Green Energy Stock Yields 10%, Opportunistic Buy With 50% Return Potential

This research report was jointly produced with Seeking Alpha Author Long Player.

Pattern Energy (PEGI) is a renewable energy company that generates a fair amount of cash and is growing. The stock recently traded at $17.2/share and its most recent dividend was $0.422 which provides an annualized yield of 9.8%.

Understanding the Business

PEGI is in the business of owning and operating renewable energy projects. So far, these projects are dominantly wind farms. This involves a number of advanced wind turbines located in a desirable area to harvest wind energy. The projects all have long-term Power Supply Agreements (PSAs) – typically with local utilities. The counterparties to such agreements have, in almost every case, very solid credit ratings. There is, thus, very little market risk or price risk associated with the projects. The main variables are the wind itself and downtime due to malfunction or other factors. The relatively low level of risk provides a strong basis for a yield-oriented investment.

PEGI operates its projects (some of which are partially owned by other companies) as somewhat independent entities. Each project is a separate limited liability corporation (‘LLC’), and has substantial debt financing but almost all of the debt is non-recourse (some of it is partial recourse). Thus, the impact of a failure at any one project is limited. PEGI’s 25 existing consolidated projects are in the United States, Canada, Chile, and Japan. PEGI’s PSA contracts average a term of 14+ years with 90% using Siemens and GE equipment. Its fleet of wind turbines is relatively young and has an average age of less than four years. Counterparties to PSA agreements include utilities like PG&E (NYSE:PCG), SDG&E, and Westar (NYSE:WR) and non-utility entities like Morgan Stanley (NYSE:MS), Citigroup Energy, and Amazon (NASDAQ:AMZN).

A Defensive Stock

PEGI provides electricity, which is a basic necessity. Therefore, the company is unlikely to be affected by economic cycles. As an alternative or “green” electric producer, that company stands out for its profitability as well as the growth of that profitability. PEGI is also part of a group of companies that is trying to bring more “green” electricity to the world. As costs for this technology continue to drop, they may succeed with this wind technology far more than many would have foreseen.

Source: PEGI December 2017 Presentation

The company has invested in countries that are relatively stable and value renewable energy sources. As such, political upheaval is generally not a concern. Successful ventures in Japan could yield some long-term competitive advantages. Japan tends to be a notoriously hard market to penetrate. Therefore, the information shown above is a big deal. Japan would like to avoid importing oil and gas to some extent. Wind technology promises the hope of reducing the energy import bills.

Above all, this technology is not dangerous should a volcano erupt or a major earthquake hit the area. A few years back a major earthquake caused all kinds of problems with a nuclear reactor. The cleanup from that earthquake continues. The nuclear reactor may never go back into service. Wind technology has no such issues. In some ways, wind technology to generate electricity is a blessing in a land where mother nature is very active.

A Beaten Down Stock

The stock has tanked recently for two main reasons:

  1. Investors’ fears that U.S. Tax Credits for renewable energy will expire in a few years.
  2. The stock got beaten down some more (down by another 10%) after the company declared that its quarterly dividend will not increase. As a reminder, PEGI had hiked its distribution every quarter for the past 16 quarters prior to this announcement.

Based on 2018 “Cash Available for Distribution” (or CAFD) guidance, PEGI’s is currently trading at just 10 times CAFD (using midpoint CAFD guidance of $166 million and 95.1 million shares outstanding). The yield is now close to 10%. These valuations are bargains for a growing cash flow and distribution. Mr. Market appears to have tossed away everything but a select group of companies. Companies not in that select group keep getting cheaper.

Interestingly, the company is far larger now and has a better yield than at the time of its initial public offering in September 2013 when the stock was trading at $22/share.

Today, the stock is trading at $17.2/share and the distributions have grown by 35% since the IPO, making it a very attractive investment.

Yet, Mr. Market couldn’t care less. Mr. Market is busy sending the stock to new lows. Sooner or later the growth should outweigh the market disdain. The investor is being paid nearly a 10% distribution to wait for that attitude change.

Source: PEGI December, 2017 Presentation

As long as management continues to make only accretive acquisitions, this company should continue to be an attractive investment.

Risks of ‘tax credit’ expiration are overblown

The finalization of the tax bill last December brought greater clarity to Pattern Energy’s future as it has preserved the critical credits for wind and solar for the time being. Still, this did not calm investors’ fear that tax incentives remain at risk in the longer term. Here is our take on this:

  1. A great deal of PEGI’s planned expansion is outside the US and will be completely unaffected by any potential future change in tax benefits.
  2. Within the United States, should tax credits expire, the effects would be primarily on the development side of the business rather than on existing facilities on the operational side. PEGI is primarily an operating company although it has now some participation on the development side. The point to note here is that the profitability of the existing facilities of PEGI in the United States should not be impacted.
  3. In the U.S.A., most states now have renewable portfolio requirements (and in some cases targets) for their utilities which require that certain percentages of power be generated by renewable sources by certain deadlines. So with or without subsidies, wind farms have to be built. They will just cost more to the end user, but they will still have to be built and to operate to meet the minimum required targets.
  4. Renewable energy is growing rapidly, and the cost of producing wind and solar technology is dropping every year. So in a few years, renewable energy operators will be able to compete with other forms of energy without the need of any subsidies.

2018 Guidance

While PEGI did not raise its distribution in the last quarter, a very important aspect is the analysis of next year’s guidance that management has provided:

  • PEGI is expecting a very strong year in 2018 with “Cash Available for Distribution” (or CAFD) to be in the range of $151 million to $181 million, or 14% higher than the 2017 CAFD using the midpoint of the range.
  • During the year 2017, PEGI agreed to acquire 206 MW of owned capacity in 5 Japanese projects which represent the company’s entry into one of the most robust renewable markets in the world. PEGI is now expanding internationally and the income from these projects will kick in during the year 2018.
  • The 2018 guidance includes 24 projects expected to be operating and contributing during 2018, including 4 new projects in Japan and Canada which were not operational during the year 2017. This is encouraging, as we have been saying all along that the growth in PEGI’s earnings will come from outside of the United States.

Price Target

As of March 11, 2018, there are 15 banks and analysts who cover the stock with a consensus rating of “Overweight” on the stock, and an average consensus price target of $24.67, suggesting a ~43% potential upside from the current price (source:

At $24.67/share, this would put the valuation of PEGI at 14 times cash flow, which is very reasonable. We should note that PEGI traded well above $24.67/share in September 2017, just a few months ago.


The shares of this company are in the bargain bin. With a solid outlook and cash flow growth for 2018, combined with a very low valuation, PEGI is set to greatly outperform within the next 12 months. With a 9.8% yield and +40% upside potential, PEGI could very well generate returns of over 50% in the next 12 months. The pullback provides a unique buying opportunity.

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Disclosure: I am/we are long PEGI.

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.

Facebook critics want regulation, investigation after data misuse

SAN FRANCISCO (Reuters) – Facebook Inc faced new calls for regulation from within U.S. Congress and was hit with questions about personal data safeguards on Saturday after reports a political consultant gained inappropriate access to 50 million users’ data starting in 2014.

FILE PHOTO: Facebook logo is seen at a start-up companies gathering at Paris’ Station F in Paris, France on January 17, 2017. REUTERS/Philippe Wojazer/File Photo

Facebook disclosed the issue in a blog post on Friday, hours before media reports that conservative-leaning Cambridge Analytica, a data company known for its work on Donald Trump’s 2016 presidential campaign, was given access to the data and may not have deleted it.

The scrutiny presented a new threat to Facebook’s reputation, which was already under attack over Russians’ alleged use of Facebook tools to sway American voters before and after the 2016 U.S. elections.

“It’s clear these platforms can’t police themselves,” Democratic U.S. Senator Amy Klobuchar tweeted.

“They say ‘trust us.’ Mark Zuckerberg needs to testify before Senate Judiciary,” she added, referring to Facebook’s CEO and a committee she sits on.

Facebook said the root of the problem was that researchers and Cambridge Analytica lied to it and abused its policies, but critics on Saturday threw blame at Facebook as well, demanding answers on behalf of users and calling for new regulation.

Facebook insisted the data was misused but not stolen, because users gave permission, sparking a debate about what constitutes a hack that must be disclosed to customers.

“The lid is being opened on the black box of Facebook’s data practices, and the picture is not pretty,” said Frank Pasquale, a University of Maryland law professor who has written about Silicon Valley’s use of data.

