing conditions change or eliminate the amortization charges. All the amortization does is measure money previously spent that never entered the P&L as the loss that it was. This accounting convention was done to benefit shareholders. Then it got misused by aggressive managements and their allies/enablers in the financial community. The reasoning in a little more detail:

A purchase costs money, with the operative word being “costs.” That cost has to either be put in the P&L line when the money is spent (cash basis) or spread out over time (amortized). This basic insight led me to correctly diagnose VRX going back to my first article, written when VRX was around $100:

Basic Problems With Valeant’s Valuation, With Comments On Recent News

One of the overlooked aspects of the stock is a conventional analysis of its operations based on generally accepted accounting principles…

The conclusion is that VRX was grossly overpriced simply based on GAAP EPS and a very weak balance sheet.

That article also correctly estimated that VRX was probably worth $10 per share or less (at least a 90% haircut) even if the allegations then hitting the news from short sellers such as Andrew Left were false.

This helps to show the value of paying attention to GAAP profits or losses. The media was propounding the idea that VRX was highly profitable (even the previously conservative Value Line joined in), but that was using fake non-GAAP “earnings.” These numbers omitted such key points as bringing the cost of the acquisitions into the ongoing P&L statements via amortization charges. There were other evasions in the non-GAAP numbers, but ignoring amortization was the largest. Because VRX’s tens of billions of dollars expended on acquisition was funded entirely, or almost entirely, with debt, the importance of thinking through underlying profitability was much more important than with a company that spent its own cash in the bank on a deal. In that case, GAAP continues to be the right way to measure whether the deal is working out, but the company’s solvency is not at stake as it is when the deals bring in mounds and mounds of debt.

As it happened, within mere months of my article, VRX was on the brink of having to default on its debt, which I think would probably have destroyed the share price, until lenders saved it. Undoubtedly saving it was to benefit the lenders, not shareholders, and this led to the lenders coming into control of the company’s goals. Debt repayment rather than growth and gambling suddenly took priority.

The theme of the importance of GAAP was just then coming into public consciousness. About a week after my article was published, the New York Times achieved much greater awareness of the same issue I was pointing to in a Sunday article by the well-known realist on financial affairs, Gretchen Morgenson. The title of her piece was clear: Valeant Shows the Perils of Fantasy Numbers. Two paragraphs from her article show the validity of our arguments:

Valeant is among a growing number of companies that regularly present two types of financial results: those that adhere to generally accepted accounting principles, and those that help executives put the best spin on their operations.

In accounting parlance, such adjusted figures — which exclude certain costs from calculations of a company’s earnings — are known as pro forma or non-GAAP numbers. But let’s call them what they really are: a false construct.

In case you still disagree, just look at all the pharma roll-ups that have emphasized non-GAAP numbers always trying to get investors to ignore those pesky amortization charges. These worthies include Teva (TEVA), Mallinckrodt (MNK), Endo (ENDP), etc. All of them are huge losers in one of America’s great bull markets. Even Allergan (AGN), a stronger contender, has done as well as it has done only because it made a huge capital gain by dumping its large rolled-up generic division (Actavis) to TEVA. But as I have pointed out in my AGN articles, I have always resolutely refused to turn fundamentally bullish on AGN even when the stock was down, because using GAAP, profitability remained absent despite the stronger assets and strong management.

Moving on, the next section discusses a cash flow method, not the P&L method, of looking at VRX. This is the proper way to ignore amortization charges.

This method allows us to think about whether VRX is ultimately solvent based on free cash flows: is it generating more than enough cash to meet its ongoing interest and, beginning in 2020, its debt repayment obligations? What are the trends for cash flow from operations going forward?

Cash flow is not good enough now, and it looks worse for next year

The trend in cash flows this year is poor, mostly but not exclusively reflecting ongoing problems in VRX’s dermatology division, the sale of FCF-positive assets, and ongoing losses of exclusivity. From the CFO’s prepared remarks (see Slide 16):

We generated $490 million of cash from operations in the quarter, and year to date we generated more than $1.7 billion.

This sentence calls for analysis. Cash flow from operations, or CFFO, for nine months was $1.71 B. Subtract $0.49 B for Q3’s contribution and you see that H1 had CFFO of $1.22 B, which is $0.61 B on average per quarter. Thus:

CFFO in Q3 saw a drop of about 20% from the H1 average.

How is that a justification for this debt-ridden company’s stock to have surged? Just because, just maybe, the bear market in generic pricing is winding down (no guarantees)? VRX has only a small generic division, which has low profitability. VRX is a combination of B&L and specialty branded pharma, with a small generic business as well.

