Ockam provides easy to deploy identity, trust, and interoperability for IoT developers

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Maybe you’re not going to buy a $7,000 smart toilet, but the Internet of Things (IoT) is on its way to your home and office. Silly gadgets aside, IoT device inventors face many programming challenges. It’s hard adding identity, trust, and interoperability to IoT hardware. The Ockam startup will change this for the better.

Customers want IoT devices to be trustworthy and work with other vendors gear. Programmers know that’s easier said than done. Many IoT vendors’ answer is to not bother to add sufficient security or interoperability to their gadgets. This leads to one IoT security problem after another.

Ockam’s answer is to make it easy to add identity, trust, and interoperability by providing programmers with the open-source, Apache-licensed Ockam Software Developer Kit (SDK). With it, developers can add these important features to their devices without a deep understanding of secure IoT network architecture or cryptographic key identity management.

Also: Internet of Things (IoT): Cheat sheet TechRepublic

This is provided by a Golang library and a Command Line Interface (CLI). Additional languages, features, and tools will be supported in future releases.

Once properly embedded within a device’s firmware, the Ockam SDK enables the device to become an Ockam Blockchain Network (OBN) client. OBN provides a decentralized, open platform with high throughput and low latency. It also provides the infrastructure and protocols underpinning Ockam’s SDK.

Devices are assigned a unique Decentralized ID (DID). The DID is cryptographically secure identities for an array of entities. While used primarily to identify devices, it can also represent people, organizations, or other entities. With this, developers can codify complex graph relationships between people, organizations, devices, and assets.

Once on OBN, devices can can share data as verified claims with any other registered network device. This is secured by Ockam-provided, blockchain-powered Public Key Infrastructure (PKI).  Devices can also verify data that they receive from other registered OBN IoT devices. OBN is free of charge for developers until its general availability release later this year.

This may all sound complex, but the complexities are hidden away behind its serverless architecture: A developer only needs the SDK. OBN’s complications, such as PKI, are abstracted away.

Some of Ockam’s structure may sound familiar. That’s because it’s taking a page from Twilio. Just like Twilio provides a common layer between telecommunications infrastructure and developers, to make it easy to incorporate messaging into applications, Ockam provides a “common rail” for adding secure identify to IoT devices. With a single line of code, Ockam enables developer to provision an immutable identity to a device.

Also: 7 ways to use Alexa around the office CNET

OBN is built on Microsoft Azure confidential compute. Microsoft Engineering is a dedicated technical partner, and Ockam CEO Matthew Gregory led Azure’s open-source software developer platform strategy.

Together, Ockam and OBN provides a backbone for the next generation of high performance IoT ecosystems. Ockam is interoperable and built for multi-party IoT networks. So, in theory, your devices will be able to work with other vendor’s gear.

According to Yorke Rhodes, co-founder of blockchain at Microsoft Azure: “Ockam’s team is best in class, bringing together skills and experience in enterprise, IoT, secure compute, scale-up, and Azure. We are thrilled to be collaborating with them on their innovative solution for the IoT developer community.”

I don’t know about “thrilled,” but I do know if I were building IoT devices, which I want to work and play well and securely with other devices, I’d be working with Ockam. It promises to make high-quality IoT development much easier.

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Before You Quit Your Day Job for a Startup, Make Sure You Can Answer These 7 Questions

I’ve heard pitches from more than 20,000 entrepreneurs over the last two decades.  The top question I’m asked (other than “Will you invest in me?”) is, “Is my idea any good?”

Wantreprneuers from far and wide track me down to get my blessing before they quit their well-paying job to start a startup. Over the decades and in conjunction with other angel investors and venture capitalists, I’ve developed a seven-question list that potential founders should ask themselves before coming to ask me.

If your answer to all seven of these questions is “yes,” your idea is probably excellent. If not, you have some work to do.

1. Are you obsessed with the industry, customers, or problem?

Successful founders love what they do. They would learn about the industry, customer segment or problem even if they weren’t being paid. To be successful, you must be obsessive about your startup opportunity.

The difference between obsessive and caring is quite large. Caring is a given, and it’s not enough. Being obsessive means that you think about something dozens a time a day. If you aren’t obsessive, you won’t be able to accumulate the insights needed to garner strategic advantage–insights that only come from focusing on something for thousands of hours. 

2. Can you build the solution? 

Ideas are worthless until combined with relentless execution. You must be able to execute both your idea and your product. At the very least, you need to be able to create a prototype or minimum viable product, something you can get into the hands of early adopters and generate early proof of concept traction.

3. How elastic is demand?

Pain killer or vitamin? Cost saver or revenue generator? The best opportunities solve unmet market needs where demand is inelastic. This yields better margins in the long run and quicker traction in the short run.

Your opportunity must satisfy a need, not a want. A need is something you can’t live without. Air, water, and food are the classic examples. A want is something you can live without, like fancy shoes or expensive cars.

As the price of wants go up, demand for them peters out. Startups that satisfy needs will always have easier times attracting early adopters and generating revenue. 

4. Is the market large and growing?

Today, the market for anti-hacker security is hot. The market for thoroughbred horseshoes is not. Why focus on a small win? You’re investing your blood, sweat, and tears. Make sure the win is worth it.

By the way, the risk is actually much greater when you focus on a niche. Since you have less pool to swim in, you have less chance to learn through iteration. Always focus on bringing your solution into a market that is large and growing. It’s OK to start with a niche, but there must be lots of room to grow.

5. Are you exponentially better?

If you’re entering an extant market, you’re automatically at a disadvantage with sunk costs and less brand recognition than your competitors. To overcome that, you must be ten times faster, cheaper, stronger, and lighter than every other company in your industry to get people to switch from incumbent products.

Netflix killed Blockbuster by offering ten times the quantity of content at one-tenth the cost. Your solution must be exponentially better than any alternatives.

6. Are you ready to go all in? 

Design thinking and the Lean Startup method allow you to start most businesses as a side hustle. Your long-term goal still needs to be full time, all the time, all in. No one has ever changed the world with half measures.

7. Do you have frictionless access to early adopters?

Early adopters are customers who have the problem you solve, and are currently trying to solve that problem with a radically less efficient method. Before spell-check software, we used third party proofreaders, which were ten times more expensive and time consuming.

To be successful, you need a clear and low cost to get early adopters and turn them into your beachhead. Make sure you’re able to get your product directly to customers.

How Netflix Opened Up Pandora's Box With 'Bird Box'

Credit: Netflix

Any investor in Netflix (NASDAQ:NFLX) knows the standard touch-points that are frequently hit on by analysts – lack of ratings info, a perceived over-spending on shows and the company’s long-standing quest to conquer the movie industry chief among them. When any news tied to any of those areas comes out, it is like catnip to the media.

Granted that’s the point.

Netflix is one of the rare companies that can subscribe to the “any coverage is good coverage” mantra as they just enjoy being in the conversation. As analysts have seen, it thrives off of speculation and conjecture because everyone knows it won’t comment so it just creates more and more buzz around the content.

Yet in the case of Bird Box, something new happened. The company DID respond and put out actual data on viewing, but more importantly, it then ELABORATED on that data giving investors a rare glimpse behind the curtain – which ultimately just created more questions. It is infuriating.

Though, it’s also brilliant.

Netflix has again managed to reveal “just” enough to spark a new conversation but not enough to reveal anything to give their rivals any type of edge. Or did they? That’s the question investors and analysts are scrambling to make sense of and overall it’s a fascinating situation.

First, as always, some background.

Netflix’s goal to be as dominant in film as it is in television is well-documented. The problem is largely two-fold. Part of it is the film industry is well aware of how the TV industry basically sold itself out of power and the other half is the company under-estimated the power of a shared experience like going to the movies.

However, over the last few years, Netflix has doubled down on their efforts by recruiting top tier talent like The Coen Brothers, Martin Scorsese, Alfonso Cuaron, Will Smith, Adam Sandler and most recently Sandra Bullock.

Bullock is one of the most beloved actresses of the modern era. Not only is she talented, but she’s gone through the fire and came out unscathed. She’s as versatile as she is intelligent. The feeling with former Universal executive turned Netflix film czar Scott Stuber was that audiences would flock to her films whatever the medium.

And he was right.

According to Netflix, her latest project Bird Box (which he brought over with him) was viewed by 45,037,125 subscribers – a new record for a Netflix movie over its first seven days. The problem is that not only is that number oddly specific, it is mind-boggling. If taken on the surface, that would mean roughly 1/3 of all Netflix subscribers watched the film.

Now some people have taken this to the extreme and tried to put a dollar value to it, which is even more absurd and investors should pay it no mind. The logic is that if you take that total and multiply it by the price of a movie ticket (roughly $9.16), then Bird Box would have made around $413 million at the box office.

To give you a comparison that’s Star Wars: The Force Awakens type money.

Again, that is ludicrous and even Netflix would never be so bold to infer that (though it has come close in past instances). Not only is it nowhere near an apples-to-apples comparison, but it also furthers the narrative and Netflix knows that so it has no reason to even attempt to set the record straight.

What was so unique this time, though, was many media outlets asked for more information and instead of the usual answer of some clever way of saying “no comment,” Netflix actually commented. The company specified the number came from the number of accounts that surpassed 70% of the runtime and clarified it counted every account once (so the number didn’t include any repeat viewings).

Here’s the rub – that’s where the info stopped and from there it’s down the same rabbit hole as before. Netflix once again successfully chummed the waters and then let the feeding frenzy ensue. By answering questions, it actually opened the door to more questions which is a practice investors in the industry in this area are very familiar with by this point.

Personally, my biggest question is why 70%? Wouldn’t you try to find a number like 75% which represents 3/4 of the film or even 50/51% to show that people watched at least half the movie? 70% just seems like an odd choice and it makes me wonder how precipitous the drop-off was at 75% that they wouldn’t use it? Or was it the opposite and too high of a number to be believable? Not that 45 million is believable either, but that’s expected when talking about Netflix which makes claims that they have no intention of backing up.

And that’s also the point.

We’ve reached a new world where companies don’t have to be held to the same standards as others and it creates a Wild West of sorts. Investors can enjoy the windfall now, but they also need to just be warned this is a dangerous game Netflix is playing in the long-run. They opened Pandora’s Box and right now it is benefiting them, but it is only a matter of time until it backfires.

The problem is one of these days Netflix is going to make a claim that it can’t walk back and it may have already done that here. It basically defined what the company counts as a “view”, and while it’s not anywhere near the full secret sauce, it’s an ingredient that won’t go unnoticed. In fact, the company has already taken steps to put safeguards in place as they have told media this info applies only to Bird Box and it “should not be taken as a metric for all Netflix content.”

How does that work?

No seriously, how does that work? Does that mean it counts views at 70% of run-time for movies, but not TV series? Or does that mean it counts views at whatever percent helps its case more? Again, because there’s no checks and balance, they don’t have to answer that question. Or any follow-ups.

Yet, what is unfortunately buried in this whole thing is that if you take the numbers out of this for a second, you’ll see a movie starring a talented actress and directed by a gifted female director (Emmy-winner Susanne Bier) was able to garner this type of positive response from the public. We should just take a second to recognize that as in this day and age it is sadly a rarity. These women deserve an immense amount of credit for the work they shepherded.

To be fair, it is also a statement to the industry by Netflix that it is willing to be a change-maker in that regard – but by not releasing verifiable numbers, it doesn’t do people like Bier a lot of good when making future deals. That’s also part of the reason why Crazy Rich Asians’ writer Kevin Kwan picked a traditional studio over Netflix when selling the film rights. He wanted to have something concrete he could show the industry as proof that American audiences will see a movie headlined entirely by Asian actors – but that’s a story for another day.

For now, yes it looks like it’s Netflix’s world now and we are just living in it, but investors shouldn’t drink the Kool-Aid without realizing there’s likely more to these stories that we don’t know and more we should know that can help better the industry.

The Hollywood Reporter’s Daniel Feinberg may have summed it up the best:

“I’m fairly sure Bird Box is a phenomenon of some sort, but without verifiable data or comparative data for context, a Netflix-affiliated Twitter feed coming down from on-high with suspiciously specific (and yet entirely vague) data is the epitome of nonsense.”

And by the way, phenomenon is a good way to describe it as this week Netflix again took to Twitter, but this time to ask its viewers NOT to partake in what has been dubbed the Bird Box challenge. Because the Internet is the Internet, social media users decided to see which everyday tasks they could accomplish while blindfolded (as the characters are for most of the film).

Hint, it did not go well.

Regardless, the fact remains the movie hit the mark for Netflix, and numbers aside, it did exactly what it was intended to do – start a conversation.

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.

The Simple Engineering That Will Keep NYC's L Train Rolling

Ever since the last of the brackish water slithered out of the Canarsie Tunnel in the aftermath of 2012’s Superstorm Sandy, New Yorkers have been bracing for the pain. Public transit officials have long warned that the water damage to the 94-year-old tunnel, full of just-as-old subway equipment, would eventually require a long, painful, deeply inconvenient rehabilitation. That’s the tunnel that runs under the East River, carrying many of the L subway train’s 400,000 daily riders from popular Brooklyn neighborhoods like Williamsburg and Bushwick into Manhattan.

The surgery was scheduled for April 2019, when the stretch of L train that takes New Yorkers across Manhattan and into Brooklyn was scheduled to shut down for a 15-month repair job. Ahead of what they officially deemed the “L-pocalypse,” local officials created piles of plans to ramp up bus service, encourage biking, and run new ferry routes, and everything else they could think of to keep all those commuters from taking to cars and making already bad traffic fully catastrophic.

Those plans (as well as wilder ones proposed by concerned citizens) became a lot less necessary Thursday morning, when Governor Andrew Cuomo called a surprise press conference to proclaim that no, the L train won’t close completely, and yes, it will still be fixed for the future.

The new plan for the next few years is to keep the train open and running as normal during weekdays, whilst doing repairs on nights and weekends (the details remain fuzzy). The board of the Metropolitan Transportation Authority, which runs the subway, has yet to adopt the new plan, which was proposed by a commission of half a dozen engineers based at Columbia and Cornell Universities that Cuomo assembled last month, two years after the decision was made to close the line. But the agency put out a press release Thursday afternoon saying it “accepted the recommendations.”

Curious politics are clearly at work here, but New Yorkers are unlikely to care, as long as the subway keeps running. And if it does, it’ll be thanks to two bits of subway engineering infrastructure: benchwalls and cable racking.

Let’s start with benchwalls. If the train stopped in the tunnel and you had to get out, these are the stretches of concrete, running along each wall and resembling big benches, that you’d be walking on. Facilitating emergency exits is one of their main functions—without them, you’d have to jump out of the train, onto the ground and risk hitting the third rail. Benchwalls also hold most of the goodies that make the subway work, including the power and communications cables. When workers were building the line, which started service in 1924, putting the cables in the concrete was the best way to protect them from things like hungry rats and water damage.

Over the past century, those benchwalls have started to deteriorate, a process accelerated by the flooding from Hurricane Sandy. Explaining its full shutdown plan in 2016, the MTA said the tunnel’s bench walls “must be replaced to protect the structural integrity of the two tubes [east and west] that carry trains through the tunnel.”

Replacing these things involves jackhammering away concrete, removing the rubble, replacing the cabling inside, setting new concrete, and having it dry. It’s work you can’t do overnight or on weekends, because any one section takes several days. And you can’t run trains without leaving a walkway to lead people to safety in an emergency.

The new plan involves giving those benchwalls a bit of a demotion. They’ll still be used for emergency egress, but they won’t hold the cables anymore. Instead, the L train will use a “cable racking” system, in which new power and comms lines will be strung up and attached to the sides of the tunnel, above the benchwalls. Turns out, their protective jacketing has advanced since the Prohibition Era. “We’ve had tremendous progress in materials,” says Peter Kinget, a Cornell electrical engineer who served on the panel. , If the jacketing catches fire, it doesn’t produce noxious fumes. It’s impervious to vermin and H2O, obviating the need for the concrete armor. The workers will also shore up the sections of benchwall that are crumbling with fiber reinforced polymer, Cuomo says, leaving the old, inactive cables entombed inside.

That decoupling of the benchwall’s duties is a big deal, because it makes the work much easier to execute. You can cut back service at night and on weekends (by running trains in just one of the tunnel’s twin tubes) and have workers slip underground, setting up the racks and new cables segment by segment. During normal hours, the train operates as it usually does, pulling power from the cables already in the benchwalls. Once the work is done, the MTA will switch the trains over to the new set of cords.

Cable racking has been used for new metro lines in London, Hong Kong, and the Saudi capital of Riyadh, Cuomo says. This would be its first use in the US, and the first time it’s been used to fix up an existing line.

“It’s a clever solution,” says Matt Cunningham, a civil engineer and global director of infrastructure for Canadian engineering firm IBI. It’s cheaper and easier than replacing all the cable-filled benchwalls, and it’s a proven method. “It’s going to work.”

Which brings up the unanswered question of why this idea is just surfacing now. Why not before the MTA decided on the full shutdown, then spent two years preparing for it? It makes Cuomo the politician who averted the traffic-spewing L-pocalypse—but it also makes one wonder why he didn’t come to the rescue earlier. (He’s been governor of New York since 2011.) In his press conference, he presented this as new solution, which is true if you compare it to the techniques used to build the subway in the previous century, but not if you take a slightly narrower view. “It’s not new technology that’s only now become available,” Cunningham says.