Pasquale said Facebook’s response that data had not technically been stolen seemed to obfuscate the central issue that data was apparently used in a way contrary to the expectations of users.

“It amazes me that they are trying to make this about nomenclature. I guess that’s all they have left,” he said.

Democratic U.S. Senator Mark Warner said the episode bolstered the need for new regulations about internet advertising, describing the industry as the “Wild West.”

“Whether it’s allowing Russians to purchase political ads, or extensive micro-targeting based on ill-gotten user data, it’s clear that, left unregulated, this market will continue to be prone to deception and lacking in transparency,” he said.

With Republicans controlling the Senate’s majority, though, it was not clear if Klobuchar and Warner would prevail.

The New York Times and London’s Observer reported on Saturday that private information from more than 50 million Facebook users improperly ended up in the hands of Cambridge Analytica, and the information has not been deleted despite Facebook’s demands beginning in 2015.

Some 270,000 people allowed use of their data by a researcher, who scraped the data of all their friends as well, a move allowed by Facebook until 2015. The researcher sold the data to Cambridge, which was against Facebook rules, the newspapers said.

Cambridge Analytica worked on Trump’s 2016 campaign. A Trump campaign official said, though, that it used Republican data sources, not Cambridge Analytica, for its voter information.

Facebook, in a series of written statements beginning late on Friday, said its policies had been broken by Cambridge Analytica and researchers and that it was exploring legal action.

Cambridge Analytica in turn said it had deleted all the data and that the company supplying it had been responsible for obtaining it.

Andrew Bosworth, a Facebook vice president, hinted the company could make more changes to demonstrate it values privacy. “We must do better and will,” he wrote on Twitter, adding that “our business depends on it at every level.”

Facebook said it asked for the data to be deleted in 2015 and then relied on written certifications by those involved that they had complied.

Nuala O’Connor, president of the Center for Democracy & Technology, an advocacy group in Washington, D.C., said Facebook was relying on the good will of decent people rather than preparing for intentional misuse.

Moreover, she found it puzzling that Facebook knew about the abuse in 2015 but did not disclose it until Friday. “That’s a long time,” she said.

Britain’s data protection authority and the Massachusetts attorney general on Saturday said they were launching investigations into the use of Facebook data.

“It is important that the public are fully aware of how information is used and shared in modern political campaigns and the potential impact on their privacy,” UK Information Commissioner Elizabeth Denham said in a statement.

Massachusetts Attorney General Maura Healey’s office said she wants to understand how the data was used, what policies if any were violated and what the legal implications are.

Reporting by David Ingram; Editing by Peter Henderson and Chris Reese

Simple Ways to Boost Your Company's Press Profile

You may expect your life to magically change after a guest blog post or a few minutes on local TV news. Wrong! 

Public relations efforts can help build awareness of and credibility for your brand, yourself, your product, or service. PR can help your SEO rankings and, when people look for your company name or your name, they may find a third party mention rather than just what you’ve written about yourself. 

However those eyeballs don’t necessarily translate into sales. After the ego rush, you might feel a wave of what I call “post-PR depression.” Your colleagues, friends, and family may all congratulate you within the first 24 hours. But then what? Here are some great ways to get more mileage from your mentions.

  • Add them to your website (perhaps even through a pop-up), your social media sites, and (in the case of TV) your own YouTube, Vimeo, or Wistia channel. If you work with a professional PR firm or freelancer, encourage them to post on their sites as well.
  • When you post on social media, tag the media outlet and the people who helped you prepare for your media mention. Gratitude is always good.
  • Share on Google Plus. It sometimes boosts your search rankings.
  • Start a separate Pinterest and/or Instagram board of all your “clips.” Not only will that increase your visibility, you’ll be able to refer to all your press all in one place. (I also recommend using Dropbox or Google Docs to archive media mentions)
  • Use an app like WiseStamp (tailored to small businesses) or Sigstr (for enterprise-level companies) to add your media mentions to your e-mail signature.
  • Be sure to include the mention in your  company’s regular e-newsletter or send out a separate e-blast.

Rather than just re-posting your clips, offer readers/viewers a little something extra — a tip you didn’t mention in the article, a special deal as a thank-you for viewing your link.

Remember, building a portfolio of media mentions takes time and patience. But, above all, you need to have something newsworthy or helpful to share. Regardless of whether you’re dealing with conventional or digital media, your insights need to be unique to break through the media clutter.

Theranos Didn't Nuke the Diagnostics Business

It took ten years to build the Maverick, a dorm-fridge-sized box that takes in a cartridge with a little bit of blood—more than a drop but, you know, not a pint, either—and spits out new knowledge. On the cartridge is a silicon chip carved with antibody-lined channels; if any of a range of molecules that signal things like celiac disease are floating around, they stick to the antibodies, changing the way the channel reflects infrared light. The machine goes ping. (Not literally.) “We have chips with up to 16 different tests,” says Cary Gunn, Genalyte’s CEO. “Eventually we’ll have a chip with 128 tests at once.”

So, wow. Just a little bit of blood, 10 microliters or so, and you can test for 128 different diseases or markers? And it’s being tested right now, in doctors’ offices? Hmm. There’s something familiar about this, you are thinking.

Ohhh. Right. That. A couple of years ago, Theranos, a company claiming to be able to almost magically do all sorts of medical tests on a single drop of human blood, fell apart. A brilliant Wall Street Journal investigation showed that its technology didn’t work; this week the Securities and Exchange Commission brought fraud charges against its founder. Diagnostics start-ups extracted a few lessons: Have actual, peer-reviewed data and, like, don’t lie to investors. But the Theranos debacle didn’t stop their work. That game has been on since at least 2000, and doctors, patients, and insurers are still clamoring for those tests. Nominally they might reduce health care costs, but more than that they promise new, faster diagnoses and better care.

To be clear, Genalyte is no Theranos. Published papers and preliminary tests have validated the Maverick’s ability to test for a variety of signals, and the company is now evaluating its use in a handful of San Diego doctors’ offices. Theranos might not have been unique—overpromises and underdeliveries are as inimical to Silicon Valley as PowerPoint decks on laptops—but real diagnostics companies are making headway. “Theranos was the first time I had people with nothing to do with this industry telling me about it,” says Bruce Carlson, publisher of Kalorama Information, a health care and diagnostics market analysis company. “But none of my analysts considered it to be a real company.”

So what’s real? Well, as early as the start of the century there was Abbott, whose i-Stat device is now in a third of all US hospitals. It’s a handheld unit the size of a universal remote control; put a couple drops of blood onto a SD-card-like cartridge that fits into the unit and it’ll tell a physician or EMT whether someone with chest pain has, for example, elevated levels of a protein called troponin-I. Too high means you’re having a heart attack; low and it’s probably just gas. “You can run the blood and get results in 10 minutes,” says Narendra Soman, director of R&D for point-of-care diagnostics at Abbott. “That happens right at the patient’s side, as opposed to having to draw blood and send it to a lab.” i-Stat uses the electrical properties of its targets to get a reading, and other iterations can determine blood oxygenation and clotting ability.

The i-Stat remains the biggest player in what’s called point-of-care diagnostics. That’s home tests like for glucose or pregnancy, tests you might take at a pharmacy or clinic, and tests administered in hospitals. Even after two decades in service, i-Stat’s half-dozen or so possible tests still don’t come anywhere near matching the 1,000 or so tests a big lab can run. Though of course a big lab can’t do those tests in 10 minutes.

So what Theranos promised, and what dozens of companies are still chasing, is a greater number of blood tests on very small amounts of blood. Large, centralized labs like LabCorp and Quest use giant robotic systems, mostly working with 2 to 6 milliliter samples (about a sip, if that’s what you’re into). They can be expensive, but more than that they take days to produce a result—and when doctors order labs, people sometimes simply fail to go get them. Point-of-care on small volumes of blood could potentially solve that problem by doing the test right there in an office.

Could. “In order to do that, a bunch of things all along an analytical chain need innovations, all the way from collecting the sample to transferring a small quantity of blood into a high-performance analyzer,” says Eugene Chan, president of the DNA Medicine Institute. And once it’s in there, moving teeny tiny volumes of liquid—more prone to hinky concentrations of what you’re looking for and what you’re not—through teeny tiny channels or containers that surface tension wants to make all sticky, doing not just one but many kinds of analyses, ain’t easy.

If your company is trying to work with microsamples, it’s probably taking them from fingertips—but, as one good article about blood diagnostics points out, those capillary blood measurements can kind of stink. The number of red and white blood cells isn’t constant over the same volumes, and samples also include the guts of ruptured cells and “interstitial fluid,” the juice that’s between cells.