Now let’s look at the debt set-up to see if likely forward CFFO run rates are adequate to meet the upcoming obligations. I think this shows that there is no reason for any fundamentally-based investor to go long this stock anywhere near the current price.

VRX’s debt maturity schedule requires huge cash flows

As shown on slide 16 of the presentation linked to above, VRX must repay about $20 B by 2023 to meet its debt obligations. Clearly, $2 B per year X 6 years is only $12 B, so it’s $8 B short by that quick calculation. (Perhaps $20 B shrank to $19 B or so after the quarter ended, due to debt repayments the company made, so maybe it would be $7 B short using this simple calculation).

This multi-billion-dollar shortfall is much more than VRX’s entire market cap, so good luck getting the money from the sale of equity.

But it looks worse than that to yours truly just looking forward to next year.

There are at least two ongoing problems with attaining that number, discussed next.

Ongoing losses of exclusivity (slides 31-32)

From Slide 32, we see that two ophtho drugs, Lotemax and Istalol, are anticipated both to go generic this quarter. Their estimated 2017 sales apparently will be around $111 MM. Critically, the pre-tax profit from these sales is $106 MM (Not all sales are equal. B&L has much lower gross margins than these old cash cows).

That point is important in assessing VRX. Old drugs getting near end of life lose marketing support and thus represent almost pure profit. Whereas, new drugs are expensive to introduce to the market and tend to be cash flow negative for some time.

Two other drugs, Mephyton and Syprine, likely both lose exclusivity in Q4. Finally, Isuprel has lost exclusivity in Q3, and unless that occurred early in July, the full impact of that was not seen in CFFO last quarter.

The 2016 Annual Report shows that Mephyton and Syprine together achieved $144 MM in sales. Isuprel did $188 MM in 2016 sales. Per slide 40, Mephyton and Syprine together had $32 MM in Q3 sales. I assume that translated to around $120 MM annualized in FCF for these two brands. Isuprel did $30 MM in Q3 2016, $30 MM in Q2 2017, and $23 MM in Q3 2017.

The five drugs discussed above may cost VRX $300 MM annualized as soon as next year, according to my calculations.

Thus CFFO at VRX has a serious structural problem: it looks ready to get worse.

Also, based on p. 148 of the annual report which shows the decline in annual amortization for several years hence, significant additional losses of exclusivity are likely in 2018 and beyond. As one example, Apriso, with sales annualizing around $160 MM, may go generic in April next year. Others, possibly a relatively major product called Uceris, are anticipated to go generic in the next several years. Again, many of these are not being promoted much, so that their pre-tax profit margins can easily exceed 90%. Thus if their sales drop to near-zero, the hit to profits is proportionally greater than the sales that remain, which generally have much lower all-in pre-tax margins.

All this creates continuing headwinds. In addition…

Recent divestitures hurt CFFO

Per slide 33, the sale of iNova at the end of Q3 did not materially affect cash flow, but beginning this quarter, its annualized $100 MM EBITDA will be gone. Then, this quarter, Obagi, with EBITDA around $20 MM will have flown out the door.

The divestiture of two divisions alone will cost around $120 MM in FCCO next year.


Putting things together, VRX looks to me to likely run about $400 MM less in CFFO annualized next year versus this. So, instead of CFFO annualizing at $2 B per year, I propose $1.6 B. Multiply that by the six years from 2018 to 2023, inclusive, and you get $9.6 B in cumulative CFFO.

This is inadequate compared to $19-20 B in debt maturities by 2023. I doubt that anything that VRX is launching, or anything arising from its shrunken pipeline, can make up the approximate $9 B gap.

In addition, remember the $5-6 B in long-term debt due after 2023. Even if Xifaxan retains patent protection for a long time, eventually it too will go generic.

So, the cash flow method of looking at VRX makes it mandatory for massive profits and free cash flows to be generated from new products, plus hoped-for growth of Xifaxan and other products such as Relistor, and from B&L. Everybody is, of course, free to be as optimistic as they want on the above. To keep this article from becoming a whale, I will focus on three new or expected products, where perhaps the Street does not have as clear a view of what they may achieve than for the known quantities of Xifaxan et al and B&L.