Of course, limiting service during nights and weekends to make this fix will still inflict some suffering, and the MTA has a terrible record of mismanaging this sort of operation, so any promises about deadlines or costs should be doubted. “You’re not getting a root canal on five teeth, you’re getting a root canal on three teeth,” says Allan Rutter, of Texas A&M’s Transportation Institute. “There’s gonna be pain.”

In infrastructure as well as in dental surgery, you’ve got to accept some drilling and discomfort. But less is definitely more.


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How Can We Best Prepare for Job Automation?

The best way to prepare is to transition away from things that are largely routine and predictable. Try to find a role that is largely focused on tasks that are not easy to automate.

I think this generally includes 3 areas:

  1. Creative work — where you are building something new, thinking outside the box in non-predictable ways, etc.
  2. Human-centered work — where you build sophisticated relationships with people. This would include caring roles, as with a nurse or social worker, but also business roles where you need a need understanding of your clients.
  3. Skilled trade work — this includes jobs that require lots of mobility, dexterity and flexibility in unpredictable environments. Examples would be electricians or plumbers. Building a robot that can do these jobs is probably far in the future.

What you do NOT want is to be the person who’s only role is to sit in front of a computer performing some predictable task–like cranking out the same report again and again. If you have a job like this you should worry and look to transition in other roles in the 3 areas I listed above.

One very important part of adapting is to realize that future careers will nearly all require continuous learning. So whether you are concerned with yourself or your children, a focus on learning–getting good at it and truly enjoying it–will be one of the most important components of success.

This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world. You can follow Quora on Twitter, Facebook, and Google+. More questions:

Published on: Jan 3, 2019

AbbVie: This Dividend Aristocrat Offers Double-Digit Total Return Potential

Source: Abbvie Media Resources

With the financial markets likely to enter 2019 having just had the worst December since the Great Depression, there have been many stocks that have taken a beating the past month.

Abbvie (ABBV) has not been exempt from this market plunge as it has fallen nearly ~27.6% from its all-time high of $125.86 a share in January 2018. Moreover, Abbvie has fallen ~3.3% since the beginning of December, from $94.27 a share to $91.12 as of close on December 28, meaning the company has been hit harder than other pharma stocks this year. In addition to concerns over Abbvie’s concentration risk with Humira, another concern in the past 9 months to the investor community was Abbvie’s announcement this past March that it wouldn’t pursue accelerated approval for Rova T to treat RR SCLC, due to disappointing Phase 2 results. Although the company will move forward with the ongoing Phase 3 studies, investor consensus is that the $10.2 billion StemCentryx acquisition, once thought to be a promising oncology acquisition, will instead prove to be a bust. Consequently, the company’s shares have not rebounded to the $110+ range the shares were at January through most of March.

As such, I believe that Abbvie is currently worthy of a dividend growth investor’s consideration. There are three main reasons to support my opinion that Abbvie is an attractive investment, worthy of further due diligence from a potential investor. The first reason is that although its dividend history as an independent company has been brief, it has been spectacular, and I believe it will continue to deliver solid dividend increases going forward. This leads me into my second point that Abbvie has the appropriate drug pipeline to offset the eventual declines in revenue from Humira, which would lead to continued strong dividend increases. Lastly, the company’s current valuation is appealing.

Reason #1: Abbvie’s Safe And Growing Dividend

Since the formation of the company in 2013 as a spin-off of the biopharmaceuticals division of Abbott Laboratories, Abbvie has raised its dividend each year. Abbvie is technically a dividend aristocrat when we factor in its former parent company’s 46 years of consecutive dividend increases.

The company recently announced an 11.5% dividend increase from $0.96/share quarterly to current quarterly dividend of $1.07. Using the company’s midpoint earnings guidance of adjusted diluted EPS of $7.91/share for FY 2018, we can see that the payout ratio in terms of EPS is 54.1%. This is about where I’d like a pharma dividend payer to be at as it leaves the company plenty of capital to invest in the research and development that will be necessary to develop new blockbuster drugs in the future, not to mention also returning capital to shareholders in the form of share buybacks when the company’s shares are attractively priced.

Moreover, we can examine the company’s free cash flow numbers to arrive at the FCF dividend payout ratio. Per the company’s most recent financial release, Abbvie has generated FCF of $9.5 billion while paying $4.1 billion in dividends during that time. This would mean the payout ratio using FCF is roughly 43%.

Both methods of gauging the company’s payout ratio show us that the dividend is clearly safe and reasonable, allowing raises fairly similar to the most recent of 11.5%, while still heavily investing in the company’s future through R&D.

With a dividend yield of 4.7%, it is wise to question why the yield is so high currently. This leads us into our next point in which we’ll discuss the risks that Abbvie is facing, and why I believe these risks are being more than factored into the company’s stock price.

Reason #2: While Bears Argue Abbvie Will Not Be Able To Offset Humira’s Eventual Revenue Declines, I Believe The Contrary Is True

The primary concern that investors have had with Abbvie for several years is that Abbvie is too reliant on Humira. They conclude that because Humira accounts for 62% of Abbvie’s revenue as of Q3 2018 and 70%+ of its profits, when Humira sales eventually decline, the company’s prospects will also decline.

Fortunately, per company forecasts for the remainder of 2018, sales of Humira are as follows:

  • International: $6.3 billion (32%)
  • US: $13.7 billion (68%)
  • Total Humira sales: $20 billion

The company is currently facing tough biosimilar competition in the European Union as competitors such as Amgen, Biogen, Mylan, and Norvartis releasing biosimilar versions of Humira. With discounting of Humira ranging from as low as 10%, to as high as 80% in Nordic countries, international Humira sales are expected to decline 26-27% in 2019, per Reuters.

Source: Abbvie Investor Presentation

Although this isn’t the most encouraging news, the bulk of Humira’s sales are generated in the United States. Assuming a 27% decline in international Humira sales, the company’s international sales will decline by $1.7 billion. This would equate to a ~5% sales overall sales decline by itself. However, with strong Humira patent protection in the US, Abbvie won’t face any rival biosimilar Humira drugs in the US until 2023. In the meantime, Humira sales will continue to grow at a clip of roughly 10-12% in the US, before peaking at $21 billion in total sales in 2020. This would equate to an increase in Humira sales of nearly $1.4 billion to $1.6 billion. An overall decline in Humira sales of $100 million to $300 million would mean that the company will see a revenue decline of less than 1% in 2019, not accounting for any growth experienced from other drugs on the market or in the pipeline.

Source: Abbvie Investor Presentation

Abbvie’s management recognizes the threats posed by concentration risk from Humira and they have developed a corporate strategy focused on extensive research and development to drive innovation, and deliver results to shareholders in the process.

Even if we assume that Rova T will be a complete bust, producing no revenue for Abbvie, and that Humira’s sales will fall considerably in the next 5 years, Abbvie has several promising drugs at various phases of development and marketing, as shown by the above illustration including:

  • Venclexta
  • Imbruvica
  • Risankizumab
  • Upadacitinib
  • Orilissa

In the Oncology division, Venclexta and Imbruvica offer a lot of promise to Abbvie. Venclexta earned FDA approval for the treatment of chronic lymphocytic leukemia (CLL) in April 2016. Upon examining Venclexta, we can see that Fierce Biotech is estimating that Venclexta could generate peak sales of $2 billion if it earns up to three separate breakthrough designations, which could potentially occur. Moreover, Imbruvica has shown tremendous promise and it appears as though the 2022 sales forecast by Fierce Biotech of $8.29 billion could prove to be accurate. According to the Abbvie news release, sales of Imbruvica totaled $972 million, representing a 41.3% YOY growth. It’s easy to see how these two oncology drugs alone could offset quite a bit of revenue decline in Humira over the coming years.

Moving to the immunology segment, the two most promising late-stage assets include Risankizumab and Upadacitinib. After a Phase III sweep by Risankizumab, it is reasonable to conclude that Risankizumab will be able to easily take market share from older drugs, such as Stelara and Abbvie’s own Humira. The only question regarding how much Abbvie is able to monetize this drug lies in how well it can compete with other newer, similar drugs including Eli Lilly’s Taltz, and Novartis’ Cosentyx as both of those drugs also delivered promising results in treating psoriasis. The blockbuster potential is there as Abbvie projects that Risankizumab could mature into a drug with peak sales of $4-5 billion. Regarding Upadacitinib, there is guidance from Abbvie that the drug could mature into $6.3 billion in sales by 2025.

This seems like a reason estimate, given that recent studies have shown the drug’s remission rates are 66%, double that of the standard of care (Methotrexate). The concern with Upadacitinib is the possibility that it may not be able to avoid fate of the black box warning cautioning against thrombosis that Eli Lilly’s Olumiant was forced to comply with when the FDA approved Olumiant with that caveat, in addition to only clearing the use of Olumiant in patients that have already tried drugs, such as Humira and Enbrel. If Upadacitinib is able to avoid the black box warning, it absolutely could become a $6+ billion blockbuster for Abbvie. I believe that the data of one adverse event out of the 631 patients treated with Upadacitinib in the trial is encouraging, but as with all pharma stocks, we won’t know for certain what the future holds for Abbvie’s recent Upadacitinib submission to the FDA until the company receives a decision from the FDA.

Finally, moving into the focused investment segment of Abbvie, we will discuss the most promising drug in that segment. As seen above, that drug is Elagolix aka Orilissa. Orilissa is the first FDA approved oral treatment for moderate to severe endometriosis pain in over a decade. The most encouraging news to come out of the FDA approval is that regulators green-lighted the product at two dosage strengths, without adding a black box warning for bone mineral density changes. This likely de-risks Orilissa and means that it could become the standard of care in treating moderate to severe endometriosis, a largely under-served market. Ultimately, Goldman Sachs analyst Jami Rubin believes that the drug could generate sales of $1 billion a year by 2020, and $2 billion a year by 2025 if industry experts are correct in their prediction of a uterine fibroids OK from the FDA by 2020.

Although the above figures that have been provided on the sales potential of the aforementioned drugs are just estimates, I believe these estimates are reasonable and even if some prove to be incorrect, it only takes one or two blockbuster drugs to be able to offset the eventual revenue declines in Humira, and drive earnings growth for years to come.

One final bearish concern present in the entire pharma industry is the worry that the government will eventually place more stringent pricing regulations on the drugs that Abbvie and other pharma giants produce. Back in July 2018, President Trump criticized and vaguely threatened Pfizer after it announced price hikes on over 40 of its drugs. Although this has been an issue that politicians have talked about for some time, as prescription expenditures rise and threaten to destroy Medicare budgets, it is reasonable to conclude the government will face no choice but to eventually take action to more stringently regulate drug price hikes, unless the billions of lobbying dollars by pharma continue to convince legislators to continue to ignore the issue. If/when this more stringent pricing regulation does happen, this would be a blow to the pharma industry as a whole, causing margins to crater. I don’t believe that this is an immediate threat to Abbvie or other pharma companies because as we all know, the federal government generally defers issues for years at a time. However, I do believe this is a risk that must be carefully monitored by investors in the pharma industry, in order to be proactive rather than reactive to a potential headwind in the industry.

Source: Abbvie Investor Presentation

In summary in regards to Abbvie’s growth story moving forward, I believe that Abbvie’s growth platform pitched in the above slide isn’t just another rosy picture that is portrayed by management. We haven’t even covered promising drugs in Abbvie’s early to mid stage development phase, so the thought that Abbvie could reach $35 billion in non-Humira sales by 2025 seems reasonable. The growth that is likely to occur in Imbruvica of another $4+ billion in sales by 2022, in combination with Venclexta peak sales of $2 billion, $4-5 billion from Risankizumab, $6+ billion from Upadacitinib, and $1-2 billion from Orilissa more than offset the projected $9 billion decline in Humira sales from 2020 to 2025. Even factoring in a couple of disappointing results in Abbvie’s pipeline, Abbvie shouldn’t face the same fate of over-reliance on one drug as Gilead Sciences did when its blockbuster Hep C drug, Harvoni experienced a sudden decline in sales. Having examined various drugs of Abbvie’s, both currently on the market and in development, there is certainly a lot of potential for growth moving forward. Having examined the company’s current dividend yield and the risks/opportunities that Abbvie is presented with, this leads me into my next point.

Reason #3: Abbvie’s Valuation is Currently Attractive

The above analysis would be all for naught if I didn’t believe that Abbvie’s current price is compelling for those willing to tolerate the risks mentioned above.

Though the stock has since rebounded strongly from its 52 week low of $77.50 a share, the December 28 share price of $91.12 represents a solid buying opportunity.

Abbvie’s current dividend yield of 4.7% compares very favorably to the 5 year average yield of 3.5%. If the company’s yield reverts back to its average yield of around 3.5%, this would result in a 34.3% increase in the stock price. This would translate into a current stock price of $122.36, which isn’t far off of what the stock’s 52 week high was in January. Of course, I can’t accurately predict if or when the company’s yield will revert back to 3.5%. It may take several years for Abbvie’s yield to revert to around 3.5% as the market waits for Abbvie’s diversification away from Humira to play out.

Moreover, the company’s earnings midpoint of $7.91 for FY 2018 compared against the current price of $91.12 means that Abbvie is sporting an 11.5 PE ratio. For a large-cap pharma stock with a projected 5 year annual growth rate of nearly 17%, this is an attractive entry point.

Summary:

It is my opinion that Abbvie’s dividend is currently safe and unless Abbvie is unable to offset eventual declines in Humira revenue (which I view as unlikely), the dividend should remain safe and continue to grow going forward.

As with any company, an investor must consider the future of the company, industry/company risks, and valuation, before making an investment. The biotech space faces their own set of risks, including concentration risk, patent expirations, generic competition, pipeline issues, and regulatory risks.

Despite Humira set to face stiff biosimilar competition in the United States starting in 2023, I believe Abbvie has the pipeline necessary to more than offset the eventual revenue declines in Humira, driving future growth.

As far as regulatory risks go, the risks that Abbvie faces are risks that its industry peers are also facing. Increased public and government scrutiny regarding drug price increases is a concern, but without rewarding companies such as Abbvie for serving the unmet health needs of patients, the outcome of a full-fledged regulatory backlash against pharma companies is one the United States and the world in general can’t afford. I don’t view this risk as an immediate risk, but one for investors to monitor coming years.

At the current stock price, I believe that the bearish arguments are being given too much credence, while the bullish arguments are not being given enough. This is the reason for the current disconnect between Abbvie’s stock price and its true valuation, from an objective standpoint. Abbvie’s 4.7% dividend yield and an 8% 5 year earnings growth rate (less than half the projected ~17% and just over a third of the previous 5 year growth rate), offers a 12.7% annual return over the next 5 years, assuming a static valuation multiple. Despite these perhaps overly conservative assumptions, Abbvie still offers one of the more compelling investment opportunities in today’s market for those who can tolerate the risks. I believe this creates an attractive entry point for both those considering initiating a position in Abbvie or those looking to add to their position.

Disclosure: I am/we are long ABBV. 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.

The 10,000 Foot View of Your Business You Must Take Before Picking a Software System

That’s so vague, and that’s exactly the reason why so many companies struggle to make meaningful process working “on the business”, year after year. Let me help to clarify these confusing terms, and give you the direction that you need to make a dent this year.

The “system” is the tool that you use to get the job done. It could be a big piece of machinery, but for most of us, it is the different software tools that your company runs on.

“Processes” are the sequence of steps that you and your team take to do the work — the actions, regardless of the system. The problem is, too many entrepreneurs start with the system.

Instead of focusing on how you manage a client project, you focus on how the project management tool works.

You can get lost in a sea of software, and end up jumping ship from one to the next chasing features that may or may not matter to your business. But, if you understand your process first, it’s like going to the grocery store with a list, and not an empty stomach.

I was working with a retail store once that used spreadsheets to manage their inventory, credit card terminals for each sale, PayPal for online transactions, handwritten sheets for their packing lists, and a bloated database tool for customer information. Instead of stepping back and looking at the business as a whole, they solved one problem at a time with another software, creating a complicated mess of their operations.

It shouldn’t be so hard. Whatever industry you’re in, here’s how to fine tune your process first to make sure you’re investing in something that can stick. 

Map your process.

Break out the sticky notes! I’ve banned those little yellow clutter-causers from my office, except for when we’re working on processes. Then, we break them out of their special hiding place and go nuts!

If you don’t have sticky notes, use a whiteboard or a blank sheet of paper, and draw each linear step in your product fulfillment or service delivery process. Each step (or sticky) should represent a significant step in your process. So, combine small things like “open this URL” and “go to this page” and “enter this password” into something broader like “log into online store.”

Your core company process should stretch from how you attract prospects, close a sale, onboard the customer, deliver the product or service, collect payment, and and continue to engage the customer. 

Find your bottlenecks.

The simple act of writing out the steps of your process is bound to surface some inefficiency. Where in your process are there bottlenecks — or slow downs — today? Where are there too many handoffs where information or tasks could flow more seamlessly from one person or department to another?

Now, you don’t need to fix your entire process in one sitting. That isn’t the point. But, you do want to identify where you have some work to do. These inefficiencies or areas for improvement could be supplemented or solved with the right system. You are building your shopping list. 