Chan has been working on this since at least 2014, when his DNA Medicine Institute won a $2.5 million X Prize competition to build a Star Trek-like “tricorder” analysis device. Their gadget puts 10 microliters of blood through a “spiral vortex micromixer” to separate out blood cells, and uses test strips that can read classic hematology—like CBC (“complete blood count”) and markers for hemophilia. The company has regulatory approval on one of its tests. “The next step would be the test together with the device for professional use,” Chan says. “The next hurdle is in the next two or three years. That’s the time frame that regulatory approval will happen.”

In the last decade, a recent report from Kalorama shows, the number of applications for approvals of molecular-based tests to the US government and the Europeans has risen. Devices that can download results directly to an electronic medical record are more common, and tests that use analytes other than blood—saliva, urine, or even breath—are coming on line. It was a $19.6 billion market in 2017, headed to $24.5 billion in 2022.

Theranos’ implosion revealed more obstacles, though. There’s a difference among tests someone does to themselves at home, tests that a non-specialist can conduct reliably, and tests that an expert (like a phlebotomist) has to run. People testing themselves might mess up, for one thing. Physicians might not trust POC results. And in addition to having enough data to convince investors, companies hoping to get into the business have to convince regulators—a somewhat confusing regime in the US that can mean getting approval from the Food and Drug Administration, but more often involves something called a Clinical Laboratory Improvement Amendments waiver. And that latter category, usually called CLIA, hasn’t expanded to include many of the newer tests, according to Kalorama.

Those test technologies are changing quickly. In 2015 Alere—now owned by Abbott—got a CLIA waiver for a test for influenza based on extracting genetic material from a nasopharyngeal swab (way, way up your nose). More molecular tests have followed, and as the Kalorama report notes, lots of researchers are working on the microfluidic problem of moving small volumes of liquid. That’s what’s behind all the cartridges, containers, and cards lots of diagnostics companies use. An article in Nature Bioscience last year listed a dozen small-sample technologies in development and in use, from Abbott’s electrochemistry to antibody-coated magnetic nanoparticles and a device that can literally do polymerase chain reaction on a chip, growing genetic material from a few drops of blood to detect Ebola, hepatitis C, and HIV.

So even though Theranos seems to have been microfluidic snake oil, the concept that made the company seem so magical actually looks more solid. “Theranos sparked the idea of decentralizing diagnosis,” says Genalyte’s Gunn. The company is just beginning its conversations with the FDA, and still working on a second round of funding. And the landscape has shifted. “People definitely ask us to see the data,” Gunn says. As they should.

Bloody Mess

  • Catch up on Theranos’s many misdeeds here.

  • The company’s saga is representative of Silicon Valley’s “fake it til you make it” culture.

  • But it also reveals serious problems in medical regulation; loopholes in the system help companies like Theranos hide their data.

What Keeps Egg-Freezing Operations From Failing?

On March 4, an embryologist at Pacific Fertility Center was doing a routine walk-through of the clinic’s collection of waist-high steel tanks, each one filled with thousands of liquid nitrogen-bathed vials of frozen sperm, eggs, and embryos. The San Francisco-based clinic offers cryogenic cold storage and in vitro fertilization services for patients throughout the Bay Area, many of whom work for tech companies with hefty fertility benefits packages—Apple, Google, Facebook, Pinterest, LinkedIn. PFC charges its patients $600 a year for storage alone, which covers the personnel required to maintain the tanks, according to its website. Every day someone has to do a physical inspection of the equipment, and staff are on-call 24/7. But that Sunday, the embryologist discovered that in one tank, Tank No. 4., the liquid nitrogen levels had slipped to dangerously low levels.

PFC staff immediately began transferring the threatened tissues to a spare storage tank filled with liquid nitrogen. They then spent the next five days sorting through records to figure out which patients had been affected—about 500 in total. Calls and emails began going out over the weekend. Bill Taroli, though, found out on the nightly news.

This past Sunday night, he was watching at home in California’s Castro Valley when a story came on about a tank malfunction at a fertility clinic in Cleveland. At first, he almost didn’t notice when the letters “PFC” popped up on a corner of the screen. He had to roll it back and rewatch the segment three more times before he realized the reporter was indeed saying that another failure had also taken place at Pacific Fertility Center, on the same day. Taroli’s stomach knotted up. That was the clinic where he and his husband had four frozen embryos—three boys and a girl—waiting to one day join their family.

The couple had worked with PFC to bring their son into the world five years ago, and had always planned on having another child. So on Monday, Taroli emailed the clinic and in the evening got a call from their physician, Dr. Eldon Schriock. He was kind, but frank. All of their embryos had been stored together in the same vial, in the tank that had failed. They were going to thaw one of them to see if it was still alive. If one was gone, they’d all be gone. It would take a week or two to know for sure.

“We’re kind of in a holding pattern right now, like a weird limbo state,” says Taroli. PFC told him they’ve already tested some tissues and found them to be viable. But it could be months before every patient has a concrete answer. “Having been through this before there’s a part of us that knows it was never a sure thing,” he says. “But having the door completely closed on you is very different. The only thing buoying me up right now is the hope that we may still find there was no damage. At this point we just don’t know.”

Even though more than 5 million babies have been born thanks to IVF since the ’70s, egg and embryo freezing is by no means a sure path to parenthood. According to a 2014 study by the British Human Fertilization and Embryology Authority, IVF is only successful about a quarter of the time. Women who used their own frozen eggs fared even worse—with 14 percent success rates. The science is pretty straightforward; patients are injected with drugs to stimulate the ovaries, the eggs are then removed to be either fertilized and frozen, or frozen straight away with a process called vitrification. Think of it as a flash-freeze, a massive rapid temperature drop that keeps water crystals from forming and damaging the cell. But every processing stage introduces risk.

Taroli and his husband started out with 18 eggs from their donor. Twelve were successfully fertilized. Eight made it past the three-day inspection. On the seventh day, each ball of 100 cells was tested and scored for chromosomal abnormalities; five were considered viable. One became their son. The other four went into Tank No. 4.

Taroli says he was made aware of these risks, and others that arise during the freeze-thaw cycle, when he and his husband signed their contracts with PFC. Storage in liquid nitrogen, on the other hand, has been considered pretty fool-proof, provided you have enough of it. The tanks are quite simple, just metal welded into an inner and outer tank to create a vacuum seal—no moving parts. As long as they stay full, you’re fine. “I’ve been doing this since 1983 and I’ve only ever seen one slow leak that was easily rectified,” says David Ball, laboratory director of Seattle Reproductive Medicine and a past president of the Society for Assisted Reproductive Technology. “I’ve never seen a total loss situation.”

There are, of course, best practices to make sure that never happens. Ball says the simplest—and most foolproof—is a daily physical evaluation. Using a yardstick-like instrument, you measure how much liquid nitrogen is in the tank, and then graph that out to track your evaporation rate. If it starts accelerating suddenly, something’s probably wrong with the tank. The next level up from that is an electronic monitoring system; probes in the tank that trigger an alert if the temperature rises above a specific threshold. These are useful for round-the-clock control, but also subject to calibration errors and failures in the event of a power outage.

According to PFC’s website, its San Francisco facility has all of these systems in place. Each tank is topped off daily; if not filled regularly, the nitrogen would evaporate entirely in about a week. And two separate alarm systems, when triggered by tank sensors, will send out calls to the clinic’s staff over and over until somebody enters the lab and cancels the alarm. It’s not yet clear why they didn’t work for Tank No. 4. PFC’s President and medical director, Carl Herbert, told ABC News that in the wake of the tank failure they’ve since ordered a third alarm system.

While Pacific Fertility declined to answer any specific questions, it did send WIRED a statement through a spokesperson confirming the details of the March 4 incident and the existence of viable tissue from the affected tank. The statement went on to say that PFC has brought in a third party for a full investigation and that in addition it has “completed a physical inspection of all of the lab equipment and have also thoroughly reviewed all cryo-preservation protocols with staff. We are truly sorry this happened and for the anxiety that this will surely cause.”

The American Society for Reproductive Medicine said it plans to review the incidents with both clinics and their equipment suppliers this week. In the meantime, Ball says clinics all across the country are going over their own protocols with a fine-toothed comb. There aren’t any laws in the unevenly-regulated fertility industry that safeguard against cryo failure events. And how often frozen eggs or cells are damaged is unclear, because there is no central reporting mechanism.