Brief analysis Of Siliq, Vyzulta and IDP-118


Sales were nominal in Q3. Competition is fierce in psoriasis. Even the leading oral entry, Otezla from Celgene (CELG) faced both pricing and volume pressure in Q3. Siliq is thus a “show me” story, because of its black box warning and because of newer, also highly effective antibodies that lack that black box warning. Also, the innovator, AstraZeneca (AZN), is VRX’s partner, splitting profits, if any, and also in line for another lump sum payout if sales reach a certain level. Right now and perhaps permanently, Siliq uses cash.

It is difficult for me to be optimistic about Siliq’s cash generation ability for VRX knowing that before Siliq is prescribed, patients must be advised that this drug may make them suddenly want to kill themselves. The black box warning may be removed at some point, but A) the clock is ticking and B) competition is tough and growing in the psoriasis space. So I am very cautious about Siliq.


This is an eyedrop for glaucoma. The active ingredient is related to the heavily genericized glaucoma drug Xalatan, the dominant force in the market. The leading brand of this type of glaucoma treated is Travatan Z, is an improved formulation of Travatan. The active ingredient is the same in both Travatan and Travatan Z, but the latter is easier on the eyes.

Travatan Z’s marketer is Alcon, the powerful eye care division of the giant Novartis (NVS).

Comparing the Vyzulta P.I. to the P.I. of Travatan Z, similar levels of therapeutic effect were demonstrated, even though the VRX drug, Vyzulta, may work by two mechanisms within the eye whereas Travatan Z may work by one mechanism. The P.I. of Travatan Z also mentions results of its effects as monotherapy as well as its use as add-on therapy to a beta-blocker eye drop. However, the following is the entirety of the clinical results listed for Vyzulta:


In clinical studies up to 12 months duration, patients with open-angle glaucoma or ocular hypertension with average baseline intraocular pressures (IOPs) of 26.7 mmHg, the IOP-lowering effect of VYZULTA™ (latanoprostene bunod ophthalmic solution) 0.024% once daily (in the evening) was up to 7 to 9 mmHg.

This FDA-approved language stands in contrast to all the studies listed in VRX’s press release announcing FDA approval of Vyzulta, which mention other clinical trials results. These may have been Phase 2 results that the FDA did not consider scientifically strong enough to allow mention of them in the label.

There is also competition in the branded space from Lumigan, an Allergan (AGN) product; AGN is also very strong in ophtho.

So, this again is a “show me” story. The incumbent brands will fight hard for every percentage point of market share (and fractions of points). They may be able to bundle products, and they will likely do what it takes on price as well to withstand Vyzulta. For VRX to make a lot of profit from this eyedrop is not going to be easy, in my humble opinion.


This pipeline candidate is a combination of two generic topical agents for psoriasis. An NDA was submitted in September. Assuming FDA approval, which I expect next year, there are obvious problems with the prospects for this. Psoriasis topicals comprise a crowded field with numerous generics. The two drugs in IDP-118 are each available generically. In the press release linked to above, VRX makes this statement on that topic:

Both [drugs] approved to treat plaque psoriasis, halobetasol propionate and tazarotene, when used separately, are limited to a four-week or less duration of use. Based on existing data from clinical studies, the combination of these ingredients in IDP-118 with a dual mechanism of action, potentially allows for expanded duration of use, with reduced adverse events.

The first point within this first problem is that four weeks of treatment are often enough.

A second problem is that once the combination is approved for a longer period, then it may be logical for the doctor to try each drug individually, and if treatment needs to go longer than four weeks, continue them individually.

The basic question on sales is why insurers will not create major financial incentives for each drug to be dispensed individually if a prescription for the combo is written.

In the linked press release, VRX references a Phase 2 study that it says shows that IDP-118 was superior to each drug given separately. Let us see if that sort of language is included in the P.I. I am skeptical at this point of this.

Finally, there are the twin questions of what intellectual property VRX will have to protect this combination, and the related question that if this idea is so good, and VRX has been talking about it for some time, how much similar competition from other combinations will also come to market?

Putting it together, I look at IDP-118 the way I look at Siliq and Vyzulta, namely a “show me” product with uncertain commercial prospects.

Other products

VRX does have some other projects, including several “IDP-” type dermatologics. It is implausible in my view that all of them collectively will move the needle given the massive scale of VRX’s net debt load. VRX spends about 4% of revenues on R&D, which is on the downswing. With no platform technology or discovery engine, structurally VRX is not much of a drug company in my eyes. Rather, it is primarily a bunch of old brands, in-licensed products such as Siliq, and B&L.