Become a ‘manual’ master.

A client hired me once wanting to build a custom software for a new way to facilitate meetings. The idea was full of assumptions about how the users would behave, and what problems they were trying to solve. 

Instead, I suggested that he use index cards to replicate the functionality manually, and offline, for a full month before we quote out the software. That way he could validate some assumptions before investing a dime in a custom software project. The idea was dead a weak later, and he saved a lot of money. 

Similarly, think of the software tools and systems that you invest in a way to improve the efficiency of your manual process, not a gamble on a brand new, untested way to work.

Scale with a system.

Now, with a proven manual process and a wish list of requirements, you are ready to go system shopping. 

It’s easy to get overwhelmed by the thousands of tools available. If you’re software shopping, check out review sites like Capterra an G2Crowd, or maker communities like Product Hunt to see how each system is differentiated before diving into demos. 

With hardware, consider renting a device before making a big purchase, or talking to another customer that is successfully using the equipment. 

The system you ultimately select should increase your capacity by eliminating bottlenecks and making your proven process more efficient. Your process shows you generally how to get from point A to point B, like a path through the woods. As you test that process, the “path in the woods” gets more and more defined, and perhaps you invest a little in clearing the leaves and branches, or building stairs on a steep hill. 

When do decide to build a highway from point A to point B — your system —  you should be confident in the path, and eager to increase the traffic down the route. 

Google wins U.S. approval for radar-based hand motion sensor

WASHINGTON (Reuters) – Alphabet Inc’s Google unit won approval from U.S. regulators to deploy a radar-based motion sensing device known as Project Soli.

Google signage is seen at the Google headquarters in the Manhattan borough of New York City, New York, U.S., December 19, 2018. REUTERS/Shannon Stapleton

The Federal Communications Commission (FCC) said in an order late on Monday that it would grant Google a waiver to operate the Soli sensors at higher power levels than currently allowed. The FCC said the sensors can also be operated aboard aircraft.

The FCC said the decision “will serve the public interest by providing for innovative device control features using touchless hand gesture technology.”

A Google spokeswoman did not immediately comment on Tuesday, citing the New Year’s Day holiday.

The FCC said the Soli sensor captures motion in a three-dimensional space using a radar beam to enable touchless control of functions or features that can benefit users with mobility or speech impairments.

Google says the sensor can allow users to press an invisible button between the thumb and index fingers or a virtual dial that turns by rubbing a thumb against the index finger.

The company says that “even though these controls are virtual, the interactions feel physical and responsive” as feedback is generated by the haptic sensation of fingers touching.

Google says the virtual tools can approximate the precision of natural human hand motion and the sensor can be embedded in wearables, phones, computers and vehicles.

In March, Google asked the FCC to allow its short-range interactive motion sensing Soli radar to operate in the 57- to 64-GHz frequency band at power levels consistent with European Telecommunications Standards Institute standards.

Facebook Inc raised concerns with the FCC that the Soli sensors operating in the spectrum band at higher power levels might have issues coexisting with other technologies.

After discussions, Google and Facebook jointly told the FCC in September that they agreed the sensors could operate at higher than currently allowed power levels without interference but at lower levels than previously proposed by Google.

Facebook told the FCC in September that it expected a “variety of use cases to develop with respect to new radar devices, including Soli.”

The Soli devices can be operated aboard aircraft but must still comply with Federal Aviation Administration rules governing portable electronic devices.

Reporting by David Shepardson; editing by Jonathan Oatis

General Electric's Healthcare IPO Is Actually Just What The Doctor Ordered

2018 has been an eventful year for General Electric (GE) and its shareholders, as this storied company will finish the year with a new CEO, Mr. Larry Culp, and in the midst of major restructuring efforts (not the first time hearing this, right?). As such, it should come as no surprise that GE shares have significantly underperformed the broader market over the last 12 months.

Chart

GE data by YCharts

Yes, it has been that bad. GE is positioned to spin/sell off several major businesses, including GE Healthcare, and I believe that most of the bad news is already baked into the stock. However, as I described in GE: It Ain’t Goin’ Be Easy, it is going to be tough sledding to turn around this large conglomerate, but, in my opinion, Mr. Culp is the right guy for the job. But, it is important to also remember that Mr. Culp and team have some great assets that can be utilized to jump start the recovery process, and it all starts with the GE Healthcare spinoff, in my mind.

Therefore, while I agree with many of the points made in General Electric Healthcare IPO Is Too Risky In This Environment, I believe that the GE Healthcare spinoff is just what the doctor ordered, even in this market.

GE Healthcare, Just What The Doctor Ordered

The GE Healthcare spinoff should be viewed as a direct attempt to unlock shareholder value. Many people ask why it would make sense for GE to get rid of a promising business like GE Healthcare, and while it would be great if a large collection of “good” businesses could be managed under one umbrella, I believe that it is now time for GE to create a more focused, simpler business.

Source: GE, Investor Presentation

To the point of unlocking shareholder value, GE Healthcare does not get the respect/love that it deserves from the market so, at the end of the day, something has to be done. In my mind, this is the overarching reason to proceed with a spinoff.

Let’s consider a few important points:

1) A promising business with an impressive track record

GE Healthcare is a growing business that has been able to report strong operating results over the last five years.

Source: 2017 10-K

The segment’s revenue is up single digits (5%) over the last five years, but, more importantly, profit is up by an impressive 13%. Additionally, management has been able to improve GE Healthcare’s operating profit margin by over 100 bps.

$ – in mil 2017 2016 2015 2014 2013 (Chg ’13 to ’17)
Revenue $19,116 $18,291 $17,639 $18,299 $18,200 $916
Chg 5% 4% -4% 1% 5%
Profit $3,448 $3,161 $2,882 $3,047 $3,048 $400
Chg 9% 10% -5% 0% 13%
Operating Profit Margin 18.0% 17.3% 16.3% 16.7% 16.7% 1.3%
8%

2) The recent results for GE Healthcare tell a similar story

Over the first nine months of 2018, GE Healthcare’s operating results show that this business unit is in a great position heading into 2019.

Source: Q3 2018 10-Q

And management has continued to improve the unit’s cost structure, as shown by the fact that the profit margin is up 50 bps YoY.

Source: Q3 2018 10-Q

3) What really matters, it’s all about creating value

The takeaway from the first two points is: GE Healthcare is a collection of assets with promising business prospects, and the numbers prove it. When taking a step back, I believe that the benefits of a GE Healthcare spinoff are threefold: (1) GE Healthcare will be valued like it should be, (2) the new GE will receive some much needed capital [let’s also not forget that approximately $18B in liabilities are going with the business unit], and (3) Mr. Culp and team will be able to focus their attention on a more streamlined business, which is especially important given the current state of this conglomerate – the Power unit should be front of mind.

It was reported that GE confidentially filed for the GE Healthcare IPO, and Mr. Culp recently floated the idea of spinning off a larger portion of the unit, so the market should get ready for this soon-to-be new publicly traded entity.

There are several good examples for what type of valuation GE Healthcare may receive when it’s eventually spun off and, as a shareholder, I like what I have seen so far. For example, American Money Management LLC provided this breakdown:

Source: AMM Research Report

Observations from AMM’s results:

  • GE Healthcare could have a market cap in the range of $33B-$60B.
  • GE Healthcare represents a material amount of the current share price for GE (the stock is trading at $7.51 per share).

I could provide at least three additional research reports estimating the value that GE Healthcare may receive, but I will save you the time by saying that most, if not all, analysts believe that the business unit makes up at least 50% of GE’s total market cap as of today (approximately $65B). I previously calculated a pre-liability market cap for GE Healthcare of $75B. AMM’s report is more conservative, and probably a little more realistic given the broader market dynamics.

Risks

Downside risks: (1) The company has significant fines related to the DOJ/SEC investigations, (2) Power takes longer than 18-24 months to recover and burns through cash, (3) management has a fire sale and disposes of assets at rock bottom prices, (4) the company’s credit rating hits junk status, and (5) additional insurance reserve charges are booked.

Upside risks: (1) the spins [Transportation, Healthcare, and Baker Hughes (NYSE:BHGE)] bring in more capital than anticipated, (2) the pension deficit shrinks as a result of the positive tailwinds, and (3) well-known investors put money to work in GE which leads to a positive change in sentiment.

Bottom Line

Make no mistake about it, GE is a high risk/high reward stock at this point in time. A turnaround will not be easy, and it will likely take an extended period of time (years instead of months), but I believe that management is already heading in the right direction. In my mind, the GE Healthcare spin will be a giant step forward.

Mr. Culp has a finite amount of capital that can allocated across the business portfolio so, at this point in time, it simply makes more sense for GE Healthcare to operate as a standalone entity. It helps that GE Healthcare is a great business that operates in a promising environment. In my opinion, GE Healthcare could turn out to be the catalyst that gets GE’s stock back into the double-digit range.

Lastly, I believe that the spins (Healthcare, Baker Hughes, & Transportation) will eventually lose the conglomerate discount that is currently being applied in the years ahead. As such, the asset disposals (including the GE Healthcare spin) will benefit the newly created entities and the “New GE” in 2019 and beyond. GE is definitely still a 3- to 5-year story, but I believe that the stock is a great long-term investment, if it meets your risk/return profile.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long GE. 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.

Elon Musk Adds Larry Ellison to Tesla's Board, Fulfilling SEC Requirement–Sort of

Tesla announced today that Oracle co-founder and Chairman Larry Ellison, and an investor in Tesla, has been added to the Tesla board. Also joining the board is Kathleen Wilson-Thompson, global head of HR at Walgreens. 

The move fulfills the letter, although not the spirit, of Tesla’s agreement with the Securities and Exchange Commission, which sued the company after Elon Musk posted an inaccurate and ill-advised tweet saying he was planning to take Tesla private and had the funding to do so. The settlement required that Tesla name a new chair to replace Musk, and add two independent directors to the board. 

The company has now met both those conditions, though maybe not the way the SEC  wished. Robyn Denholm, Tesla’s new chair, lives in Australia, where she’s CFO of that country’s largest telecom company. She won’t move to California for at least another four months and maybe never. That might make it tough for her to oversee Musk, as the SEC wanted the new chair to do. She’s also a longtime member of Tesla’s board, which is famous for failing to oversee him, at least so far.

Ellison is certainly more local and more vocal. He has a lot in common with Musk–he’s another iconic entrepreneur who built a hugely successful enterprise but sometimes gets himself in trouble by publicly saying exactly what he’s thinking, for instance when he called cloud computing “complete gibberish” at a 2008 analyst conference. Perhaps most important from Musk’s point of view, he’s a good friend and a staunch defender of both Tesla and Musk. 

Case in point, an October analyst call, where Ellison momentarily diverged from the topic at hand to defend Musk. “He’s landing rockets on robot drone rafts in the ocean,” Ellison said. “And you’re saying he doesn’t know what he’s doing. Well, who else is landing rockets? You ever land a rocket on a robot drone? Who are you?”

Ellison may not be the truly independent voice the SEC was hoping for. And yet, his arrival is probably very good news for Tesla. Ellison is one of the world’s richest people precisely because he knows how to build a profitable company. He also has a proven track record as an outside director, particularly at Apple, where he helped guide that company’s legendary turnaround after Steve Jobs returned as CEO in 1997. He has skin in the game, having bought 3 million shares of Tesla earlier this year. And, while he’s obviously a big fan of Elon Musk, he’s clearly capable of standing up to him if Ellison believes Musk is headed in the wrong direction. 

Tesla’s other new director, Kathleen Wilson-Thompson, is  more in the mold of Denholm–an un-flamboyant executive who has spent decades working her way up the corporate ladder, first at Kellogg, then at Walgreens. Having a longtime HR executive on the board is another good move for the company, in light of complaints about working conditions, especially during the Model 3 production ramp-up

The SEC has not publicly commented on the choice of new directors. But the markets seem to approve. Tesla’s share price is up by more than 5 percent on a day when most of the market headed downward. 

Disclosure: I’m a contributor to Oracle’s magazine Profit.

Got a McDonald's or Burger King Coupon? Here's the Smart, Surprising Thing to Do With It. (You Only Have 3 Days)

This is a story about a smaller restaurant chain trolling McDonald’s, Burger King, and other giants of the business. And it’s kind of brilliant. Before the details, a quick explanation.

The fast food industry is a smart and fun one to follow no matter what business you’re in, and for two big reasons.

First, there’s the pure scale. Make a menu change at McDonald’s for example, and you’re upending the routines of hundreds of thousands of hungry Americans. You can learn a lot just by watching how they develop and test new products.

But second, there’s the marketing.

Think of McDonald’s, which spends $2 billion a year on marketing and ads. That’s half the entire value of its much smaller competitor, Wendy’s. It’s an incredible chance just to unpack what they do, and figure out why they think that various ideas will work.

Which brings us to some shoot-the-moon marketing campaigns that can actually turn the big chains’ efforts on their heads.

The only catch? You had to place the order from a McDonald’s restaurant. (Technically, just being within 600 feet was close enough to trigger the offer.)

Of course, Burger King isn’t small; just smaller than McDonald’s. But it shows how if you’re creative, you can use a competitor’s strength–in that case the fact that there are roughly twice as many McDonald’s in the U.S. than there are Burger King locations–to your advantage.

But what if you don’t have 1.7 million Twitter followers and a full time social media marketing operation, like Burger King, to get word of your deal out.?

What if you don’t even have a mobile app (or a burning desire to get people to download your app, which is what the Burger King promotion and so many others these days are all about)?

Ladies and gentlemen, I give you: Smoothie King.

Again: not exactly tiny, although very small compared to McDonald’s and Burger King. Smoothie King has close to 800 stores, heavily concentrated in warmer weather parts of the country.

It’s privately held, and even if you’ve never tried it, you might recognize the name from the $40 million naming deal it has for the NBA New Orleans Pelicans home arena (“Smoothie King Center“).

Now, like its bigger competitors, Smoothie King also has a rewards app, and it’s launched a contest to try to incentivize people to download and use it. (The “Change-a-Meal Challenge.”)  

But what attracted me to this whole thing is how Smoothie King is kicking off its promotion: By letting you use any coupon from any other fast food restaurant — McDonald’s or Burger King included — at Smoothie King.

It’s good for only one day, New Year’s Eve, and regardless of the competitor’s coupon’s value, it gets you $2 off a smoothie at Smoothie King on December 31.

And in truth, I don’t know how many people would take advantage of it. But that doesn’t really matter in a way; what matters in this social media age is whether you can find a truthful, fun way to troll your competitors and turn their strengths to your advangage.

As a marketing strategy, I think it’s brilliant.

As for the Smoothies, well, I don’t know. I’m writing this from New Hampshire, and it looks like the nearest Smoothie King would be a three hour drive away. You’ll have to let me know in the comments.

From Meghan Markle to Mega Millions, These Were 2018’s Top Google Searches

Google Trends “Year in Search 2018” is out. And if this year’s version of the annual list proves anything, it’s that people are really obsessed with their eyelashes. Arranged by topics, the list’s “beauty questions” top five list gets straight to it: three of the top five searches were lash-focused, including “How to apply magnetic lashes,” “What is a lash lift,” and “How to remove individual eyelashes.”

But blink that thought away and there’s lots more to see. There was one really big winner on the search front: World Cup. It took the top spot in both overall searches and “news” searches. Whether you call it football (correct) or soccer (oh, fellow Americans!), the game behind World Cup is a frequent top search on Google Trends.

When it came to hope for a better financial future, searches got a bit more old school (and desperate) with “Mega Millions” claiming the third spot in the “News” category, “How to play Mega Millions” grabbing third place in the “How to” category, and “Mega Millions Results” taking seventeenths in overall searches. New money (or, really, new new money) played a role too—though it seems searchers were more confused by it than in search of it. First place in the “What is…?” category was claimed by “What is Bitcoin.” In 2017, the currency showed up in fifth place on the “How to” list, as in “How to buy Bitcoin.”

Unfortunately, death by suicide or drug overdose played a major role on this year’s list. Places three to five on overall searches were, in order, Mac Miller, a musician who died from a drug overdose, designer Kate Spade, who died by suicide, and chef/author/TV personality Anthony Bourdain, who also died by suicide.

On the entertainment front, the year’s big winner in movie search was Black Panther. The top musician slot went to Demi Lovato. And, phew, on the most-searched songs front, “Bohemian Rhapsody” beat “Baby Shark,” which came in third. With wedding watching its own form of entertainment for the search masses, “Royal Wedding” was the top weddings search while “Kat Von D Wedding” came in fourth. Fortnite was, not shockingly, the top search in the “Video Games” category.

Food is, as always, a much-searched category but 2018’s top five veered wildly between excess and food poisoning and restraint (and a serious need for comfort). “Unicorn cake” won the year followed by “romaine lettuce,” “CBD gummies,” “Keto pancakes,” and “Keto cheesecake.” Things were a little tastier on the Spanish-language recipes list where “receta de chocoflan” and “Chimichurri receta” came in numbers two and three.