The Food and Drug Administration and the Centers for Medicare and Medicaid Services do oversee certain aspects of fertility clinics, and the Centers for Disease Control and Prevention collects IVF data. But they don’t do site visits to inspect storage tanks or track reports of damaged tissues. The College of American Pathologists, which accredits more than 400 fertility labs, conducts bi-annual inspections, but their checklists for best practices are pretty generic—there aren’t standards for alarm systems, for example. “The vagary is there on purpose to allow programs enough room to maneuver around a system that works for them,” says Ball. “Each facility may not be amenable to a one-size-fits-all approach.”

Oversight also differs by state. California requires clinics be accredited; Ohio does not. Patients are already mobilizing for a class-action lawsuit against the University Hospitals Ahuja Medical Center’s Fertility Center in Cleveland, the other center whose systems failed. According to ASRM, no legal action was underway against Pacific Fertility Center, yet. It’s hard to know how strong a case for negligence they’ll have until the formal investigations are completed. But cryogenic experts outside the fertility field say some details of the incidents raise red flags.

“It’s really quite sad the samples weren’t split up,” says Nahid Turan, who directs laboratory operations at the Coriell Institute for Medical Research, one of the oldest and largest biobanks in the US. “They were literally putting all the eggs in one basket.” In addition to having samples in multiple tanks at their New Jersey facility, Coriell also has back-up sites in multiple locations around the country. And its software engineers built real-time monitoring systems to flag any tanks trending in a troubling direction, before they fail.

For Taroli, hope for his family’s future wasn’t just in one tank, it was in a single tube. And for now at least, like Schrodinger’s Cat, it’s still alive.

Frozen Futures

The Kinder Morgan Dividend Story Is About To Resume

By the Sure Dividend staff

Kinder Morgan (KMI) has been a favorite dividend growth investment for many retail investors, until the company cut its payout by three quarters two years ago. After two years of low payouts, during which the company focused on reducing debt levels and finishing projects, things are about to change soon. Kinder Morgan is one of 294 dividend stocks in the energy sector. You can see all 294 dividend-paying energy stocks here.

Kinder Morgan has aggressive dividend growth plans for the coming years, but unlike in the past, this time they look very achievable. The company is about to increase its dividend meaningfully soon, and investors will very likely benefit from ongoing strong dividend growth rates over the coming years.

Since Kinder Morgan is not trading at an expensive valuation at all, shares of the pipeline giant are worthy of a closer look right here.

Company Overview

Kinder Morgan is proud of its huge asset base, and rightfully so:

(company presentation)

The company operates a giant pipeline network spanning North America, with the focus being put on natural gas pipelines. Kinder Morgan also owns terminals, pipelines and oil production assets on top of its natural gas pipeline network.

(company presentation)

The vast majority of Kinder Morgan’s revenues are fee-based, which means that there is very low commodity price risk. The company’s revenues, earnings and cash flows do not depend highly on the price of oil and natural gas. The only segment with a bigger exposure to the price of oil is Kinder Morgan’s CO2 business. Kinder Morgan is hedging its revenues from that segment, though, thus the short-term price swings for WTI do not matter very much.

Due to the fact that Kinder Morgan is much less impacted by commodity price swings than other companies in the oil & gas industry, its cash flows are not cyclical at all.

(company presentation)

During 2018 Kinder Morgan plans to increase its EBITDA as well as its distributable cash flows slightly. Distributable cash flows are operating cash flows minus the portion of capex that is needed to keep the assets intact (maintenance capex). Distributable cash flows are thus the portion of the company’s cash flows that are not needed to maintain the business, those can be spend in several ways:

– Growth capex, which expand Kinder Morgan’s asset base and lead to higher earnings / cash flows in the future.

– Shareholder returns via dividends & share repurchases.

– Debt reduction, which leads to lower interest expenses and thereby positively impacts the company’s earnings and cash flows.

A couple of years ago Kinder Morgan has paid out almost all of its DCF in dividends and financed growth capex by issuing new shares and debt. That did not work very well once its share price collapsed, which was the reason for the dividend cut, as Kinder Morgan had to finance its growth projects organically from that point.

Right now Kinder Morgan is using its DCF for a combination of growth capex, dividends and share repurchases. The company has brought down its debt levels meaningfully already, but doesn’t plan to reduce its leverage further this year.

Kinder Morgan Has Announced Aggressive Dividend Growth Plans Through 2020

In the last two years Kinder Morgan has produced about $2.00 per share in distributable cash flows, but paid out only $0.50 each year. This has allowed the company to finance billions in growth projects with excess cash flows whilst also paying down debt.

The company has stated that it wants to increase the dividend meaningfully this year as well as in 2019 and 2020:

– The dividend will be $0.80 for 2018 (which means a 60% raise year over year)

– The dividend will be $1.00 for 2019 (which means a 25% raise yoy)

– The dividend will be $1.25 for 2020 (which means a 25% raise yoy, again)

This looks like a very compelling dividend growth rate, especially when we factor in that Kinder Morgan’s current dividend yield is not low at all: Based on a share price of $16.10, Kinder Morgan’s shares yield about 3.1% right now. The forward dividend yields are thus 5.0%, 6.2% and 7.8% for 2018, 2019 and 2020, respectively.

A closer look at the company’s dividend growth plans and cash flow generation shows that those plans are not unrealistic at all:


DCF per share


Payout ratio

Excess DCF after dividend payments





$2.8 billion





$2.4 billion





$2.0 billion

Assumption: DCF grows by two percent a year

Even in a rather conservative scenario where distributable cash flows grow by only two percent annually, Kinder Morgan’s payout ratio stays below 60% through 2020. At the same time the company would generate $7.2 billion in cash flows that are not needed to pay the dividends. Those cash flows could thus be utilized for growth capex, share repurchases or for paying down debt.

Kinder Morgan Has Significant Growth Potential

The scenario laid out above (2% annual DCF growth) is rather conservative due to the fact that Kinder Morgan plans to invest heavily into new assets over the coming years:

(company presentation)

Management has identified $12 billion of potential investments which fit the company’s strategy and which promise attractive returns. The company could complete a meaningful amount of these projects in the coming years, as high after-dividend cash flows allow the company to spend on growth investments heavily.

According to management these assets could add $1.6 billion to the company’s EBITDA, which means a 21% increase over 2017’s level. When we assume that distributable cash flows would grow by 21% as well, Kinder Morgan’s DCF per share could hit $2.40 in 2022. This calculation does not yet include the positive impact share repurchases would have on the DCF per share growth rate.

Kinder Morgan has recently started a $2 billion share repurchase program and has already bought back more than 27 million shares since December. At that pace Kinder Morgan’s share count would drop by almost five percent a year, this alone would drive DCF per share up by mid-single digits each year, without any underlying organic growth.

Due to its focus on natural gas pipelines Kinder Morgan is well positioned for the future. Natural gas consumption will, according to most analysts, continue to grow for decades, as natural gas combines several positives: The commodity is significantly more environmentally friendly than oil and coal, it is inexpensive and it is available in North America in large quantities. Through LNG terminals natural gas can even be exported to other markets (primarily in Asia).

All the natural gas that gets used in the US or exported to foreign countries needs to be transported through the US by pipelines. Kinder Morgan as the provider of the vastest pipeline network should benefit from that trend, which will lead to ample cash flows for decades.


The US Energy Information Administration expects that global consumption of natural gas will grow from 130 quadrillion Btu to 190 quadrillion Btu through 2040. Since proved reserves of natural gas in the US are growing, it seems opportune to assume that the US will remain a major producer of natural gas going forward. This, in turn, means that Kinder Morgan’s asset base will not only exist for a very long time, but will remain very profitable through the coming decades.

Kinder Morgan Is Trading At A Discount Price

KMI EV to EBITDA (Forward) data by YCharts

Kinder Morgan is trading at the lowest valuation the company’s shares have traded for over the last couple of years right now. With a forward EV to EBITDA multiple of about ten Kinder Morgan is also not looking expensive at all on an absolute basis.

When we focus on the cash flows the company generates, we see that Kinder Morgan trades at eight times trailing DCF and at slightly less than eight times forward distributable cash flows. This means that shares can be bought with a distributable cash flow yield of 12.7% right now. Kinder Morgan is a non-cyclical company which has a solid growth outlook, and at the same time its size and diversified asset base mean that there isn’t a lot of risk. Based on those facts the current valuation looks pretty low.