Upside potential

Since I have disclosed no confidential information in writing this article, the information I have analyzed can be known by all. So, whether for technical reasons or because I am missing something, VRX can rise, perhaps leaving its lows behind permanently.

If all the above new products do well, and if B&L can break out in Asia and elsewhere, then the leverage inherent in VRX shares may work for shareholders.


As usual, I write this article from the neutral standpoint of myself or other investor who has cash and is looking to invest it.

My view remains that VRX is de facto under the control of its creditors. I think it has been that way ever since it avoided a forced liquidation about 1 1/2 years ago. Looked at through this prism, the company’s behavior and comments in the conference call make sense. The lenders want the company to repay debt as the priority. In the meantime, cutting R&D and other costs and generating CFFO allow interest payments to be paid easily. Eventually, if some of the principal cannot be repaid, creditors are maximizing their recovery.

Joseph Papa, the new CEO, is not a magician. His history and that of the VRX team suggests there will not be the sort of magic that Steve Jobs accomplished when he rejoined a trouble Apple (AAPL) in 1997. It would appear doubtful that there would even be the turnaround of the sort that Howard Schultz led when he stepped back into the CEO role at Starbucks (SBUX) several years ago. Mr. Papa tried to relaunch Addyi, the “female Viagra,” but now the Sprout deal that brought Addyi to VRX with some fanfare has been acknowledged as a near-total failure.

If my fundamental analysis is mostly correct, then while I do not short stocks and provide no advice, I will comment that this may be a reasonable set-up for traders who do short stocks to think that VRX may be set for a more sustainable drop once again. Reasons that come to mind include:

  • Rally to a difficult level (near recent highs of the prior rally),
  • Siliq Rx data will be rolling in and may disappoint,
  • rotation to pharma/biotechs that have dropped recently while VRX has surged, such as Merck (MRK) and Regeneron (REGN), and
  • debt-heavy companies tend to falter when the Fed is tightening.

While it would be nice to see VRX succeed, producing wealth rather than disclosing all the wealth that prior management failed to crease, I continue to doubt that the stock ultimately has much if any value given the massive debt load.

Thanks for reading and sharing any comments you wish to contribute.

Disclosure: I am/we are long CELG, REGN, AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Not investment advice. I am not an investment adviser.

Chinese Bike-Sharing Startup Mobike Has Its Eye on Expansion

When Chinese bike-sharing company Mobike first formed, investors and suppliers were skeptical. The idea of a bike share program without storage docks had been tried before in China. But when Mobike launched with a few bikes last April, the service exploded, especially on social media.

“It became more of a lifestyle in the city, rather than just a boring bike-sharing service,” cofounder and CTO Joe Xia said on stage this week at the Web Summit conference in Lisbon. The company had initially aimed for a million trips by the end of 2016. It ended doing three to four times that, he said.

In just two years, investors have poured an astonishing $928 million into the company. That cash has propelled Mobike to a leading position in a fast-expanding category. It now operates in more than 180 cities, with 8 million bikes and more than 200 million registered users.

But investors weren’t the only ones to notice the company’s runaway success. More than 70 bike share startups now operate in China, and local competitors are springing up around the world. (In the US, that includes has LimeBike, Spin, and Motivate.) Xia says he expects consolidation to happen, and Mobike is looking at acquisition opportunities outside of China.

One deal Mobike isn’t exploring is a merger with its largest Chinese rival, Ofo. In October Bloomberg reported that the two companies were holding talks to merge, creating a market leader with a valuation of more than $4 billion. But Xia denied any deal was in the works.

Instead, Mobike is racing to expand as quickly as possible, to fend off competition and to keep investor interest high. Xia said Mobike’s fast growth is what attracted the investor interest, and it’s crucial to keeping momentum going. “We’re kind of the company where we will have a plan for two to three months, but we want to achieve what a company would do in maybe a half-year or 12 months, so it’s kinda crazy,” he said.

Among those crazy plans is expansion beyond simple bikes. Mobike has been reportedly working on rentable electric bikes, and electric cars as well. Xia would not comment specifically on the company’s plans, but said the company is looking at “the whole transportation perspective” in China. “Bikes cover only the one to five kilometer category. We are also looking at the same business model to power services that cover three to eight kilometers, eight to 15, 15 to 25. In the next three months, you’ll be able to see more and varied product from us happening in the China market in large scale.”

The company embraces a Silicon Valley-style ethos of radically changing its industry. “Anything we do we want to totally just disrupt,” Xia said backstage at the conference. “No matter what no business we bring to the customer, it’s definitely going to be different.”