Politics showed up in rather interesting ways on the list. Newly-appointed but much disputed Supreme Court justice Brett Kavanaugh took the third spot on the “People” list, beat out by singer Demi Lovato and the new royal, Meghan Markle. And the searches for “How to” included “How to vote” and “How to register to vote” in the top two spots. Top searches for politicians? Stacey Abrams in first, followed by Beto O’Rourke, Ted Cruz, Andrew Gillum, and Alexandria Ocasio-Cortez. (And if social media companies would think of searches as votes, they would want to take notice of the number five “How to”: “How to turn off automatic updates.”)

Of course, sending the year on its way can be a melancholy time for some people. So, as always, Google queued up some tear-inducing hope in its annual Year in Search video.

General Electric: Expect A Big 2019

To call 2018 a bad year for shareholders of General Electric (GE) would be a grave understatement. Throughout the year, the company has undergone expanded investigations by the government, shuffled top management, sold off various assets, and, on multiple occasions, revise down performance expectations before ultimately eliminating them for the foreseeable future. By practically all accounts, the industrial conglomerate has been hit harder, and in almost every way possible, more than it has ever been hit before in its more than 100-year history. Now, as 2019 approaches, the big question facing shareholders is “what’s next?” While it’s possible 2019 will bring with it even more pain than 2018 has, the more likely scenario is that the firm will use the New Year to restructure its operations (out of bankruptcy) and will, if all appropriate steps are taken, prepare for a turnaround that could bring to shareholders significant value.

Expect the breakup to occur

One thing that very few people will disagree with, I think, is that a breakup of General Electric must occur. The business has become so large that it is, from a management and capital allocation perspective, inefficient. When you have so many divisions, figuring out where and how to deploy limited capital can be hard, while as separate entities, the fact of the matter is that individual management teams can focus on their core operations. By breaking up, the firm will also, for the most part, rid itself of GE Capital, which is likely where any currently undisclosed problems probably reside.

As management indicated while John Flannery was still General Electric’s top dog, I fully expect the company to divest of itself its GE Healthcare segment in some way, shape, or form. Management has indicated that this will take place through an IPO, but it’s expected that shareholders might still retain some of the business, though all of this could change over time. We already know thanks to an announcement earlier this year that the firm is likely to continue winding down its ownership in Baker Hughes, a GE Company (BHGE), by selling off its stake in the firm, but a big question here might relate to timing. Since the end of September, shares of the oilfield services firm have plummeted 34.6%, so while the company has struck a deal for a sale of some of its stock, I suspect that additional sales will only happen following a recovery in unit price.

Following the spinoff of its Transportation segment into a commanding interest in Westinghouse Air Brake Technologies Corporation (WAB), also known as Wabtec, next year, I believe management will likely begin monetizing its interests there as well. Personally, I see monetizing both Wabtec and Baker Hughes further as a sizable mistake given the future outlook I have for both energy and transportation in the US, but the cash generated from these deals will allow management to reduce debt and/or to invest further into what operations are left.

One thing I would love to see transpire is the sale or spinning off of General Electric’s Power segment. At this time, the firm intends to separate that into two different sets of operations, which may be setting the stage to sell or spin off at least one of them. I see this new decision under CEO Culp as a sign that he understands Power is General Electric’s most significant problem at the moment, and since plans to retain power occurred while Flannery was still in charge, I have modest hope that management will divest of the segment or at least part of it.

Don’t expect a distribution hike

During its third quarter earnings release earlier this year, management made a significant change to General Electric’s dividend policy. They said that, effective this month, the company would only pay out $0.01 per share each quarter as a distribution, down from $0.12 per quarter previously. This decision, though controversial, will result in the firm’s annual distribution falling from $4.175 billion per year to just $347.925 million per year. While I would have loved to see it cut all the way to zero so that management would have even more cash to put toward debt reduction and investing in core assets, the savings seen are material regardless.

Investors hoping for the distribution to recover in the near future are, I think, engaging in wishful thinking. As of the end of its latest quarter, General Electric had cash, cash equivalents, restricted cash, and marketable securities worth $61.69 billion, which is a lot to work with, but it also had $114.97 billion worth of debt (inclusive of $2.70 billion of non-recourse debt). Admittedly, debt was down from the $134.59 billion the firm had at the end of its 2016 fiscal year, but as assets come off the books, debt also must be reduced. Some of this could be taken off by spinning off various assets (for instance, the firm could probably spin in the low tens of billions of dollars off with its Healthcare segment if it so decided), but it’s likely that a lot of the work toward reducing debt will be tied to asset sales and the cash that otherwise would have been allocated toward its quarterly dividends. Until management can reduce debt, it’s unlikely we’ll see a hike, and that probably won’t occur until, at the very best, late next year.

*Taken from Moody’s

Where does debt need to be in order for management to consider raising its distribution again? The short answer is that it’s anybody’s guess, but more likely than not, it’s by whatever amount would allow the firm’s credit rating to rise back into the As. As you can see in the image above, the firm’s credit rating, as calculated by Moody’s (MCO), used to be Aaa until it fell in 2009. Since then, the rating has fallen further and, today, the firm’s long-term debt rating is Baa1. This still places it in a category known as “investment grade,” as the image below illustrates, but the drop, even though it’s not on watch for a further downgrade at this time, will weigh on financing options until the situation can be improved.

*Taken from Moody’s

A lot of cost-cutting and wheeling-and-dealing

If General Electric is going to not only survive but thrive for the long haul, there’s no doubt the firm will need to cut costs. This is especially true if the company elects to keep its Power segment, but irrespective of it, certain corporate costs will need to be slashed as the firm works to spin off its assets. Although management has, in recent times, done well to push for cost cutting, when the company actually starts to break up, we will know whether, and to what extent, this is actually true. One strategy that could work quite well could be what the firm struck with Baker Hughes. As part of its share divestiture, the two companies have entered into a series of joint agreements that will keep their operations intertwined through things like guaranteed low pricing and joint buying of key assets. I suspect this kind of wheeling-and-dealing to continue as the conglomerate sells off more of itself.

Takeaway

Based on the data provided, it’s clear that 2018 has been awful for General Electric, but investors who are expecting more pain to follow through 2019 might be on the wrong side of the bet. If 2018 was the crash for the business, 2019 will likely be the start of a true recovery for the firm, especially if management can work to restructure the entity in the way that they should. Obviously, whether the firm is successful or not, investors should expect a tremendous amount of volatility during the process, but that could present opportunities to buy and sell at attractive prices for the emotionally-detached investor.

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.

Hate Telemarketers? This Brilliantly Simple Legal Trick Totally Destroys Most of Them (Why Did It Take So Long?)

My fellow Americans, we live in a divided time. But there is one thing we all agree on.

It’s only getting worse. By next month, nearly half of all incoming cell-phone calls will be spam. Half! Sure, the government cracks down on a few of the worst offenders. But they’re fighting with a hand tied behind their back. Now, a small group of lawmakers wants to change that.

So here’s the problem, the reason why it hasn’t been fixed before — and why a laughably simple legal trick could very likely be the solution.

Surprise: it’s totally legal!

The scenario has to do with spoofed Caller ID. You’re at home, or at work, or wherever, and you’re suddenly interrupted by a call you don’t recognize. Only… it’s from the same area code and exchange as your cell phone. 

As an example, my phone number is (424) 245-5687. I might get a call from say, (424) 245-9999.

Now, the call isn’t really originating from that number — or likely from any real traceable number. It’s just set up that way to make it look like a local call, so I might be more likely to answer.

You might assume that doing this would be illegal. I mean, I’m a lawyer (not practicing, but still), and I was pretty sure people had been prosecuted for wire fraud for doing less.

But it turns out that’s not the case at all. In fact, the Federal Communications Commission says it’s only illegal to make this kind of spoofed Caller ID call if you do so “with the intent to defraud, cause harm or wrongly obtain anything of value.”

No provable bad faith or fraud? No problem, under the current law.

Welcome to Kentucky

It’s in this context that an unlikely savior might come to the rescue.

Meet Kevin Bratcher, a state legislator in Kentucky who introduced a bill to make it illegal to spoof a Caller ID for almost any reason at all.

It wouldn’t matter if you could later prove that, for example, “technically if the person jumped through all these hoops and paid these upfront fees they could get a free trip to the Bahamas.” 

Simply “causing misleading information to be transmitted to users of caller identification technologies, or to otherwise misrepresent the origin of the telephone solicitation,” would result in a very significant fine: $500 for a first offense, and $3,000 for each subsequent offense.

There would be  few minor exceptions for things: things like if the recipient knew his or her true phone number or location, or friends playing an innocuous prank on one another.

But beyond that, it would be a strict law.

“I came up with this because I just had a campaign, and everywhere I went people were asking me, ‘Why can’t you do something about all these calls with fake IDs?'” Bratcher, a Republican who has been in office for 22 years, told me recently. “And I was receiving them too. Just a light bulb went off on my head: Why is anyone trying to give you a call with a fake ID? That needs to stop.:

A big part of the problem

I realized something after Bratcher and I talked: it’s not just the scammers who have latched onto this spoofing strategy. 

For example, Bratcher didn’told me about receiving spoofed Caller ID phone calls from a 501(c)(3) he supports, and that’s based in Washington, D.C. The calls looked like they were coming from Kentucky.

That’s also what he says to those who might suggest that anyone sophisticated enough to spoof a Caller ID might also be sophisticated enough not to get caught. For a big part of these calls — maybe even a majority — the fraud stops with the spoofed number.

Legitimate charities aren’t going to want to be tarred with this brush.

Why can’t the government work for us?

For now, if the law were only changed like this in one state, it would be a complicated and potentially expensive strategy for legitimate charities to risk fines and bad press for spoofing IDs in Kentucky.

But while the initial news coverage of Bratcher’s bill suggested it might be the first attempt like this in the country, I’ve talked with Indiana officials who say they’ve been doing something similar.

It’s hard to believe that other states and the federal government itself would be far behind.

I’ve written a lot recently about other ways to cut down on telemarketing calls. There’s the “Lenny” bot, which is truthfully one of my favorites from an entertainment standpoint, as it’s simply an Australian chatbot designed to waste telemarketers’ time.

And since Lenny hasn’t actually been widely released, I also suggested perhaps we could all team up to do a sort of “manual Lenny” — basically stringing telemarketers along, wasting their time, and driving up their employers’ costs so as to destroy their business model.

Those stories got a giant response. Because it’s a problem everyone faces.

And so, shouldn’t our government work for us, instead of us having to hack together ideas on our own to solve these kinds of problems?

It feels like a winner issue for any lawmaker who wants to run to the head of the crowd, and become known as a champion of the people. People seem to want this.  

Ready, headset, go: Retailers racing ahead with VR for staff training

The circa 5,000 virtual reality (VR) videos viewed over two weeks by Costa Coffee staff, looking to understand how best to prepare the company’s Christmas drinks range, highlight the appetite for learning in the organisation using this technology.

That is the view of Laura Chapman, head of learning at Costa, who says festive-themed training videos were not mandatory for its workforce, but they really captured the imagination of its people at this busy time of year.

“It’s still early days for us, but feedback show us teams are motivated to learn this way,” she says, commenting on the recent introduction to over 1,500 Costa stores of Google Cardboard headsets and associated tools, enabling teams to access 360-degree footage of coffee-making tips and techniques.

The move was announced at the end of October, and was primarily a way of helping induct new staff in the ways and methods of Costa baristas ahead of the busy Christmas trading period. However, it’s a platform that can be used for training all year round.

Chapman says the VR element is embedded into what she describes as an already comprehensive training programme, and currently includes tips on how to make an Americano or the Black Forest Hot Chocolate which appears on the menu in December.

And as consumers continue to seek out more compelling experiences, expertise and different types of engagement during a trip to a retail or food and beverage outlet, there are several ways the Costa VR staff training tool is catering for these demands by preparing staff accordingly.

“We have a high volume of millennials in the workforce, so we wanted to be able to provide an engaging and innovative way of training them, one which would really excite them to learn,” says Chapman.

“The VR 360 videos we currently have provide a wider insight into the coffee growing process with footage of coffee plantations in Peru along with sneak peaks inside our state of the art roastery and coffee lab in Basildon.

“In addition to this, we also feature drinks tutorials on our key products, so teams can learn faster by immersing themselves in a real-life environment.”

Walmart is another big retail business that is well under way with its use of VR for operational gain. Facebook-owned Oculus Go VR headsets are being used by the grocer’s staff across the US, with the STRIVR-created content teaching people about technology and compliance, and aiding soft skill development like empathy and customer service.

To indicate the scale of the technology’s usage, the plan is for four VR headsets in every Walmart “supercenter”, and two units to every neighbourhood market and discount store. In total, the retailer says 17,000+ headsets are in use at Walmart today.

VR training must run deep

Ed Greig, chief disruptor at Deloitte, agrees that some of the best cases of VR usage in retail are around staff training.

“If you want to change the behaviour of your staff, that’s something you can do with VR in a way you couldn’t do with text-based e-learning,” he says.

“Some organisations are still using paper-based learning, and these are organisations that in other areas are very technical, but VR can enhance this process.”

Greig backs VR’s ability to improve the soft skills of store associates to align them with company values or to provide a platform for helping more senior staff improve management and empathy, but ultimately he sees the biggest gains for retailers coming from its wider deployment by human resources departments.

Wider recruitment

He acknowledges the idea of VR being used as a staff training tool has opened up conversations with Deloitte clients about their wider recruitment and subsequent learning strategy. As retailers embark on widescale digital transformation, he sees VR playing a central role in improving store design, supply chain operations, and general processes.

“Our motto is ‘fall in love with the problem not the solution’,” says Greig.

“There is a real danger with a new tech like VR and the subsequent modifications to that tech that people can fall in love with the solution [and forget why they need it in their businesses]. If you’re going to use VR, it should be about reshaping your entire learning strategy and how you look to develop people throughout the organisation.”

“It’s really effective when it’s used as part of the recruitment process, providing a consistency of experience for employees right from the first moment they have contact with a certain company,” he says.

“If retailers can nail that, it gives them a whole load of additional time where they’ve got people thinking about their brand values, and they can hit the ground running once they’re on the team.”

In a future internet of things (IoT) environment, Greig predicts multiple ways VR could play a part in the “digital twin” process, where a retailer’s physical premises are effectively digitally cloned. One can imagine staff using VR in this format to remotely change a retail store’s lighting or signage setting in real time, he asserts.

VR as standalone entertainment

VR is cropping up in various guises across retail, be it Virgin Holidays using Google Cardboard in stores to help customers experience locations before they book them, or Tommy Hilfiger kitting out global flagships with WeMakeVR-loaded SamsungGear devices to showcase its catwalk shows to in-store visitors.

But some of the most impactful uses of it revolve around creating an event out of VR technology. At Westfield Stratford City in 2016, Samsung ran an in-shopping-centre pop-up, enabling around a quarter of a million people to try out its Gear VR to experience roller coaster rides in North America or holidays in remote destinations.

Judging by that success, it is perhaps clear why ImmotionVR, a company that designs content for VR and operates simulators in public places around the UK, is continuing to scale its business based on a similar cinematic-like premise.

With 12 locations across the country, including at Manchester’s Arndale Centre, Birmingham’s Star City, Intu Derby, and most recently, Wembley’s London Designer Outlet, the company is creating theme-park-like, family-friendly experiences starting from £5 in shopping centres around the UK.

Martin Higginson, CEO of Immotion Group, says his company is looking to help the wider retail industry not by selling it VR technology as an internal solution, but by setting up its simulators and VR installations deep within retail – in the aisles of shopping centres or in locations left behind by collapsed or down-sizing retail chains.

“We’re focused on delivering an out-of-home experience,” he says.

“Currently shopping in general needs to bring theatre, because without that retail will wither on the vine. The high street and shopping malls need to change and start creating more theatre be it additional dining spaces, VR or something else; there needs to be a unique mix that creates a ‘theme park’ within shopping centres.”

Incentivising shopping mall visits

Higginson argues that venues from ImmotionVR, which creates its own content from its Manchester studios and offers VR experiences covering scenarios ranging from roller coaster rides to swimming with sharks off the coast of Tonga, can give families an added incentive to visit a shopping mall.

There is also a focus within the business on providing VR-enabled destinations for work parties and educational trips for schoolchildren.

“We want to create Disneyland in Westfield or Lakeside, or wherever – shopping centre owners have massive challenges with the likes of House of Fraser and Debenhams going through turmoil,” he says.

“We can bring experiences to shopping centres and fill them with guests throughout the week, helping malls become leisure destinations rather than venues for straight-out shopping.”

Higginson also argues the continued growth of his brand will open up VR to the mainstream. As a result, the tech might become more widely used in the home and in the workplace. In short, society could be about to see more of it in its various forms.

Costa and Walmart are clearly on the start of their VR journeys, but the staff engagement it has resulted in, and – in the case of Walmart – the rapid extended roll-out of the technology to date, suggests further exploration and usage is imminent.

VR roll-out a reality

Walmart announced in September that its VR technology was set to be accessible for all employee training across its entire US store portfolio, following initial usage solely for staff development in Walmart Academies. More than one million Walmart associates will now receive the same level of training as those in the academies, the retailer said.

Meanwhile, all of Costa’s fully owned stores – as opposed to its franchise and concession partners – have a Google Cardboard headset that allows staff to experience VR. And Chapman acknowledges the business is looking to make them available to its partnerships and international stores, while additional ideas for its usage keep arising.