Investors can currently acquire shares of the company with a forward dividend yield of 5.0% (the dividend increase announcement should come next month) at a DCF multiple of slightly below 8. For long term focused investors who seek an investment that provides a growing income stream that looks like an attractive investment case.

Final Thoughts

Kinder Morgan’s failed dividend growth plans hurt many retail investors in the past, but management has learned from its mistakes. This time the dividend growth plans are well thought out and look very achievable.

Thanks to high cash flows and a big growth project backlog Kinder Morgan should be able to provide a steadily growing income stream over the coming years. This, combined with a low valuation, makes shares of the pipeline giant worthy of a closer look right here.

Disclosure: I am/we are long KMI.

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.

Apple finds supplier problems as its audits expand

(Reuters) – Apple Inc (AAPL.O) said on Wednesday it had found a higher number of serious violations of its labor and environmental policies for suppliers, such as falsifying work hours data, as it expanded the scope of its annual audit of conditions of workers making its iPhones and other products.

FILE PHOTO: The Apple logo is pictured inside the newly opened Omotesando Apple store at a shopping district in Tokyo June 26, 2014. REUTERS/Yuya Shino/File Photo

But the overall trend among 756 suppliers in 30 countries was toward higher compliance with Apple’s code of conduct, according to a new report by the company, which has been carrying out the audits for 12 years. The latest annual supplier responsibility report includes 197 suppliers audited for the first time.Apple runs one of the largest manufacturing chains in the world, mostly factories owned by contractors.

Apple said in the report that the proportion of “low performers,” or suppliers scoring less than 59 points on its 100-point scale, fell to 1 percent in 2017 from 3 percent in 2016 and 14 percent in 2014. “High performers” with scores of more than 90 rose to a record high of 59 percent from 47 percent the year before.

Apple found 44 “core violations” of its labor rules in 2017, double the previous year. Those included three instances of employees forced to pay excessive fees for a job, a practice Apple banned in 2015.

In one case, over 700 foreign contract workers recruited from the Philippines were charged a total of $1 million to work for a supplier. Apple said it forced the supplier to repay the money.

Compliance with Apple’s 60-hour work week fell to 94 percent of suppliers from 98 percent in 2016. Apple said it uncovered 38 cases of falsification of working hours data in 2017, up from nine cases the year before.

When Apple finds such falsifications, it notifies the chief executive of the supplier, puts the supplier on probation until a fix is implemented and conducts reviews to make sure the fix prevents future violations.

“We’re committed to raising the bar every year across our supply chain,” Apple’s chief operating officer, Jeff Williams, said in a release.

Apple said the increase was driven by the fact that it brought on a number of new suppliers in 2017 and started tracking the working hours data of 1.3 million supplier employees, 30 percent more than in previous years.

In the report, Apple also said it was launching a women’s’ health initiative at its supplier plants, with a goal of reaching 1 million women by 2020. It said it had launched a program in China to train workers to become factory line leaders, who often make 20 percent to 30 percent more than line workers.

On Wednesday, Apple also issued its conflict minerals report, which is required by United States securities regulators. The report lists suppliers of sensitive metals such as tin and gold.

Apple said 16 smelters and refiners left its supply chain in 2017, 10 of which were dropped because they would not participate in a third-party audit of their practices. Six left of their own accord.

Apple also outlined new rules on student labor after a discovery last year that some Chinese students were working more than 11 hours a day assembling the iPhone X.

Reporting by Stephen Nellis; Editing by Peter Henderson and Leslie Adler

1 Personality Trait Every Entrepreneur Naturally Possesses and Must Get Rid of

Building a successful company is one of the most challenging things an entrepreneur can do. There are the obvious challenges of building the product, analyzing the market, targeting your audience, raising funding, facilitating partnerships, and achieving profitability, but enough has been written on those topics. I want to address one small psychological element that is somewhat inherent to the process of entrepreneurship.

This personality trait is something I have seen thousands of times over the past decade. Some people display more intense signs while others are a bit more subtle about it, but push hard enough, and you’ll discover that most entrepreneurs possess elements of this personality trait. I am referring to defensiveness.

Here is why being defensive is detrimental to the very mission every entrepreneur is hoping to accomplish.

Product feedback is your friend.

I cannot tell you how many times I jumped on a call with an entrepreneur who contacted me for advice and as soon as I began to provide some, I was shut down because they were convinced their product was perfect.

Here is the thing with building a startup. There is approximately zero chance of succeeding if you don’t truly believe your idea and product are the best thing since sliced bread. You need to be all in and without that passion, you can forget success.

This presents a problem. If your product is so amazing, then how could you possibly accept criticism and be willing to accept that it needs work? This is the balance you need to strike and it is not easy to do.

The reality is though, the more feedback you acquire, the more open-minded you are to implementing that feedback, the higher your chances of success. Of course, not all feedback is valuable but every entrepreneur should be open minded enough to listen to all feedback, internalize it, then decide whether to accept or reject it. 

Investors aren’t “Yes” men.

Investors have one goal, and one goal only. To generate the maximum returns on their investment. If an investor writes a check without challenging you on, well, everything, then perhaps you need to reconsider taking that person’s money.

When an investor asks annoying questions like “What is preventing Google from putting you out of business tomorrow?”, “How are you different than the other 50 companies in the space?”, or “What makes you think you are capable of pulling this off?”, it is your job to take a deep breath, fight that instinct to be defensive and argumentative, put aside emotion, and answer those questions with facts and data.

Beyond your actual answers, the way you respond emotionally to an investor poking at you is something you are being tested on as well. It takes maturity to let your personal feelings aside and answer in a calculated manner when your baby is being poked like that. You know what else takes maturity? Building a company that will generate a return on that investor’s money.

Competition equals validation.

Your first instinct as an entrepreneur, well as a human being, is to believe you are one of a kind. After all, your mom has been telling you that since before you could pronounce the word competition. This is a natural instinct. It is also your worst enemy.

When someone asks you who your competitors are, fight that temptation to say “I am alone in this landscape. No one is like me. My mom told me that.” Come prepared with 50 names of players in your space. 

The fact that you have competition is not a bad thing, it is a healthy thing, a necessary thing. Without competition, your vision lacks validation and your market is not educated. When someone asks you who you’re competing with, don’t be defensive, be professional. 

Pivoting is natural.

This point is pivotal. See what I did there? If you are defensive and unwilling to accept that others can help you improve, you are denying yourself the flexibility to change directions if and when it is necessary.

Most successful companies have pivoted in one way or another and that is ok. You might be brilliant, your idea might be magnificent, but there are approximately a million other things that need to align for your idea to become a sustainable business. Most of those things depend on you being open minded and willing to listen, implement, and pivot the company based on circumstances that arise.

The problem with telling someone to not be defensive is that, well, they are defensive so they won’t even hear your criticism. As an entrepreneur, self awareness is imperative to your success and defensiveness is your kryptonite.

Why the Government Is After a Unique Wu-Tang Clan Album (And How It Can Be Yours)

The short history of the Wu-Tang Clan’s 2014 album “Once Upon a Time in Shaolin has been weird and fraught. Now it’s getting even weirder.

Only one copy of the double album exists, which was sold at auction in 2015 for $2 million to one Martin Shkreli.

If that name sounds familiar, it’s because Shkreli has been in the news in recent months and is currently in jail awaiting sentencing after being convicted of securities fraud (it turns out he’s doing quite well there). Shkreli is also known as America’s most hated CEO or the “pharma bro” who jacked up the price of a drug used to treat malaria, cancer and AIDS by over 5,000 percent.

Yea, this is the same guy you’ve heard about.

Now the latest is that a federal judge has ordered that Shkreli forfeit over $7 million worth of his possessions as part of his sentence, including the world’s only copy of “Once Upon a Time in Shaolin.”

The appeals process may prevent the actual transfer of the album to the feds for awhile, but if the current rulings against Shkreli are affirmed, he’ll have to hand it over and one federal judge will be able to throw some of the most sought after listening parties ever.

Just kidding, no ethical judge would ever do such a thing. 

What’s actually most likely to happen is that the album will instead spend a period of time in a vault somewhere until it can again be auctioned off in what will certainly be one of the hippest government auctions ever. Because, you know, cash rules everything around us; dollar dollar bills, y’all.

But until that fateful day when a different rich person bids a crazy amount of money to possess the secrets of Shaolin, it will briefly be the property of the people.

Not that we can expect to demand access to the one-of-a-kind album by rolling up to a courthouse and flashing a U.S. passport, but for a period of time it will technically be a ward of the state.