“We could provide ‘on-the-job’ experiences to potential candidates so they get an idea as to what it’s like working in one of our stores,” she says.

“The coffee growing process and following the coffee journey from bean to cup is also something that we feel would be useful for inductions for everyone in the Costa family both among our store teams and in our support centre.”

Treasury Secretary Mnuchin Raises Questions of Bank Stability: Hold Onto Your Hat

The entire financial system that everyone, including all businesses, depends on sits on the need for trust. And in a couple eof tweets, the Treasury Department and Treasury Secretary Steven Mnuchin may have shaken that trust loose.

The Treasury Department said that Mnuchin held a series of calls with CEOs of major banks: Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo.

The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations. He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly.

Equity markets have been rocky for various reasons, including tariff wars, general uncertainty, and the Fed increasing interest rates. No markets rise forever and we’ve seen a long run. A recent survey of global CEOs showed that chief financial officers overwhelmingly expect a recession by 2010 and many think 2019 will be the year.

In turbulent times, there are tremendous reasons for businesses to be wary and for governments to be concerned about basic banking issues like liquidity. Without enough money available, institutions can’t lend money and an economy can grind to a halt.

But aside from public inquiries like bank stress tests mandated by law, deep inquiries happen out of public views. No one wants to start a panic, undermine public confidence, and potentially start runs on banks, with people looking in total to take out more money than the banks actually have. (The lending business depends on institutions leveraging deposits, which means lending out many times more than they have on hand.)

Mnuchin’s move might have made sense if there were public concerns about bank stability. Bank stocks have been taking a hit with market oscillations. When people worry about the economy, they expect that banks may suffer. When things slow, fewer people and companies take out the loans that are the source of institutional income.

But there hasn’t been a lot of concern about underlying bank stability. At least, there wasn’t until Sunday evening when the tweets hit the fan. Particularly as Mnuchin was reportedly on vacation in Mexico.

While apparently intended to as a pre-emptive reassurance to investors, the tweet may have done just the opposite, stoking fears that the government is bracing for the worst.

MarketWatch then copied a number of investor tweets. Here’s one.

The substance was much of what I heard in my circle of financial people and business and economics reporters. One could only manage “WTF?”

It may be that all is well. But markets react to expectation and emotion and things have been shaken already. You now much reexamine your strategy in the wake of decreasing confidence in the economy and keep a close eye on new statements that could further shake things up.

After What President Trump and Congress Did on the Friday Before Christmas, the Government Is (Partially) Shutting Down. Here's What That Really Means

Less than two weeks ago, President Trump warned he’d shut down the U.S. Government if he didn’t get $5 billion for his border wall with Mexico in the new budget.

Democrats called his bluff; Trump didn’t blink. And so, a partial shutdown began at midnight.

So, what does it mean in practical terms to have a partial shutdown, which Trump himself predicted could go on for a “very long time?”

1.    About 75 percent of the government stays open.

Let’s start with the fact that it’s just a “partial” shutdown. There are some agencies that will be hit much harder than others, but most of the truly essential functions of government will continue.

Among these, the Department of Defense, the Department of Veterans Affairs, and the Department of Health and Human Services are already funded through 2019, so they shouldn’t be affected.

2.    But about 38 percent of employees will be hit.

There are 2.1 million federal employees. Of them, about 400,000 will be sent home without pay, and another 400,000 will be required to come to work, but won’t be paid.

Some of the affected departments here include Homeland Security, Justice, State, Transportation, and Treasury. As an example, all 60,000 employees of the Customs and Border Protection would be required to go to work without pay. 

This also includes Transportation Security Administration officials — so airports should remain open and more or less unaffected. It also includes the Border Patrol — ironic, since Border Patrol officers will have to work without pay, in a dispute over funding a border wall.

Also, “air-traffic controllers, prison guards, weather-service forecasters and food-safety inspectors, and would continue coming to work. Federal Bureau of Investigation agents, Forest Service firefighters” have to work, according to the Journal.

3.    The National Parks stay open

This is interesting — in earlier shutdowns, the spectacle of National Parks closing became big symbols of government ineptitude in a shutdown. But this time, the Parks Service is keeping most of its facilities open, even as about 80 percent of its employees will be furloughed.

On the National Mall for example, you’ll still be able to tour the monuments, but there won’t be Park Rangers available to offer information and assistance. The Smithsonian museums will remain open, too– at least through Jan. 1.

4.    It’s a good time to cheat on your taxes.

That’s because nine out of 10 IRS employees will be furloughed, so far fewer audits and return exams. That also means less chance of being able to call the IRS to ask for help on a tax issue.

5.    The Mueller investigation continues.

About 85 percent of Justice Department employees still have to go to work, even if they don’t get paid. The special counsel investigating possible collusion with Russia in the 2016 election however, will continue apace. That office’s funding is guaranteed.

6.    You can get your passport (probably) and the mail will still be delivered.

The Postal Service basically continues unaffected too, “because the Postal Service funds its operations through its own sales rather than tax dollars.”

7.    We sort of get a four-day repreive.

The shutdown began at midnight on Saturday December 22, which also happens to be the first of a four-day weekend for the government, since next Tuesday is Christmas.

All of which means that many of the 800,000 employees who won’t be paid, weren’t planning to work anyway the next four days. (In most past shutdowns, they ultimately got back pay when the government reopened.)

So, next Wednesday is that day when people will really start to notice — and then, if it lasts long enough, into the day after New Year’s Day.

8.    Weirdly, many workers have to come in, only to be told to go home.

Acording to the Post: Some will have to — briefly, anyway.

“This is what’s known as an “orderly shutdown,” during which employees who are furloughed can be allowed up to come in for up to four hours to preserve their work, finish timecards or turn in their government-issued phones. … What can we tell you? The federal government is a quirky enterprise.”

9.    Meat will be okay

At the Agriculture Department, the government will still inspect meat and other food. And support programs like food stamps will keep going.

10.    Sandwiches will be free. 

This is mostly for Washington DC area employees anyway, but if they’re affected by the shutdown, celebrity chef Jose Andres says his restaurants will offer free lunch sandwiches

China watchdog flags video game approvals; Tencent shares jump

FILE PHOTO: A Tencent sign is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, Dec. 4, 2017. REUTERS/Aly Song

SHANGHAI/BEIJING (Reuters) – Tencent Holdings Ltd’s shares jumped by as much as 4.2 percent on Friday after a regulatory official said that some new games have been cleared for sale after a lengthy freeze in approvals.

Feng Shixin, a senior official of the ruling Communist Party’s Propaganda department, said in a speech at a gaming conference in Haikou on Friday that a first batch of approvals for games had been completed, according a transcript of the speech and the organisers of the event.

China, the world’s biggest gaming market, stopped approving new titles from March amid a regulatory overhaul triggered by growing criticism of video games for being violent and leading to myopia as well as addiction among young users.

The freeze on new approvals has pressured gaming-related stocks and clouded the outlook for mobile games, rattling industry leader Tencent and smaller peers.

“We hope through new system design and strong implementation we could guide game companies to better present mainstream values, strengthen a cultural sense of duty and mission, and better satisfy the public need for a better life,” Feng said.

Earlier this month, state media reported that Chinese regulators set up an online video games ethics committee, raising hopes the government was preparing to resume an approval process that has been frozen for most of this year.

“This is clearly exciting news for China’s gaming industry,” a Tencent spokesman said in written comments.

“We’re confident that after the publishing license approval, we will provide more compliant, high-quality cultural works to society and the public.”

The gaming freeze in China has dragged down Tencent’s shares this year and wiped billions of dollars of its market value. The Hong Kong-listed firm’s stock is down around 23 percent this year.

Reporting by Adam Jourdan and Brenda Goh in SHANGHAI and Pei Li in BEIJING; Editing by Himani Sarkar and Christopher Cushing

Blue Apron Is Now a Penny Stock After Falling 11% to Below $1 a Share

Blue Apron’s stock fell below $1 a share Tuesday, becoming a penny stock for the first time since it went public last year. The stock price has now fallen more than 90% from Blue Apron’s $10 a share IPO price.

The stock of the meal-kit delivery service plunged 11.2% Tuesday to close at 90 cents a share. The company ended the trading day with a market cap of $173.8 million, according to Yahoo Finance. Blue Apron’s stock is listed on the New York Stock Exchange, which will often delist stocks that trade below $1 a share for more than 30 days.

Blue Apron went public in June 2017 at $10 a share, after initially hoping to price its IPO as high as $17 a share. After briefly rising to $11 a share on its first day of trading, Blue Apron’s stock slowly declined over the following months, as interest in meal kits faded just as competition was growing more intense. Notably, Amazon has been offering meal kits for Prime members.

Shares of Blue Apron have not only fallen below all price target set by analysts, it’s the third-worst performing IPO on U.S. exchanges so far this decade, according to Bloomberg. Only two IPOs have fallen more during their first 18 months: CHC Group and Eclipse Resources, both operating in the energy industry, which has been hurt by declining oil prices during recent years.

Last month, Blue Apron said it would lay off 4% of its staff. In October 2017, the company also had a round of layoffs that reduced its workforce by 6%.

My Top Sleep Well At Night REITs For 2019

Who doesn’t like “sleeping well at night”?

I don’t know about you, but there are plenty of things that keep me up at night, ranging from snowstorms, to a stuffy nose, to newsletter deadlines (which I am suffering from now). In fact, I’m constantly stressed out over worldwide events such as trade wars with China, decelerated inflation, and a looming government shutdown.

When it comes to picking out stocks, I have always been a big believer in owning the safest REITs, and specifically, the ones that are least likely to experience a loss of principal.

In a Seeking Alpha article, I explained that “the flight-to-quality phenomenon occurs when investors sell what they perceive to be higher risk investments, and purchase safer investments. This is considered a sign of fear in the marketplace, as investors seek less risk in exchange for lower profits.”

We’re less than two weeks away from a New Year, and as I reflect on 2018, I am reminded of my preference for owning the highest quality REITs. Around a year ago I published my top 10 “ sleep well at night” REITS for 2018, and a few days ago I explained that “ these 10 SWANs returned an (equal-weight) average of 10.6% year-to-date, beating ALL of our model portfolios (in the newsletter), as well as the DAVOS Index (+9.3% YTD).”

In a few days, I plan to provide my 2019 REIT Outlook on Seeking Alpha, which is essentially my crystal ball forecast. Without giving away my secrets here, it’s somewhat obvious that the U.S. economy will see deceleration in GDP growth in 2019, but I’m confident that equity REITs can stay the course with broader equities and beat the S&P 500. How do we prepare for volatility?

By investing in the most defensive names, and by preparing for the next market disruption, investors can see a portfolio and decide if it’s low risk or high risk.

To help you to find and select the safest REITs, I decided to dig into my “Intelligent REIT Lab” (part of the Forbes Real Estate Investor newsletter). Within our list of more than 125 REITs, I filtered for those best-positioned to mitigate global uncertainty and deliver the promise of protecting principal at all costs. Thank you for reading my “top 10 SWANS for 2019” article.

Before we get started, I have summarized my top 10 SWANs for 2019 below. As you can see (below), I sorted these 10 REITs based on their variance from current price to fair value. The color-coding illustrates the narrowest margin of safety (green) to the widest (in red).

To narrow down the top 10 SWANs, I used a variety of metrics and I relied heavily on dividend safety and growth potential. The chart below provides a snapshot of the “top 10 SWANs” and their forecasted FFO/share growth. It’s true that several of these picks aren’t exhibiting much growth, but as I will explain, these REITs offer deep value and/or catalysts that support my “sleep well at night” objectives.

To help you sort out these 10 REITs, I will provide commentary, starting with the lowest growth names to the highest growth companies. Let’s get started….

Photo Source

My Top Sleep Well At Night REITs For 2019

SWAN Pick #1: Ventas, Inc. (VTR) is a diversified healthcare REIT with an excellent portfolio mix of around 1,200 assets in nearly every healthcare sub-sector, with only modest (1%) exposure to skilled nursing. With locations in the U.S., Canada, and United Kingdom, Ventas has successfully built a solid strategic vision, with foresight, innovation, proactive capital allocation decisions, rigorous execution and a stable, expert team.

On the third quarter earnings call, CEO Debra Cafaro explained, “… we are very encouraged with the recently reported continued improvement in senior living starts, which are at a five-year low. Importantly, in primary markets, net absorption in assisted living in the third quarter of 2018 was the strongest third quarter for net demand on record.”

If current trends continue, the current supply demand equation will most likely reverse… and that’s why Ventas’ senior housing assets continue to be so highly valued. Their best-in-class senior housing portfolio is second to none.

Also, Ventas has a fortress balance sheet, including a war chest of liquidity – nearly $3 billion – and worthy of a credit upgrade (from BBB+ to A-). In 2018, for the third time this year, Ventas improved its full-year outlook for normalized FFO per fully diluted share, now forecast between $4.03 and $4.07. We maintain a STRONG BUY, and we find this REIT attractive based on its highly defensive revenue generators and discounted valuation; shares trade at 15.4x P/FFO and yield 5.1%.

Source: FAST Graphs

SWAN Pick #2: Kimco Realty (KIM) is a shopping center REIT and considering the company’s transformation over the last five years, it’s even more obvious that this open-air Shopping Center REIT is “ dirt cheap.”

Kimco’s 2010 portfolio included 816 properties scattered across the U.S., and today, KIM counts 450 properties across 78 million square feet of leasable space, primarily in the top 20 U.S. markets, which provide 80% of ABR (annual base rent). Those markets project a population growth of 6.3 million within the next 5 years.

Kimco has been actively managing risk by focusing on retailers that are thriving: 56% are service-oriented and 39% are omni-channel players. Around 75% of ABR is generated from grocery anchored centers. Kimco has essentially debunked the “retail apocalypse” narrative by focusing on a tactical strategy of owning the very best shopping centers in the very best markets.

Kimco has around $800 million of redevelopment projects underway, expected to generate around $50 million of net operating income (or NOI). Of note, its multi-phase mixed-use redevelopment Pentagon Centre property (a 55/45 JV with the Canada Pension Plan Investment Board) is across the street from Amazon’s (NASDAQ:AMZN) newly-announced National Landing HQ project (with future phase entitlements already secured to allow for additional residential, retail, office and hotel space).

I’ve suggested Kimco is awaiting a credit upgrade that could put the company in the elite A-rated club. The company’s balance sheet and liquidity position are in excellent shape; their weighted average debt maturity profile is 10.7 years, one of the longest in the REIT industry. And Kimco has over $2 billion available on its unsecured revolving credit facility, which provides a significant liquidity for any opportunistic funding refinements.

Remember, too, that Kimco owns 9.74% of private grocer, Albertsons, a company that itself expects over $1 billion in free cash flow over the coming year that could help support a 2019 IPO (we believe this represents ~$500 million in value, KIM share).

With KIM’s share price at a hefty discount to the company’s 4-year trailing P/FFO, the company has been one of the most unloved REITs these past 4 years… but with a growing FFO per share in 2019 and 2020, it indicates to me the dividend is getting ever-safer. We maintain a STRONG BUY based on Kimco’s recycling, redevelopment, and strong balance sheet. Shares trade at 11.2x P/FFO with a dividend yield of 6.6%.

Source: FAST Graphs

SWAN Pick #3: W.P. Carey (WPC) has been in business for over 45 years and is one of the largest owners of net lease properties and ranks among the top 25 REITs in the MSCI US REIT Index. WPC’s enterprise value is approximately $17 billion of “mission critical” commercial real estate, including 1,186 properties covering approximately 133 million square feet.

Its portfolio of high-quality single-tenant industrial, warehouse, office and retail properties is subject to long-term leases with built-in rent escalators. Assets are primarily in the U.S., with 30% exposure in Northern and Western Europe; and well-diversified by tenant, property type, geographic location and tenant industry.

The company recently expanded after closing on its strategic $5.9 billion merger with CPA:17 (non-traded REIT) which improves W.P. Carey’s earnings quality, enhances diversification, and increases size and scale. Carey also exited its non-traded retail fundraising, which will ultimately lead to more stable and predictable earnings. The company just increased its dividend, and we believe share prices remain attractive based on the P/AFFO multiple (of 13.1) and dividend yield of 5.8%. We maintain a BUY.

Source: FAST Graphs

SWAN Pick #4: Tanger Outlets (SKT) is headquartered in Greensboro, North Carolina, and operates and owns (or has an ownership interest in) 44 upscale outlet shopping centers in 22 states, coast to coast and in Canada, over approximately 15.3 million square feet, leased to over 3,100 stores, operated by more than 530 different brand name companies. Tanger has over 37 years of experience in the outlet industry. The company reports annual traffic of more than 189 million shoppers.

While department stores across the country account for more than 350 million square feet of mall space (per an article by daughter Lauren Thomas), Mall REIT Tanger has zero department store exposure. And even though Tanger’s 2018 total return (so far), is less than I’d like, I still strongly favor Tanger as an investment.

Why? Well, Tanger’s not really a Mall REIT. Sure, the company leases space to many mall tenants, but there are two obvious differences:

(1) Outlet centers are not enclosed and therefore occupancy costs are much lower for outlets than malls.

(2) Outlet centers have no department stores, and this means they’re much less capital intensive when it comes to redevelopment.