If we want to keep it that way, perhaps we the people ought to start a crowdfunding campaign to raise some cash for the winning bid to take possession and then release the album into the public domain.

Of course, this might not be all that exciting if you’re not into Wu-Tang. If you consider yourself more high brow, the pharma bro’s collection may still be of interest. Shkreli’s tastes turned out to be diverse; he’s also being forced to give up a rare Pablo Picasso painting.

Washington State Enacts Net Neutrality Law, in Clash with FCC

Washington state Governor Jay Inslee Monday signed the nation’s first state law intended to protect net neutrality, setting up a potential legal battle with the Federal Communications Commission.

The law bans broadband providers offering service in the state from blocking or throttling legal content, or from offering fast-lane access to companies willing to pay extra. The law doesn’t stop providers from imposing data limits, and doesn’t address the practice of allowing certain content to bypass data limits, known as “zero rating.”

The FCC attempted to pre-empt any such state laws when it voted to repeal its own net neutrality rules in December, setting up the potential legal clash. Legal experts are unsure how such a dispute will play out.

The Washington bill enjoyed bipartisan support in the state legislature, with dozens of Republican lawmakers voting in favor of the new rules last month. The bill passed with a vote of 93 to 5 in the state House, and 35 to 14 in the Senate.

“This is not a partisan issue,” Norma Smith, a Republican who co-sponsored the bill in the House, said in a statement last month. “This is about preserving a fair and free internet so all Washingtonians can participate equally in the 21st century economy.”

The governors of Montana, New York, New Jersey, Hawaii, and Vermont have signed executive orders banning state agencies from doing business with broadband providers that don’t promise to uphold the principles of net neutrality. But Washington is the first state to pass rules that ban network discrimination.

At least 25 other states are considering net neutrality bills, including California, Illinois, and New York. Both houses of Oregon’s legislature have passed a bill that, like the executive orders, bans state agencies from doing business with broadband providers that don’t follow net neutrality. Governor Kate Brown plans to sign it within 30 days.

The FCC did not immediately respond to a request for comment. The agency’s order repealing its net neutrality rules cites a long history of preempting state law. For example, in 2007, a federal court ruled that the FCC had the authority to block the state of Minnesota from regulating internet phone services like Vonage the same way it regulates traditional landline phone services. But net neutrality advocates point to a 2016 federal court ruling that the Obama-era FCC didn’t have the authority to pre-empt certain state laws concerning municipal broadband.

Marc Martin, a former FCC staffer who is chair of law firm Perkins Coie’s communications practice, says the law on pre-emption is unsettled. But he thinks the executive orders banning state agencies from doing business with non-neutral broadband providers are more likely to withstand legal challenges. “I wonder if anyone will even fight it,” Martin says.

Meanwhile, net neutrality advocates are pushing a Senate proposal that would force the FCC to keep its net neutrality protections. The proposal has garnered the support of 50 senators, including every Senate Democrat plus Senator Susan Collins (R-Maine). But even if supporters of the proposal can get one more Republican senator to vote in favor of the proposal, it would still need to pass the House and be signed by President Donald Trump.

Longtime opponent of net neutrality rules Representative Marsha Blackburn (R-Tennessee) has proposed a bill that would ban broadband providers from blocking lawful content, but would allow throttling and fast lanes while banning states from passing their own net neutrality rules and curbing the FCC’s authority over broadband.

Net Neutrality

  • The end of net neutrality will likely make broadband packages look more like the mobile internet, where favored content providers are exempt from data caps.
  • This app can help consumers, watchdogs, and regulators check for potential violations of net neutrality principles.
  • Read the WIRED Guide to Net Neutrality.

This Blockchain-Based Travel Ecosystem Has Been in the Works for 3 Years

A self-funded startup in San Jose, California has been quietly building a blockchain-based travel ecosystem for the past 3 years and is finally readying itself to launch. Its name is XcelTrip and it is branding itself as the first Decentralized Travel Ecosystem (DTE) in existence.

The problem that XcelTrip primarily seeks to solve is the existence of intermediaries who charge a cumulative gross margin as high as 25% from vendors, which typically ends up resulting in added costs to the traveler. It intends to essentially eradicate that excessive fee through use of blockchain-based tools and components, a system of reservations, fulfillment and settlements along with real-time after sales service.

Xceltrip is working to revolutionize the OTA industry with integration of Blockchain and Tokenomics on its web platform and mobile app. It will implement Blockchain technology in a rapid evolution process, retaining and value adding to functionality of the existing OTAs processes, which seeks to ensure easy adoption and least resistance and progressively create a one of a kind, fully Decentralized Travel Ecosystem on the Ethereum Protocol.

Initially, XcelTrip intends to offer traditional-style search, view and purchase options for airline tickets and hotel rooms on its web portal and mobile application, while also including blockchain-based features and soon plans launch value added services such as “X Talk” and “X Cabs” to its users.

“Being an entrepreneur I had always envisioned a system that empowers the masses at large,” says XcelTrip CEO Hob Khadka. “Imagine being armed with the ability to earn when you travel. You would like that wouldn’t you? Now if you are able to earn when your friends traveled or even better when anyone traveled, wouldn’t that be fantastic? So at the core of XcelTrip we created the IMP (Independent Marketing Partner) program where any individual with an entrepreneurial spirit is entitled to a share from the earnings of XcelTrip by simply doing two things; (1) encourage and ensure listing of vendors at XcelTrip to market, promote and sell their products &/or services and (2) to consistently engage with the vendors giving them an edge over their contemporaries in the market while providing the best quality in products and services and concurrently increasing the gross margins.”

Many entrepreneurs look for an exit after three years of working on a project. Khadka is a bit different, as he has been working on building the infrastructure for that amount of time and also recognizes that it will take a few more years before his system is built to be fully decentralized, which is a core component of the platform he seeks to establish

This Business Charged White People More Than Twice As Much As Minorities. Here's How Customers Reacted

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

Many businesses are being drawn into socio-politics.

Some have been there for a while but always wanting to operate behind the scenes. (Translation: buying politicians.)

Recently, though, public neutrality has been hard to achieve. 

Just ask Delta Air Lines.

A business in New Orleans, however, took its public stance on socio-politics one step further.

The owner of Saartj, a food stall in New Orleans, decided to charge white people two-and-a-half times the amount he charged minorities.

Tunde Way explained to NPR that the price difference accurately reflected the income disparity between African-Americans and whites in the city.

It’s not as if Way just charges the disparate amounts and doesn’t say why.

There’s a board outside that raises the issue. 

Moreover, when people come up to his stall, Way engages them in conversation and explains why the requested price is $12 for minorities and $30 for those who identify as white.

The price for white people sn’t compulsory. Way explains that if they choose to pay it, he will redistribute the difference among the minorities who come to his stall.

Surely, though, he’s had to face outrage from white people who think this discrimination.

“Some of them are enthusiastic, some of them are bamboozled a bit by it. But the majority of white folks, nearly 80 percent, decided to pay,” he told NPR.

This wasn’t just Way’s way of seeing what would happen. 

His partner in the experiment was Anjali Prasertong, a graduate student in public health at Tulane University.

She said she was surprised at how people reacted and how many white people paid the inflated price.

And not just by how white people reacted.

The vast majority of the Latino, African-American and Asian people who were offered the redistributed money declined.

Prasertong suspects this is because most of the customers were from relatively higher income brackets.

The experiment does, though, underline how strongly some businesses might choose to respond to socio-political issues that they — or, perhaps more importantly — their customers and employees care deeply about. (Enormous legal issues notwithstanding, of course.)

Both customers and employees have come to increasingly examine companies’ ethical and social stances. 

Whether it be on the subject of climate change or racial and gender equality, they want to know what a company’s management believes and what they’re prepared to do about it.

In Way’s case, he was very upfront about what he wanted to do about it and at least some people understood and, it seems, even appreciated his stance.

It was just an experiment. 

But society is in something of an experimental phase these days. 

Old certainties are dissolving. New questions are being asked. 

How much this will change the way companies do business will be fascinating to watch.

After all, one of the main reasons they’re being dragged into these issues is that many have lost faith in governments. 

Some see corporations as harboring more social common sense than those who have been elected to do sensible things.

It’s quite a burden for managements whose heart has, for the longest time, just been in making as much money as they can. 

Can These Small Satellites Solve the Riddle of Internet From Space?

Satellite internet is notoriously expensive, and the business of providing it is notoriously brutal. A startup called Astranis founded by rocket scientists from Stanford University and MIT wants to change that.