When a department store closes or vacates, the landlord must spend upwards of $20 million to redevelop the box, and densification projects could cost up to $50 million. In addition, in-line mall rents average significantly more than an outlet property.

The two primary advantages for outlets: Cap-ex spending is much more predictable, and, occupancy costs are more attractive. Being a low-cost provider in the retail brick and mortar sector is an important competitive advantage enjoyed by Tanger.

Tanger’s balance sheet is also strong. While the company hasn’t needed to redevelop a Sears store, the company must maintain adequate resources to re-tenant vacant space, and maintain the properties. Most notable is Tanger’s strict capital market discipline, and the 94% of square footage not encumbered by mortgages – this provides the company with superior flexibility and access to liquidity.

As for being moat-worthy, Tanger is the only “pure play” outlet company. Some peers have outlet centers, and some are even joint ventures (including with Tanger), but Tanger has an exclusivity and focus on outlets that attracts me, when assessing a Top 10 REIT. Tanger is a STRONG BUY as shares trade at 9.7x P/FFO and a dividend yield of 5.9%.

Source: FAST Graphs

SWAN Pick #5: American Campus (ACC) is the largest owner, manager and developer of high-quality student housing communities in the U.S. The company is fully integrated, self-managed and self-administered, with expertise in design, finance, development, construction management and operational management of student housing properties.

At the end of Q3-18, the company owned 168 student housing properties containing approximately 103,500 beds. Including its owned and third-party managed properties, ACC’s total managed portfolio consisted of 202 properties with approximately 131,900 beds.

While ACC underperformed in 2017 (-14%), we saw the opportunity for shares in this best-in-class REIT to rebound in 2018, and here, close to year-end, I’m quite pleased with ACC’s total return.

At the start of the year, there were only two publicly-traded, “pure play” campus housing REITs: ACC and Education Realty Trust (EDR). But by October, EDR had been sold for $4.6B to privately-held Greystar (the largest operator of apartments in the U.S., with operations in over 150 markets globally, managing over 480,000 units/beds, with an aggregate estimated value of over $80 billion)

So now, ACC remains the only publicly-traded “pure play” campus housing REIT.

ACC reported Q3-18 FFOM per share of $0.44 per fully diluted share or $60.6 million (versus $0.45 and $62.1 million at Q3-17). The decline was primarily due to capital recycling activity completed in Q2-18 and construction of an on-campus development project with the University of California, Irvine in the prior year period. Q3-18 occupancy was 97.0 % (versus 95.4% for Q3-17).

And earlier this month (December), ACC started construction on an approximately $630 million residential community for participants of Disney Internships & Programs at Walt Disney World Resort (FL), as developer, manager and owner of the new purpose-built housing via a 75-year ground lease.

Overall growth in the specialty campus housing sector is driven by strong demographic trends – primarily college enrollment trends. Between 2009 and 2020, college enrollment is projected to increase by 13% to approximately 23 million students, and with it, a strong demand for campus housing.

Analysts forecast ACC’s FFO/share to grow by 9% in 2019 and 5% in 2020. And the company has been averaging 5% in dividend growth each year. One of the big reasons that I tout ACC is because I believe the company is the best capital allocator. We maintain a BUY as shares trade at 18.8 P/FFO with a dividend yield of 4.2%.

Source: FAST Graphs

SWAN Pick #6: Public Storage (PSA) built its first self-storage facility in 1972 and today operates thousands of unique and diverse company-owned locations in the U.S. and Europe, totaling more than 142 million net rentable square feet of real estate. Public Storage is among the largest landlords in the world.

The size and scope of PSA’s operations have enabled the company to achieve high operating margins and low level of administrative costs relative to revenues, through centralization of many functions, such as facility maintenance, employee compensation and benefits programs, revenue management, and development & documentation of standardized operating procedures.

The absence of new supply after the 2008/2009 financial crisis, along with weak job growth were “tailwinds” for the self-storage business. In 2016, PSA’s revenue growth declined for the first time in six years to 5.8%, and, in 2017, decelerated to 3.0%. Construction of new properties has increased significantly over the past three years.

PSA’s financial profile is characterized by strong credit metrics, including low leverage relative to total capitalization and operating cash flows. And PSA is one of the highest rated REITs – by major rating agencies Moody’s and Standard & Poor’s. The company’s senior debt has an “A” credit rating by S&P’s and “A2” by Moody’s.

The “Public Storage” brand name is the most recognized and established name in the self-storage industry, due to its national reach in major markets in 38 states, its highly visible facilities, and facilities’ distinct orange-colored doors and signage. We maintain a BUY based upon PSA’s financial muscle and valuation: shares trade at 193x P/FFO with a dividend yield of 3.9%.

Source: FAST Graphs

SWAN Pick #7: Physicians Realty Trust (DOC) is a REIT focused on the Medical Office Buildings (or MOB) healthcare sector, the company has exploded out of the gate since its Q2-13 IPO of approximately $124 million, to now, with a Q3-18 portfolio of $4.3 billion, 250 healthcare properties across 30 states; comprising approximately 13.5 million square feet, about 96.0% leased; with a weighted average remaining lease term of approximately 8 years.

The strong occupancy ratio illustrates DOC’s ability to attract and lease space to additional physicians within its facilities. In turn, this contributes to a robust referral ecosystem that helps healthcare partners reach their clinical and business goals.

Eight of DOC’s top ten tenants have an investment grade rating, and the other two have very strong balance sheets without a credit agency report. Nearly 90% of DOC’s portfolio was located either on campus with a hospital or other healthcare facility… or strategically located and affiliated with a hospital or other healthcare facility.

Nearly 93% of the annualized base rent payments are from triple-net leases (where the tenant is responsible for operating expenses relating to the property, including real estate taxes, utilities, property insurance, routine maintenance/repairs, and property management).

In my opinion, MOB’s are mispriced, given their strong operating fundamentals, compared with other office REITs. Also, rent growth is strong (compared to net lease REITs), and DOC has been transitioning to investment grade rated tenants.

In addition, DOC’s average building size has increased substantially since the IPO; the company’s average building size is just over 54,000 square feet.

Rapidly increasing demand and consumerism will require care to be provided in a more efficient and convenient manner. Outpatient MOBs offer convenience to consumers, while allowing providers to efficiently integrate care in a single, efficient location. The highest revenue generating services can be executed off-campus – reducing cost and increasing provider profit.

Given the favorable demographics driving healthcare (per-capita healthcare spending by individuals aged 65 and over is nearly 3x that of other groups on an annual basis), we believe DOC is well-positioned to grow.

The company’s balance sheet remains in great shape; the dividend getting safer and safer as a result of the declining payout ratio. The company has maintained discipline, and we believe the management team is doing an excellent job in the MOB sector – one of the most desirable healthcare sectors. We maintain a STRONG BUY based on DOC’s valuation: P/FFO is 15.8x and dividend yield is 5.3%.

Source: FAST Graphs

SWAN Pick #8: STAG Industrial (STAG) stands for “Single Tenant Acquisition Group.” The company precisely targets industrial properties, adhering to a relative value investment model, and by developing operational expertise in its target markets, STAG has consistently delivered both income and growth to its shareholders. The company’s asset selectivity is very good, and the prospect for continued pipeline fulfillment looks promising.

There’s certainly been price volatility along the way, but the predictability of dividend performance (and monthly payments) has given me the confidence to know any short-term fluctuations would average out.

Since going public, STAG has grown from 105 buildings to 381 buildings in 37 states, with approximately 75.4 million in rentable square feet. STAG owns standalone (free-standing) buildings, with an average size around 215,000 square feet. That’s important because it makes STAG the 2nd largest industrial REIT based on that metric.

When assessing moats (competitive advantages), we pay close attention to the sustainability of the dividend, gleaned from the company’s economic profits and potential dividend growth.

STAG defines Class B (secondary markets) as “net rentable square footage ranging between approximately 25 million and 200 million square feet, and located outside the 29 largest industrial metropolitan areas.” Because of its secondary market industrial investment rationale, the company enjoys low capital expenditures and lower tenant improvement costs (relative to other property types).

Also, its Class B tenants tend to stay longer, since moving costs and business interruption costs are expensive relative to relocating a “critical function” facility. And secondary market rent growth has performed in‐line with primary market rent growth over the past ten years.

STAG refers to its model as a “virtual industrial park,” with a highly diversified set of geographic and industry assets, giving it a level of protection should negative trade impacts start to be evidenced.

Retention is a bigger risk for STAG because the company has shorter-term leases (than O). However, the company has built impressive scale that enables more predictable tenant retention; 77% in Q3-18 on 1.3 million square feet expiring in the period; and 83% year to date.

Over the years, STAG has become a better REIT in part by the company’s disciplined balance sheet management practices. With debt to EBITDA below at 5.1x at the end of Q3-18, the balance sheet continues to strengthen after an active few months in the capital markets. No debt is maturing until September 2020.

While STAG hasn’t obtained an A-rating (like Realty Income (O)), the company enjoys an investment grade balance sheet (Fitch BBB/Stable Outlook) and maintains a low cost of capital – which provides the company with a large and persisting opportunity to acquire mispriced industrial real estate assets.

I consider this monthly-paying REIT to be well-positioned to generate impressive growth in 2019. The company has proven it can operate a nationwide platform, and because of enhanced scale and improved cost of capital, STAG should be able to continue generating steady and reliable earnings and dividend growth. We maintain a BUY as STAG trades at 14.5 P/FFO with a dividend yield of 5.5%.

Source: FAST Graphs

SWAN Pick #9: Simon Property Group (SPG) owns, develops, and manages premier shopping, dining, entertainment and mixed-use destinations. As of Q3-18, the Mall REIT owned or held an interest in 207 income-producing properties in 37 U.S. states and Puerto Rico: 107 malls, 69 Premium Outlets, 14 Mills, 4 lifestyle centers, and 13 other retail properties. Internationally, Simon had ownership interests in 19 Premium Outlets in Japan, South Korea, Canada, Malaysia, and Mexico; and eight Designer Outlet properties in Europe, plus one in Canada.

The company also held a 21.2% equity stake in Klépierre SA, a publicly traded, Paris-based real estate company that owns, or has an interest in, shopping centers in 16 European countries; plus investments in Aéropostale, Authentic Brands Group, and HBS Global Properties.

Simon’s portfolio is well-diversified from a geographic, tenant, and revenue by real estate sector perspective. Simon’s largest mall space tenants include The Gap (GPS) (3.4% of base rent), Ascena Retail Group (ASNA) (1.9% of base rent), L Brands (LB) (2.2% of base rent), Signet Jewelers (SIG) (1.5%), and PVH (PVH) (1.5%).

Simon does an excellent job releasing space to new tenants, and it possesses pricing power given its high-quality properties. The company has reasonable debt levels with a balanced debt maturity schedule and a solid fixed charge coverage ratio. Simon’s debt ratings are among the best unsecured debt ratings in the REIT industry, and this underscores the balance sheet strength.

Simon’s current liquidity is $7 billion, and the company continues to have excess cash flow, which it can reinvest in the business. Simon is the only mall REIT with an A and A2 rating, providing it with superior operating financial flexibility to continue to create long-term value for shareholders.

Simon has delivered exceptional dividend growth. Last quarter, Simon announced a dividend of $2.00 per share, an increase of 11.1% year over year. The company will pay at least $7.90 per share in dividends, an increase of more than 10% compared to the $7.15 paid last year. At the end of October, Simon raised its full-year FFO guidance to $12.09 to $12.13 (compared to the original guidance of $11.90 to $12.02). And this new range is a growth of approximately 7.9% to 8.2% (compared to reported FFO in 2017).

Simon is the overall best retail REIT, armed with a fortress balance sheet and best-in-class tenant roster. We believe the company is positioned to deliver strong returns in 2019, and the recent earnings guidance helps indicate SPG’s enhanced value, long term. We maintain a STRONG BUY as shares trade at 15.1x P/FFO with a dividend yield of 4.4%.

Source: FAST Graphs

SWAN Pick #10: CyrusOne (CONE) rounds out our Top 10 SWAN picks for 2019. The company specializes in enterprise-class, carrier-neutral data center properties, providing “mission-critical” data center facilities that protect and ensure the continued operation of IT infrastructure for approximately 1,000 customers, including more than 200 Fortune 1000 companies, via more than 45 data centers worldwide.

Quick story: when I recently learned that self-driving cars will be generating around 4,000 GB (4 terabytes) of data a day – 2,500 times the amount of data the average person generates today, I got very excited about the future for Infrastructure and Data REITs.

Over the years that we’ve covered CONE, I’ve seen this Data Sector REIT continue to become stronger, and part of my evidence is the recent credit upgrade. On Sept. 26, S&P Global Ratings raised its issuer credit rating on CONE to ‘BB+’. The outlook is stable.

At the same time, S&P raised the issue-level ratings on CONE’s senior unsecured credit facility and senior unsecured notes to ‘BBB-‘. The recovery rating remains ‘2’, indicating S&P’s expectation for substantial (70%-90%; rounded estimate: 80%) recovery for lenders in the event of a payment default.

Those upgrades follow CONE’s added common equity offering and S&P’s “expectation that the company (CONE) will use the proceeds to pay down debt and reduce debt to EBITDA to the mid- to high-5x area by year-end 2018.” It was earlier this year that CONE raised approximately $150 million in equity, under less attractive capital market conditions. These transactions demonstrate CONE’s commitment to a prudent funding strategy and commensurate with its financial policy.

CONE had a solid Q3-18 as shown by year-over-year growth in revenue of 18%, EBITDA growing 16%, and normalized FFO up 10%. The company’s NOI grew 15% in Q3-18 driven primarily by the increase in revenue and Normalized FFO grew at a slightly lower rate than adjusted EBITDA driven primarily by an increase in interest expense to fund the development pipeline and acquisition activity, while normalized FFO per share was flat year over year as a result of equity issued to fund growth and manage leverage.

CONE’s revenue backlog as of the end of the quarter was $89 million – the highest quarter-end backlog in the history of the company, and second straight quarter at a record level. This backlog sets up CONE for continued strong growth into 2019, as analysts forecast growth of 10% in 2019 and 2020, which means the company should easily sustain its dividend growth record going forward. We maintain a STRONG BUY as shares trade at 18.2 P/FFO with a dividend yield of 3.1%.

Source: FAST Graphs

Author’s note: Brad Thomas is a Wall Street writer and that means he is not always right with his predictions or recommendations. That also applies to his grammar. Please excuse any typos and be assured that he will do his best to correct any errors if they are overlooked.

Finally, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking.

Disclosure: I am/we are long O, SPG, VTR, SKT, ACC, DOC, STAG, WPC, CONE, KIM. 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.

Oracle sees strong third quarter on cloud strength, share rise

(Reuters) – Oracle Corp on Monday forecast current-quarter profit above estimates after growth in its cloud services and license support unit helped the business software maker surpass Wall Street expectations for the second quarter.

FILE PHOTO: People gather prior to the start of a keynote speech at the All Things Oracle OpenWorld Summit in San Francisco, California September 24, 2013. REUTERS/Jana Asenbrennerova/File Photo

Shares rose 5 percent, with the company saying that excluding fluctuations in exchange rates, it expected third-quarter adjusted profit to be between 86 cents and 88 cents per share.

Analysts on average were expecting 84 cents, according to IBES data from Refinitiv.

Revenue at its cloud services and license support unit, its biggest, rose 2.7 percent to $6.64 billion and beat analysts’ estimate, as more companies shifted to cloud computing from the traditional on-premise database model to cut costs.

Oracle’s in June created a new revenue reporting structure that merged its cloud and software license businesses, which analysts have said gives little insight into the standalone performance of its cloud unit.

Oracle is a late entrant to the rapidly growing cloud-based software business, but has aggressively stepped up its efforts to catch up with rivals such as Workday Inc, Microsoft Corp and Salesforce.com Inc.

“Oracle’s growth in cloud services and license support of just 3 percent appears to be contradicting the strength in the overall cloud market,” said Daniel Morgan, senior portfolio manager of Synovus Trust Co, which hold 152,500 shares in the company.

Last month, Workday reported a 35 percent jump in cloud subscription revenue, while Salesforce’s flagship product Sales Cloud grew 11 percent.

“Oracle is still dragging behind other old line enterprise software players like Microsoft in its transition to becoming a top cloud company,” said Morgan, whose firm also hold shares in Salesforce and Microsoft Corp.

The company’s net income rose to $2.33 billion, or 61 cents per share, in the second quarter ended Nov. 30. Excluding items, the company earned 80 cents per share, beating the average analyst estimate of 78 cents.

Total revenue fell marginally to $9.56 billion, but brushed past analyst expectation of $9.52 billion.

Shares of the company were up at $48 in after-market trading.

Reporting by Vibhuti Sharma in Bengaluru; Editing by Arun Koyyur

2019 – The Game Changers

Looking back is not always that easy and sometimes painful. Your vision may not be 20/20 but reasonable clarity may be had by sticking to the facts and the actual data. Having said this, looking forward is a much tougher proposition. You are looking into the unknown. We haven’t gotten there yet.

However, staring into the future is a task that must be undertaken from time to time. I stare hard at pending “Risks.” Others stare hard at pending opportunities. “Preservation of Capital” demands that “Risks” come first, as “avoidance” is often the key to success. If you can stay out of the potholes, you can keep going and proceeding ahead is what gives us all the ability to win at the “Great Game.”

One of the biggest “Game Changers” is the breakage of a fifty year cycle where the United States, and Europe, had to depend upon hostile nations for oil and natural gas. We were hemmed in by them and many political decisions and economic decisions were based upon the fact that we needed their energy. With fracking and re-fracking and horizontal drilling, this has all changed and to the significant benefit of the Western world.

Last week the United States Geological Survey (USGS) announced a groundbreaking oil and gas discovery in the West Texas Permian Basin. According to the organization’s statement, 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids are now believed to lie untapped in the Texan and New Mexican Permian Basin. The figures in last week’s announcement are more than double the previous resource assessment.

“Christmas came a few weeks early this year,” said U.S. Secretary of the Interior Ryan Zinke in response to these rather incredible numbers.

American strength flows from American energy, and as it turns out, we have a lot of American energy. Before this assessment came down, I was bullish on oil and gas production in the United States. Now, I know for a fact that American energy dominance is within our grasp as a nation.

Dr. Jim Reilly, the Director of USGS, a part of the U.S. Department of Interior, highlighted how remarkable the discovery was in the larger context of the industry.

In the 1980’s, during my time in the petroleum industry, the Permian and similar mature basins were not considered viable for producing large new recoverable resources. Today, thanks to advances in technology, the Permian Basin continues to impress in terms of resource potential. The results of this most recent assessment and that of the Wolfcamp Formation in the Midland Basin in 2016 are our largest continuous oil and gas assessments ever released. Knowing where these resources are located and how much exists is crucial to ensuring both our energy independence and energy dominance.

What this all means is that we are now capable of breaking OPEC’s back. They have lost control. The United States has gained control. We can now tell them to “Stuff It,” as we not only gain energy independence but a whole new source of revenues, and taxes, that can be used to our advantage, as we export oil and natural gas to both Europe and Asia.

Any fool can know. The point is to understand.

– Albert Einstein

The next, far less pleasant “Game Changer” is the Democrats taking over the House. This is going to cause all kinds of turmoil, in my estimation. They are likely going to try to impeach President Trump and the markets may take a bath if this happens. Bonds or equities, the rancor of serious political infighting is never good news.

Then we have Brexit becoming quite unwieldy, Italy still fighting over its budget with the European Union and the economy of China slowing down as both their internal and external debts rise to record levels. Then there is the Chinese currency, which could get “re-evaluated” several times during the next year. The tariff stand-off with the United States is, in fact, a “Game of Thrones” as each nation vies for global power and influence. All of these issues could change the Game and cause roller coaster rides in the markets.

Next, there is the Fed. They are the central bank of the United States and the continual raising of interest rates is not helping the economy of the country. “Will they stop or will they go on,” is the central question. The Governors have 14 year terms and they can brandish their “Independence” as they wish, but the Fed was created by the Congress in 1913 using the Federal Reserve Act and what is given can be taken away, or muted, if the Congress does not feel that the Fed is acting in the best interests of the country. The Fed is NOT a Constitutional mandate, I remind all of you.

Then there is the CLO market. There are some large financial institutions that are worried that the bottom is about to drop out of this market. As an observation, the total outstanding volume of leveraged loans is about $1,130 billion or 5.5% of the U.S. GDP. CLOs, which are repackaged corporate debt, has made up most of the appetite for these loans.

These instruments hold approximately half, or $600 billion, which is roughly 3.0% of the U.S. GDP. The catalyst for the concern is not so much the drop in prices as the fund flows, with Lipper reporting that loan funds saw a record outflow of $2.53 billion in the week ended December 12, as we are now in the fourth consecutive week of selling. A significant “Game Changer” could be happening here.

The road to success is dotted with many tempting parking spaces.

– Will Rogers

“Game Changers” now abound all around us. Look closely, think, plan, execute, don’t slow down. Stay out of harm’s way. Avoid the Risks. Choose wisely!

YouTube Posted a Video on the Official YouTube Channel. It Quickly Became the Most-Hated YouTube Video of All Time

This is a story about the most-hated YouTube video anybody ever posted to YouTube. In fact, it might just be the most-hated video anybody ever posted anywhere.

Even more embarrassing: it’s a video that YouTube itself posted to the official YouTube Spotlight channel. And people really don’t like it. (It’s embedded below.)

The irony is, this was was supposed to be a big, easy win for YouTube. It’s the YouTube Rewind 2018 video, which is intended to be a feel-good, end-of-year, wrap-up video about YouTube moments and personalities. YouTube has posted a version every year since 2010. It’s usually a fan favorite.

Only, not this year. This year, they blew it big time.

11 million dislikes and counting

After just over a week, the official YouTube Rewind 2018 video now has more “down votes” or “dislikes” than any other video in YouTube history. As of this writing, nearly 130 million people have watched it, and 11 million gave it a thumb’s down.

Compare that to just 2.2 million who clicked that they liked it.

We’ll get into why the video bombed so badly, along with a lesson or two for anyone trying to cultivate an audience. But first, let’s put those numbers in context.

Because until this week, the most-hated video of all time was the video for Justin Bieber’s “Baby,” which has 9.9 million dislikes.

It took eight long years for that many people to vote down “Baby,” and meanwhile the Bieber video also has 10 million likes, so it’s slightly net positive.

YouTube could only dream of hitting those kinds of numbers. 

It’s so bad! (How bad is it?)

Again, the video is below, so you can judge for yourself. I recommend you watch it in Chrome with video speed controller enabled and tuned to 180 percent or so. That’s what I did.

It was still interminable, although I admit I’m not exactly the demo they’re looking for. Anyway, it starts with Will Smith (fair enough), saying that for the 2018 video, he’d like to see lots of Fortnite and YouTube personality Marques Brownlee.

He gets his wish as it cuts to a Fortnite Battle Bus full of YouTubers–including Brownlee.

And from then it goes through a frantic, massive series of jump cuts and quick edits, moving from one YouTuber and scene to another, with almost no context or way to follow what’s going on.

Worse in the minds of many viewers, is that the video ignores many popular YouTube stars in favor of people who aren’t even really YouTubers–like Stephen Colbert, John Oliver and Trevor Noah, for example. And that really created some controversy.

‘A a chaotic barrage of clips’

Don’t just take my word for it, or the thousands of YouTube users who left negative comments, or the millions who down-voted it. Instead, for a fantastic explanation, I’d go to Brownlee, the YouTube personality whom Will Smith wanted to see.

Sure enough, he created a response video (despite the fact that he briefly stars in the original), where he explains the production process and agrees with millions of other people that, yes, it’s pretty horrible.

The problem, he thinks, is that the millions of YouTuber viewers who watched it were expecting what YouTube used to give them in its year-end Rewind videos: a collection of top moments starring the most popular creators.

But YouTube wants something different, as Brownlee puts it: a safe sizzle reel that it can demo for advertisers. So it can’t feature creators like say, PewDiePie, who has the most-subscribed channel on YouTube and sort of represents the site’s original organic creators–but who has also been tied to white supremacists

The result, as Brownlee puts it, is “a chaotic barrage of clips that’s just really hard to watch,” since YouTube wants to give the appearance of including tons and tons of video personalities–without including the ones like PewDiePie that will turn off big advertisers. But that only makes more obvious the omission of some big YouTube stars that YouTube isn’t particularily happy to have.

If YouTube wants to fix the video for next year, Brownlee suggests: “You’ve got to leave some stuff out. You can leave me out. I don’t mind.”

Here’s the infamous YouTube Rewind video–followed by Brownlee’s response. Let me know what you think in the comments.

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California is Considering Taxing Texts. Here's the 1 Insane Detail Hardly Anyone Has Noticed

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

It sounded bad. 

So bad, in fact, that it was just the sort of thing you’d expect from California.

My home state has a certain reputation —  especially among those who don’t live there — for taxing its inhabitants,

This week, there came news of a potential new tax, one that sounded so Californian as to border on parody.

And a million accusing Eastern fingers pointed toward the west and its serial predilection for socialized nonsense. (I’m not sure how many of those fingers came from East Coasters, how many from Russians and how many from Russians who had emigrated to the East Coast.)

The essence of the tax lies in the fact that people have stopped talking on the phone so much. 

Yes, California currently taxes phone calls. It dedicates the revenue raised to providing the least fortunate with some sort of telecommunications service.

It does the same with other utilities, too.

The phone call revenue has, naturally, fallen as telephonic talking has fallen, so the state proposes taxing texts. Doing this, says California’s Public Utilities Commission, could raise $44.5 million.

Which leaves one small, painful detail: Not many people send text messages.

You might think you do, because texting has become a generic term for constantly saying things in writing to people via your phone — only to occasionally be misunderstood.

Yet the majority of people use iMessage, WhatsApp or even Facebook Messages. These are sent over the internet. 

And, if California suddenly decided it now wants to include these over-the-web services in its tax proposals, does that mean it can start taxing every email? 

Now there’s a delicious revenue-generating idea that could instantly finance so many Californian projects and deter people from sending those dreary reply-all emails that plague business life. 

Naturally, phone industry lobbyists are drinking — I mean, working — late into the night to prevent California’s proposal from being instituted in a vote on January 10.

Should it pass, there might be enormous confusion, with users assuming that all their phone messaging is being taxed? 

What if they stopped texting altogether? 

That simply wouldn’t be the modern world anymore.

Apple to push software update in China as Qualcomm case threatens sales ban

SHANGHAI/SAN FRANCISCO (Reuters) – Apple Inc, facing a court ban in China on some of its iPhone models over alleged infringement of Qualcomm Inc patents, said on Friday it will push software updates to users in a bid to resolve potential issues.

An Apple company logo is seen behind tree branches outside an Apple store in Beijing, China December 14, 2018. REUTERS/Jason Lee

Apple will carry out the software updates at the start of next week “to address any possible concern about our compliance with the order”, the firm said in a statement sent to Reuters.

Earlier this week, Qualcomm said a Chinese court had ordered a ban on sales of some older iPhone models for violating two of its patents, though intellectual property lawyers said the ban would likely take time to enforce.

“Based on the iPhone models we offer today in China, we believe we are in compliance,” Apple said.

“Early next week we will deliver a software update for iPhone users in China addressing the minor functionality of the two patents at issue in the case.”

The case, brought by Qualcomm, is part of a global patent dispute between the two U.S. companies that includes dozens of lawsuits. It creates uncertainty over Apple’s business in one of its biggest markets at a time when concerns over waning demand for new iPhones are battering its shares.

Qualcomm has said the Fuzhou Intermediate People’s Court in China found Apple infringed two patents held by the chipmaker and ordered an immediate ban on sales of older iPhone models, from the 6S through the X.

Apple has filed a request for reconsideration with the court, a copy of which Qualcomm shared with Reuters.

WHERE’S THE HARM?

Qualcomm and Apple disagree about whether the court order means iPhone sales must be halted.

The court’s preliminary injunction, which the chipmaker also shared with Reuters, orders an immediate block, though lawyers say Apple could take steps to stall the process.

All iPhone models were available for purchase on Apple’s China website on Friday.

Qualcomm, the biggest supplier of chips for mobile phones, filed its case against Apple in China in late 2017, saying the iPhone maker infringed patents on features related to resizing photographs and managing apps on a touch screen.

Apple argues the injunction should be lifted as continuing to sell iPhones does not constitute “irreparable harm” to Qualcomm, a key consideration for a preliminary injunction, the copy of its reconsideration request dated Dec. 10 shows.

“That’s one of the reasons why in a very complicated patent litigation case the judge would be reluctant to grant a preliminary injunction,” said Yiqiang Li, a patent lawyer at Faegre Baker Daniels.

HIT LOCAL SUPPLIERS

Apple’s reconsideration request also says any ban on iPhone sales would impact its Chinese suppliers and consumers as well as the tax revenue it pays to authorities.

The request adds the injunction could force Apple to settle with Qualcomm. But it was not clear whether this referred to the latest case or their broader legal dispute.

Qualcomm has paid a 300 million yuan ($43.54 million) bond to cover potential damages to Apple from a sales ban and Apple is willing to pay a “counter security” of double that to get the ban lifted, the copy of the reconsideration request shows.

Slideshow (2 Images)

Apple did not immediately respond to questions about the reconsideration request and Reuters was not independently able to confirm its authenticity.

Lawyer Li said the case would undoubtedly ramp up pressure on Apple, especially if a ban was enforced.

“I think that Qualcomm and Apple, they always have those IP litigations to try to force the other side to make concessions. They try to get their inch somewhere. That’s always the game.”

Reporting by Adam Jourdan in Shanghai and Stephen Nellis in San Francisco; Editing by Himani Sarkar

Japan rules out asking private firms to avoid telecoms gear that could be malicious

FILE PHOTO: Japan’s Chief Cabinet Secretary Yoshihide Suga attends a news conference at Prime Minister Shinzo Abe’s official residence in Tokyo, Japan May 29, 2017. REUTERS/Toru Hanai

TOKYO (Reuters) – Japan’s government has no plan to ask private companies to avoid buying telecommunications equipment that could have malicious functions, such as information leakage, its top spokesman, Yoshihide Suga, said on Thursday.

The comment suggests Japan does not intend, for the moment, to extend to private firms a policy of not buying such equipment for the government, after it issued a policy document on Monday on the need to maintain cybersecurity during procurement.

While China’s telecoms equipment supplier Huawei Technologies, and ZTE (0763.HK) are not explicitly named, sources said last week the change aimed at preventing government procurement from the two Chinese makers.

Reporting by Chang-Ran Kim and Sam Nussey; Editing by Clarence Fernandez

Tesla To 90,000: Delivery Forecasts For The Fourth Quarter

Tesla is on track to deliver more than 61,000 Model 3s in the fourth quarter.

Summary

Much is written about Tesla (TSLA) and Elon Musk on this platform and elsewhere. The circus that surrounds Tesla is well-known and heavily-covered on this platform – so I won’t write about any of that here.

Instead, this is simply an attempt to forecast Q4/18 vehicle deliveries based on the best available data. Overall, I estimate that Tesla will deliver ~91,085 vehicles – up 9% from last quarter, including over 61,000 Model 3s. This estimate implies that Tesla will meet their 2018 target for 100,000 Model S and X delivered with a bit of breathing room to spare.

Given analyst revenue estimates of ~3.5% sequential growth, Tesla will need to keep ASPs from slipping more than 4.5% to meet those top-line targets, assuming my estimates are close and assuming the Tesla’s non-automobile units are flat sequentially. Tesla has raised prices several times over the last few months, which should help prevent too much price erosion on their vehicles, although this will be offset by the introduction of the $46,000 Model 3 MR.

In my view, Tesla has a good chance of beating its Model S/X delivery target and a reasonable chance of beating analysts’ top-line estimates. I will continue to hold my Tesla shares.

Model S Delivery Estimate: 14,907 Vehicles

Each of the estimates herein is based primarily on three pieces of data.

Each estimate is based on Tesla’s actual delivery information from past quarters. This data is available in Tesla’s quarterly update letters delivered on earnings day. Tesla also provides estimates of this data in an 8-K filing within a day or two of the end of a quarter. This data provides Tesla’s actual deliveries but is only available quarterly – unlike many manufacturers which provide similar data every month.

This data provides Tesla

(Inside EVs Monthly Plug-in EV Sales Scorecard)

Estimates are also based on monthly estimates for Tesla’s American sales from Inside EVs Monthly Plug-in EV Sales Scorecard. Inside EVs only includes sales in the United States but is updated each month, usually within a few days of the end of the month.

This data is a bit incomplete for the most recent month, as shown above: Spanish Model S registration results are not yet available.

(Tesla Motors Club)

Estimates are further based on European vehicle registration date from Tesla Motors Club. A post on TMC’s forum contains European sales data from each European country, with data updated as it becomes available. This data is a bit incomplete for the most recent month, as shown above: Spanish Model S registration results are not yet available.

Compiling these three data sources into one for the Model S, and combining the data into quarters rather than months, I arrive at the following table:

Compiling these three data sources into one for the Model S, and combining the data into quarters rather than months, I arrive at the following table

(Author based on data from Inside EVs and Tesla Motors Club)

Here, the “Model S Registrations, Europe” is data from Tesla Motors Club, by quarter. “Model S Sales, United States” is data from Inside EVs, also organized by quarter. Total Model S Sales is simply the addition of those two lines and Tesla Deliveries refers to Tesla’s published total Model S deliveries in a given quarter. Most of this data comes from 8-Ks, as Tesla doesn’t usually break down S vs. X deliveries in its quarterly update letters.

As shown, over the past year, sales in Europe and the United States have made up ~85% of sales of Model S vehicles over the past year, with the remainder of sales primarily occurring in APAC and Canada.

We could simply multiply sales by ~1.5x to move from the two-month Q4/18 sales to three-month sales, but history tells us this would be very inaccurate. Why? Because Tesla tends to sell the fewest vehicles in the first month of each quarter and more vehicles in the last month of each quarter:

Tesla Monthly Sales for the Model S and X show monthly seasonality

(Author based on data from Inside EVs and Tesla Motors Club)

As shown, Tesla has had six months where they sold more than 10,000 Model S and X vehicles combined: 9/16, 12/16, 3/17, 9/17, 12/17, 3/18, and 9/18. All of those months are the third month of a fiscal quarter. Indeed, since the start of 2015, Tesla has always delivered the most vehicles in the third month of the quarter.