The company’s satellites are about the size of a mini-fridge, while traditional satellites are closer to the size of a bus. “Traditional satellites cost hundreds of millions to build,” says co-founder and CEO John Gedmark. “These cost tens of millions.”

Gedmark says Astranis focuses on the software that controls its satellites, which make them more flexible than traditional satellites. By using software-defined radio, for example, the company can more easily change what radio frequencies a satellite uses.

Astranis is joining a new space race led by Elon Musk’s SpaceX and Richard Branson-backed OneWeb to build a new breed of satellite internet network that can reach the entire globe and perhaps compete with more traditional forms of broadband, like cable internet and cellular data services. But Astranis is taking a different approach than other space companies by focusing on bringing down costs.

Traditional satellite communications systems float in what’s called geosynchronous orbit, around 22,000 feet above the Earth. These satellites can provide internet access to remote parts of the Earth, as well as airplanes. But the connections can lag, which isn’t good for real-time applications like online gaming or video conferencing. SpaceX and OneWeb both aim to overcome this problem by launching satellites into what’s called low Earth orbit, which ranges from roughly 100 to 1,250 miles above Earth.


The problem is that in order to reach the entire world from low Earth orbit, these companies need hundreds or thousands of satellites, raising the system’s cost. Previous attempts at building low Earth orbit networks ended in bankruptcy, including the Bill Gates-backed Teledesic and satellite-phone companies Globalstar and Iridium.

SpaceX and similar companies, like Jeff Bezos-backed Blue Origin, are trying to reduce the costs of launching rockets, which lower the cost of building such a network. But it’s not yet clear whether these companies could offer internet access at rates that subscribers can afford, and skeptics worry this will end up costing more than just trenching fiber and building cellular towers.

Astranis is sticking to geosynchronous orbit, but it’s building small, cheaper satellites that the company hopes will bring the costs for end-users into the same price range as cellular data.

That plan won’t address the latency issues of geosynchronous orbit satellites, but the company just might be able to bring affordable high-speed internet to places where laying fiber isn’t practical, such as the Pacific islands. Astranis plans to sell bandwidth to internet service providers, rather than directly to end-users. It already has one test satellite in space, and plans to launch its first commercially available satellite next year. Eventually the company could launch dozens or hundreds of satellites; other geostationary satellite communications providers operate anywhere from one to dozens of satellites. Gedmark estimates each Astranis satellite will have a bandwidth capacity of about 10 gigabits per second, which isn’t much compared with a wholesale fiber-optic link, but should be enough to help get remote areas online.

The company received a vote of confidence Thursday from venture-capital firm Andreessen Horowitz, which announced a $13.5 million investment. Andreessen Horowitz partner Martin Casado said the Astranis team was the main attraction. Gedmark has a degree in aerospace from Stanford and previously worked for the Xprize Foundation. Co-founder and CTO Ryan McLinko studied aeronautics and astronautics at MIT, designed hardware for satellite company Planet Labs, and oversaw the creation of the flight-control system for Sierra Nevada Corporation’s Dream Chaser spacecraft. Other team members previously worked for SpaceX, Orbital, and Google.

“Lots of companies understand the software or networking side, but these guys really understood the space side,” says Casado.

Sattelite companies often need billions in capital, but Gedmark wouldn’t discuss how much money Astranis will need to raise to meet the company’s goals. Gedmark says he expects each satellite the company launches to be profitable.

Astranis isn’t alone in trying to find a compromise between gigantic geostationary satellites and networks of thousands of low Earth orbit satellites. O3B, founded by Greg Wyler before he started OneWeb, places satellites between low Earth orbit and geostationary orbit. That reduces latency and cuts down on the total number of satellites needed to provide service. But Gedmark argues that by sticking to geostationary orbit, Astranis is able to reach more places with less gear. “We can send a small satellite out to geo and start making an immediate dent in this problem,” he says.

Space Race

The Bathrooms on American Airlines' New Cramped Planes Are 'The Most Miserable Experience In the World,' says a Pilot

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

Some say American Airlines is going down the toilet.

Oh, not because it’s not making enough money. 

Instead, too many people are severely disliking the bathrooms on the airline’s new Boeing 737 MAX planes.

I’ve written before how Flight Attendants have complained about these planes, which have even more seats than ever. And about how the airline’s CEO Doug Parker admitted he’s never flown on the plane.

Because, why would he?

Now it’s the pilots’ turn to explain just how awful the plane’s new configuration — one that will be extended to many other types of American’s aircraft — truly is.

As View From the Wing reports, employees were having a little open exchange of views with the airline President, Robert Isom.

He has, American told me, flown on the plane.

Still, one pilot tried to explain to him just how bad those bathrooms are.

“It’s the most miserable experience in the world,” he said.

The data is simple. There are 12 more seats, only two bathrooms at the back for 160 passengers.

Oh, and those bathrooms are 75 percent the size they used to be.

“I can’t turn around in it. The sink is the most miserable thing going, and you cram those people in those little tiny seats you just bragged about to the point that I can’t sit back there,” he said.

He added that he’d refuse to sit in the back of this plane if he was asked by the airline to fly in it.

Isom contended that removing the seat-back screens (which saves money) and inserting larger overhead bins “are different and allow us to serve customers in a way that we haven’t before.”

Yes, the passengers certainly haven’t seen toilets like this before either.

I’ve not heard one person praise these loos or, frankly, the Economy Class seats that surely try patience when you’re in them for five hours or more. 

The question is whether the airline will do something about any of it. 

My guess is no, but I did contact the airline to see how it feels after this pilot’s withering criticism. It referred me to Isom’s words, in which he said that nothing is permanent. (Although Parker insists American will always make a profit.)

Isom also explained that it’s all the passengers’ fault.

“Today there is a real drive within the industry and with the traveling public to want to have really at the end of the day low cost seats. And we’ve got to be cognizant of what’s out there in the marketplace and what people want to pay,” he said. 

The Economy Class seat space on these planes has been reduced to a 30-inch pitch.

Perhaps, though, that’s American’s secret psychology.

You’ll be cramped in the seats — American insists it still feels like 31 inches because the seats are thinner.

But they’ll feel like heaven if you go to the toilet first.

Elon Musk Is Putting Wireless Service on the Moon (So If You Go There, You Can Watch Netflix)

It’s been 50 years since humans first landed on the Moon and we haven’t done much there since. But Elon Musk is hoping that will change very soon. He already believes there should be a base on the Moon to fire up public interest in space exploration. Then in December, President Donald Trump announced that he wanted to send astronauts back to the moon as a first step toward more distant objectives, such as Mars, where Musk is already planning to land humans sometime within the coming decade.

Musk has also said that his company SpaceX would not build a moon base although it might ferry people and materials there from Earth. But it apparently is ready to help with something else every lunar visitor needs: a way to contact people at home, communicate with other lunar visitors–and watch Netflix during off hours.

So SpaceX, along with mobile network company Vodafone, Nokia, and Audi, will be building a 4G network on the moon in 2019. Even though 5G networks are being built here on Earth, the partners chose 4G because its technology is both more stable and more able to withstand space travel. 

OK, but why build a wireless network on the Moon so soon, when nobody lives there? It’s true that Musk has said he would take space tourists to the moon in late 2018, and indeed had already collected large deposits from two wealthy individuals for the first such trip. But the planned trip is only a Moon fly-by with no landing, so the lunar tourists won’t get much of a chance to use the Moon’s wireless network. And they won’t need it, having the ship’s communication system at their’ disposal. Besides, the pricey lunar fly-by was meant to take place using a Crew Dragon capsule carried by a Falcon Heavy rocket, the same rocket that spectacularly took off earlier this month with a red Tesla Roadster and mannequin dubbed “Starman.” But Musk has said SpaceX is now focusing its attention on its BFR Rocket (for Big Fucking Rocket) and he indicated it may not do much more testing on the Falcon Heavy after all, possibly leaving Moon tourism in limbo. 

According to one report, the purpose of lunar 4G would be to support future lunar missions. Without it, humans and vehicles (such as the lunar rovers Audi is building) could only communicate by beaming signals down to the Earth and back up again. The fact that the planned network will have enough bandwidth to support video streaming raises the appealing prospect of a lunar webcam all of us could watch over the Internet. 

And of course, it’ll come in very handy for space tourists visiting the lunar surface or astronauts working to build a Moon base or on other projects. Maybe someday soon.