Thus, simply multiplying the first two-month results by 1.5x will yield inaccurate delivery estimates: Those estimates would have been too low in each of the past 15 quarters.

Tesla will sell nearly 15,000 Model S vehicles in Q418

(Author based on data from Inside EVs and Tesla Motors Club)

To remedy this problem, the above chart includes only the first two months of European registrations and Inside EVs sales estimates from every quarter. For example, last quarter, Insides EVs showed Tesla having Model S sales of 1,200 in July, 2,625 in August, and 3,750 in September. Thus, the above chart shows 3,825 (1,200 + 2,625) Model S vehicles sold in the United States in Q3/18 – excluding the 3,750 reported September sales.

The Tesla deliveries above are actual deliveries for the quarter, and the percentage of sales is sales in the first two months divided by total sales. As shown, last quarter, U.S. and European sales in the first two months of the quarter accounted for 37% of total Model S deliveries in Q3/18.

For Q4/18, I estimate that Tesla will deliver ~14,907 Model S vehicles. This is based on assuming that reported deliveries in the first two months will be 39% of total quarterly deliveries – the average percentage of the last two quarters. Averaging the last two quarters here is conservative compared to using the 37% metric from Q3/18, which would yield an estimate closer to 16,000 Model S deliveries.

Model X Delivery Estimate: 14,923 Vehicles

Tesla Model X is the best-selling SUV EV.

(Author based on data from Inside EVs and Tesla Motors Club)

Last quarter, Tesla delivered 13,190 Model X vehicles. Thus far in Q4/18, Tesla has delivered 5,683 vehicles, although data from Tesla Motors Club is again missing Spain for November. That is a very minor exclusion though, given that Spain is averaging 15.9 Model X registrations/month. Given the level of error inherent in these estimates, the absence of this data is trivial.

We will again take the first two months’ data rather than full-quarter sales data to form estimates: Sales of the Model X show a lot of seasonal variability as in the chart above.

Tesla could deliver nearly 15,000 Model X vehicles in the next quarter.

(Author based on data from Inside EVs and Tesla Motors Club)

Last quarter, first two-month sales in the United States and Europe represented 38% of total Model X deliveries. If we estimate that the same percentage of Model X deliveries occurred in those regions in those months, this suggests that Tesla may deliver ~14,923 Model X vehicles in the fourth quarter.

Notably, while Tesla did not provide a Q4/18 forecast for Model 3 deliveries (or production), Tesla did forecast deliveries for the Model S and X (combined):

In each of the last four quarters, Tesla has suggested that Model S and X deliveries should total 100,000 or more. If Tesla meets my estimates, they would beat this target with a little bit of breathing room to spare:

Tesla Deliveries Q4/17 Q1/18 Q2/18 Q3/18 Q4/18E
Model S/X Deliveries 28,425 21,815 22,319 27,710 29,830?
Cumulative, 2018 21,815 44,134 71,844 101,674?

That said, the margin of error on this estimate is quite high. Notably, this estimate excludes China, which may have seen sales fall off in the fourth quarter. Tesla has denied reports that sales in China fell 70% in October:

“‘While we do not disclose regional or monthly sales numbers, these figures are off by a significant margin,’ a Tesla spokesperson told MarketWatch in emailed comments.”

MarketWatch, Nov 27, 2018

However, even with less dramatic declines than 70% it is possible – perhaps even probable – that these estimates will be too high as Tesla’s U.S. and European sales may make up a higher proportion of total sales given tariffs in China. We’ll find out in January.

Model 3 Delivery Estimate: 61,255 Vehicles

According to Autoweek, the Tesla Model 3 will roll out in Europe in February 2019

(Author based on data from Inside EVs)

The Tesla Model 3 is not available in Europe. According to Autoweek, the Tesla Model 3 will roll out in Europe in February 2019 – well after the end of Q4/18. Because of that, Model 3 deliveries are based solely on data from Inside EVs.

Aside from the United States, the Tesla Model 3 is only available in Canada – it is also not yet available in APAC. Thus, American sales represent the vast majority of Tesla Model 3 deliveries. Last quarter, for example, Inside EVs reported Model 3 sales equal to 97% of total Model 3 deliveries.

in Q2/18, Model 3 sales were higher in the second month of the quarter (May 2018) than in the final month of the quarter (June 2018).

(Author based on data from Inside EVs)

Sales of the Model 3 have not been going on long enough to draw as strong of conclusions as for the Model S and X. Sales appear to show some monthly seasonality: Last-month-of-quarter sales were the highest in four of the five quarters that the Model 3 has been offered. However, in Q2/18, Model 3 sales were higher in the second month of the quarter (May 2018) than in the final month of the quarter (June 2018).

Overall, the trend here is that last-month-sales are becoming decreasingly over-sized for the Model 3. This is based up by first two-month data:

I estimate that Tesla will deliver ~61,255 Model 3 vehicles in the fourth quarter of 2018

(Author based on data from Inside EVs)

As shown, over the past four quarters, first two-month sales have made up an increasing proportion of total sales – from 31% in Q4/17 up to 57% in Q3/18. As the quarters pass, Tesla’s monthly Model 3 sales are becoming flatter and flatter, with respect to in-quarter seasonality.

Because of flattening monthly variations, I will estimate the first two-month sales make up 59% of total Model 3 sales – continuing the 53%, 55%, 57% trend of increase by 2 pp each quarter. Thus, I estimate that Tesla will deliver ~61,255 Model 3 vehicles in the fourth quarter of 2018.

Tesla to 90,000: Total Deliveries Estimate is ~91,085

Tesla will deliver an amazing 91,000 electric vehicles next quarter: More than every before

Tesla will deliver nearly a quarter-million electric vehicles in 2018 - more than twice as many as last year.

(Author based on Tesla filings and own estimates)

In total, my estimates would result in 91,085 Tesla deliveries in Q4/18. This would be a record for the company. This estimate implies ~9% sequential growth in automobile deliveries.

Given 9% sequential growth in deliveries, Tesla should break their own record for the most automotive revenue in a quarter, set last quarter at $6.1 billion. Given the relatively small size of Tesla’s other segments, Tesla would also be very likely to beat their Q3/18 revenue as well.

Last quarter, Tesla earned $6.82 billion in revenue. Analysts at Yahoo Finance expect Tesla to generate $7.06 billion in revenue next quarter, up 3.5% from Q3/18. If automobile sales rise 9% in Q4/18, that may be an achievable target: Tesla would need to prevent automobile ASP from falling more than ~4.5% to beat this revenue target, assuming they ship 91,085 automobiles and assuming that non-automotive segment revenue is flat from Q4/18.

The primary driver for falling ASPs in Q4/18 will be the introduction of the less-costly Model 3 mid-range. Depending on product mix, this $46,000 vehicle could reduce average sales prices substantially, although that decline may be offset by waves of price increases on Tesla vehicles, beginning in the middle of last quarter. Given those price increases, Tesla may have a good shot at beating top-line revenue estimates. We will find out in ~early February.

Happy investing!

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Disclosure: I am/we are long TSLA. 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.

Kubernetes etcd data project joins CNCF

techrepublic

Kubernetes: The smart person's guide

Kubernetes: The smart person’s guide

Kubernetes is a series of open source projects for automating the deployment, scaling, and management of containerized applications. Find out why the ecosystem matters, how to use it, and more.

Read More

How do you store data across a Kubernetes container cluster? With etcd. This essential part of Kubernetes has been managed by CoreOS/Red Hat. No longer. Now, the open-source etcd project has been moved from Red Hat to the Cloud Native Computing Foundation (CNCF).

What is etcd? No, it’s not what happens when a cat tries to type a three-letter acronyms. Etcd (pronounced et-see-dee) was created by the CoreOS team in 2013. It’s an open-source, distributed, consistent key-value database for shared configuration, service discovery, and scheduler coordination. It’s built on the Raft consensus algorithm for replicated logs.

Also: Kubernetes’ first major security hole discovered

Etcd’s job is to safely store critical data for distributed systems. It’s best known as Kubernetes’ primary datastore, but it can be used for other projects. For example, “Alibaba uses etcd for several critical infrastructure systems, given its superior capabilities in providing high availability and data reliability,” said Xiang Li, an Alibaba senior staff engineer.

When applications use etcd they have more consistent uptime. Even when individual servers fail, etcd ensures that services keep working. This doesn’t just protect against what would otherwise prove show-stopping failures, it also makes it possible to automatic update systems without downtime. You can also use it to coordinate work between servers and set up container overlay networking.

In his KubeCon keynote, Brandon Philips, CoreOS CTO, said: “Today we’re excited to transfer stewardship of etcd to the same body that cares for the growth and maintenance of Kubernetes. Given that etcd powers every Kubernetes cluster, this move brings etcd to the community that relies on it most at the CNCF.”


Must read


That doesn’t mean Red Hat is walking away from etcd. Far from it. Red Hat will continue to help develop etcd. After all, etcd is is an essential part of Red Hat’s enterprise Kubernetes product, Red Hat OpenShift.

Moving forward, etcd will only grow stronger. It being used by more and more companies, as Kubernetes is adopted by almost every cloud container company. In particular, Phillips said, he expects far more work to be done on etcd security.

Related stories:

Only Chumps Work More than 40 Hours a Week

Last month, I pointed out that Elon Musk was horribly wrong when he stated that “nobody ever changed the world on 40 hours a week.” That column got more than the usual amount of pushback, half of which seemed to come from worker-bees inside high-tech firms and the other half from people who are starting their own business. Both groups of critics are wrong but for different reasons. Allow me to explain:

If You’re Employed by Somebody Else

Not to put too fine a point on it, if you’re working 100 hours a week while being paid for 40 hours, you should listen carefully for the sound of a power tool and trumpet fanfare, because you’re being royally screwed.

Let’s suppose you’re an entry level programmer in Silicon Valley who makes the industry average of roughly $100,000 a year. Pretty good money, eh? Well, let’s see.

If you’re working 100 hour weeks and take two weeks off for vacation (good for you!), you’re spending 5,000 hour a year at work, which means you’re making $20 an hour, which is about what you’d make if you were doing auto body repair. And you wouldn’t have any student loans.

Now let’s suppose you’re an entry level marketer making $50,000 a year. (Note: in high tech, women are MUCH more likely to land a job in marketing than in programming.) In that case, if you’re working 100 hour weeks, you’re making $10 an hour, which is less than you’d make working as a cashier at WalMart. And again, you’d have no student loans.

So even though your salary looks as if you’re firmly in the middle-class, you’re really working for peanuts. You may be thinking at this point: “Well that’s the way it is. Companies need us to work extra-hard to remain competitive.” That’s total bullsh*t.

Take Rock Star Games, for instance–a company that’s been recently in the news for requiring programmers to work many hours of unpaid overtime. RSG is a subsidiary of Take Two Interactive, which is traded on NASDAQ as TTWO.

According to the Take Two’s fiscal year 2018 10K SEC filing, the company grossed $1.8 billion and netted $174 million. Their R&D budget was $196 million so, if they wanted to, they could increase their R&D personnel across the entire company by 50% and still maintain a net profit of around $74 million.

Actually, it’s a bit more complicated than that because “General & Administration” expense tends rise when R&D expenses get higher. But you get the point; the money is there. Of course, not every high tech firm is profitable but where does it say that the burden of unprofitability should be borne by the workers rather than the investors or the often-quite-highly-paid top managers?

When I named Don Lyon’s excellent book Lab Rats as one of my 7 best books of 2018, I included a quote that neatly summarizes the ridiculous implicit contract that high tech firms (and the many others that imitate them) foist upon employee:

First, you are lucky to be here. Also, we do not care about you. We offer no job security. This is not a career. You are serving a short-term tour of duty. We provide no training or career development. If possible, we will make you a contractor rather than an actual employee, so that we do not have to provide you with health benefits or a 401(k) plan. We will pay you as little as possible. We do not care about diversity: African Americans and Latinos need not apply. Your job will be stressful. You will work long hours under constant pressure and with no privacy. You will monitored and surveilled. We will read your email and chat messages, and use data to measure your performance. We do not expect you to last very long. Our goal is to burn you out and churn you out. 

While the summary itself is brilliant, I emphasized the last line because research shows that working consistently long hours gives a short-term burst of productivity, which then declines and turns into negative productivity. The plan is literally to burn you out.

This personnel strategy is idiotic, especially in industries where highly talented people are difficult to come by. But companies, even (especially!) high tech ones embrace all sorts of idiotic strategies. Witness the open plan office, a well-document productivity toilet that’s become ubiquitous.

Now, you may think that you don’t have a choice and that you must participate in the insanity simply to remain employed. Not true. Here’s an alterative: Stare reality right in the face. Realize–at a gut level–that if you burn yourself out you’ll be fired, regardless of how much you’ve contributed to the company’s success.

Therefore–and this is important so read the rest of this graf very, very carefully–you may very well have MORE job security if you don’t burn yourself out… even if you irritate your bosses by refusing to work crazy hours. But let’s suppose that you DO get fired because you won’t work-til-you-drop. You’ll be far readier to find another job if you’re fired when you’re still sane than after you’re burned-out.

In fact, maybe you should spend a few hours a week lining up new opportunities, just in case. Something to do in the free time that you’ll have when you’re smart enough not to succumb to Stockholm Syndrome.

If You’re Self-Employed

The “calculate your hourly wage” stuff described above doesn’t apply when you’re self-employed. Just to be clear, by “self-employed,” I mean starting your own business with multiple clients and customers rather than a contractor with a single client–which is the same thing as being employed but worse.

When you’re self-employed, you’re going to put whatever resources you have available into creating your own personal success. Those resources very much include your time. Indeed, when you first go freelance (for instance), the one resource you’ve got a-plenty is your time.

That’s the way it is. You may not even make minimum wage in your first year. But that doesn’t matter. What matters is getting your business up and running. I get it. I’ve been there. You’re playing the long game. Good for you!

Nevertheless, even if you’re self-employed, it’s both unwise and shortsighted to work more than 40 hours a week on a regular basis because, while you’ll get a burst of productivity (you’ll get more done), the extra hours have diminished returns over time and within any time period. Let me explain.

Working long hours over a long period of time is a recipe for burn-out. No matter how committed you are, or how much you “love” your job, you will end up killing the proverbial goose that might otherwise lay you the golden egg of success.

In addition, working extra hours within a day or week has diminishing returns. Even if you get 25% more done working 50 rather than 40 hours, you’re not going to get 20% more done if you work 60 rather than 50 hours. It’s probably more like 10% at most.

Similarly, working 70 hours rather than 60 hours won’t even give you that 10%. Chances are you’ll start making mistakes that will need correction which means extra work, so the productivity “gain” is probably negative 10%… or worse.

Entrepreneurs who willfully and unwisely burn themselves out like this remind me of an observation that a dear friend of mine made a while back: “Every boss I’ve ever worked for has been an *sshole, including now that I’m self-employed.”

The challenge when you’re self-employed is to have both the self-discipline and self-confidence to NOT work long hours. That’s especially true if you truly love your job. If you’re lucky enough to be in that situation, the LAST THING you want is to work yourself to the point where it’s no longer fun. 

If you quit work each day in the middle of doing something you enjoy, you’ll start the next day excited and motivated to do more. If you continue to work each day until you simply can’t do any more, you’ll start the next day tired and bored. Again, I know this because I’ve been there and done that.

So there you are. While all of us will have “crunch times” when we need to put in some extra hours, we can’t afford to make it a habit, much less let dysfunctional corporate cultures force it down our throats.

Slack Hires Goldman Sachs to Lead Its IPO Planned for 2019, Report Says

Slack hired investment bank Goldman Sachs as the lead underwriter for its highly anticipated initial public offering, Reuters reported Friday.

Slack is talking with investment banks to help underwrite an IPO, which could end up valuing the chat and workplace-collaboration software maker as high as $10 billion, Reuters said, citing unnamed sources.

In August, Slack raised $427 million in a private round of financing led by General Atlantic and Dragoneer. At the time, the investment valued the company at more than $7 billion. The company has raised a total of $1.2 billion in seven funding rounds since 2010, according to Crunchbase, which tracks financing rounds of private companies.

Last month, Stewart Butterfield, Slack’s co-founder and CEO, told Fortune that the company had “no specific timeline for an IPO,” although he also said that “We’ve been on a path to public company readiness for several years now and we’re continuing on that path.”

Slack offers a popular work-collaboration platform that allows co-workers to chat and message each other. The nine-year-old company now has more than 8 million active users, although Butterfield said in the Fortune interview that the actual number could be well above that.

The market for technology IPOs had been sluggish for several years before picking up somewhat in 2018. So far in 2018, 188 companies have gone public on U.S. exchanges, up from 160 in all of 2017. Around 40 of the IPOs this year were tech startups, including Sonos, Dropbox, and SurveyMonkey.

2019 is expected to bring bigger names to the IPO market, not just Slack, but also Uber, Lyft, and Airbnb. On Thursday, Lyft confidentially filed paperwork with the Securities and Exchange Commission for its planned IPO.