Steve Jobs Put Hilariously Little Effort Into This Early Job Application

Steve Jobs is now remembered as the visionary and fastidious cofounder of Apple, and creator of world-changing innovations like the Mac and iPhone. But when he was 18, he seems to have been a typically indifferent — maybe even lazy — teenager.

That, at least, is a possible takeaway from looking at a new document going to auction soon, and highlighted Sunday by Inc. It’s a job application, completed by Jobs in 1973, three years before he and Steve Wozniak founded Apple.

Jobs had recently dropped out of Reed College, but was still hanging around auditing classes. The one-page application, which Inc. says might have been used for campus positions, provides comically little that would have been useful to anyone looking to fill a job. For his address, Jobs simply wrote “reed college” (yes, in lowercase), and he left “Past Employment” entirely blank.

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Asked whether he had access to transportation, Jobs — who came from quite humble roots — answered “possible, but not probale” (again, the misspelling is Jobs’ own). Most ironically, the creator of the smartphone, in a space intended for his phone number, wrote simply “none.”

In short, the application doesn’t scream “future industrial giant.” And even someone who might have wanted to hire the young Jobs would have had a heck of a time finding him.

Jobs was a bit more thorough in describing his skills and ambitions, though, specifying an interest in “design, tech” under a computing skills item. Under “Special Abilities,” he elaborated that his included “electronics tech or design engineer. digital. – from Bay near Hewitt-Packard.” Ah yes, the well-known Hewitt-Packard.

The document, then, shows Jobs as a relatably sloppy and maybe somewhat defiant kid — and, at the same time, as the no-BS technology obsessive he would become. As terse (and stained) as it is, the application is expected to sell for upwards of $50,000 when it goes on auction in March. According to Inc., that’s because it includes Jobs’ signature, which an expert described as “incredibly scarce.”

Few phone makers will survive industry's brutal economics: Huawei

BARCELONA (Reuters) – The smartphone industry is bound to consolidate as the heavy investments required to remain competitive mean that, in the long-run, only a handful of firms can make money, the consumer chief of China’s Huawei Technologies [HWT.UL] said on Sunday.

Richard Yu, chief executive of Huawei’s consumer business group, said anyone at this stage in the decade-old industry’s history that had less than 10 percent market share was losing money.

Huawei is the world’s third biggest smartphone maker, trailing leaders Samsung and Apple, with a 10.2 percent market share in the fourth quarter, according to market surveys from IDC and Strategy Analytics.

“In the future, only three to four vendors can survive, maybe only less than four,” Yu told reporters following a product launch event held ahead of the Mobile World Congress.

He said other, smaller Chinese vendors were consolidating, and most would disappear, as they did not have enough resources to invest in the same levels of research and development, marketing and branding needed to gain global scale.

Richard Yu, CEO of the Huawei Consumer Business Group, presents the new “Huawei 5G CPE” router before the Mobile World Congress in Barcelona, Spain, February 25, 2018. REUTERS/Albert Gea

“If your market share is less than 10 percent you cannot be profitable. Over at 10 percent, at least, you can break even (and) over 15 percent you can make money,” he said.

He said Huawei’s smartphone business grew by around 30 percent in the last year, and would grow even faster this year, with strong growth in both January and so far this month.

Richard Yu, CEO of the Huawei Consumer Business Group, shows their 5G chip “Balong 5G01” before the Mobile World Congress in Barcelona, Spain, February 25, 2018. REUTERS/Albert Gea

Huawei could become the second biggest smartphone maker this year or next, and sooner or later could be No.1, he said, speaking after his company unveiled a new notebook PC and two Android tablets.

It declined to launch a new flagship smartphone as it has done in the past at the Mobile World conference in Barcelona. Instead, it is set to launch its new flagship P20 smartphone at a standalone event in Paris next month, where Yu said Huawei would showcase “big and bold” innovation in camera technology.

The device will compete head-to-head with Samsung’s new Galaxy S9 – launched here on Sunday – and Apple’s iPhone X.

Looking ahead to next generation mobile networks set to roll out starting later this year in several major markets, Huawei also unveiled 5G versions of a consumer network router, its own chipset for phones.

Yu said Huawei will launch its first 5G-ready smartphone either in the third- or fourth-quarter, most likely in its Mate line of devices.

Reporting by Paul Sandle; Editing by Eric Auchard and Daniel Wallis

Want Your Brand to Explode? Focus on Your Fans

There’s been a conventional school of thought that tells marketers to go after new potential customers. Track them down, inundate them with reasons to buy your product and push media spend against this objective is the only way to grow. However, there’s another approach that involves a different methodology altogether: focusing on what you’ve got, including your employees. If you focus on making your fans your superfans then your brand will flourish in a way that feels organic and is genuinely sustainable.

La Croix, the famed sparkling water brand took this approach to enviable success. Through Instagram, they noticed they had some fans: students and writers who were likely to stay up all night, drinking La Croix and studying or writing late into the night. They sent their existing fans cases of free product, which quickly converted them into raving fans, keen to tell their friends all about the wonder of La Croix. Such word of mouth marketing is more powerful and potent than any influencer post. And best of all, it’s replicable and sustainable. Here are 5 tips for getting your strategy right. Here’s how to get it right.

1. Find Your Fans

It starts by honing in on who your superfans are. Follow them on social media, find what they’re posting, befriend them and invite them into your brand. Notice how they are interacting with your brand and be ready to pivot your marketing strategy towards that. For example, Yelp noticed their superfans deemed themselves to be food critics, so started treating them accordingly. They even call them ‘Yelp Elites’.   Many brands give their superfans an affectionate handle, like Zipcar’s Zipsters or the Grateful Dead’s Deadheads.

2. Invite Them To Participate

Friendships are built on trust. That means sparking a dialogue and involving your fans in decisions. This can go deeper than offering freebies, you can ask them about your product pipeline, packaging ideas or even what other ideas they might have for your brand. Make it clear how they can and should engage with your brand.

3. Own Your Mistakes

When you make a mistake (and if you’re committed to fearless marketing, you will), don’t hide it. Own it, apologize for it and, just like a friend, ask for a second chance. This can be in the form of a public acknowledgement on social media or a letter to your fans. Naked Wines do a brilliant job of this with the email they send to fans who unsubscribe. They use language like ‘Where did we go wrong?’ ‘We’re guessing it was us’ and when they ask for feedback, the request is “Give it to us straight’. The verbiage feels intimate, friendly and unlike the usual ‘your feedback is important to us’, it actually motivates you to respond.

4. Give Them Exclusive Access

Like most friendships, things get better the more time you spend together. If someone is spending great amounts of time with your brand, reward them for it. Again, this can go beyond freebies; think about giving them insider access to things that are normally off limits. This could be an exclusive event, or even inviting them to see your work in action. Beverage company Innocent Smoothies invite 6 superfans to their annual AGM (A Grown-Up Meeting) where the upcoming product pipeline is reviewed.

5. Shine The Spotlight

While extrinsic rewards, like freebies, are important, intrinsic ones are just as meaningful. This means saying thank you to your fans, publicly acknowledging what they mean to you and heroing your fans who are doing an exemplary job of upholding and espousing your community. Tribute them with a profile on your social media, publicly acknowledge them on your blog or send them a personalized note from your team.

Three Ways Business Leaders Can Use AI Right Now

AI has enormous potential to reshape business, as most business leaders recognize. In a global study published by the Boston Consulting Group and MIT Sloan Management Review, 84 percent of the 3,000 business leaders interviewed expect AI to give them a competitive advantage.

Despite the anticipation, though, AI is still vastly underutilized in many of today’s industries. Only 23 percent of the leaders surveyed had already incorporated AI into their business models. This could put businesses that aren’t utilizing AI at a huge disadvantage compared to companies that have already adopted the technology and excelled at its integration.

Each industry has unique uses for any technology, including artificial intelligence. By understanding those uses and investing in the appropriate AI solutions, businesses that lag behind can still catch up in time to participate in the AI revolution.

Three Techniques For Any Business To Utilize AI

Much of what we hear about AI is presented in a futuristic manner, but the technology is already becoming a vital part of numerous industries. While a majority of business leaders have yet to implement it, many others are already taking advantage of the edge that AI gives them in several different ways.

1. Using anomaly detection to monitor equipment health

The focus of maintenance has always been prevention. Routine, often redundant, service schedules have been necessary for companies to avoid equipment failure. But routine maintenance also produces a lot of waste, and it isn’t always successful.

Instead, companies now are turning more toward cognitive anomaly detection and prediction, which utilizes AI to harness terabytes of real-time data about a machine’s operations. DataRPM, a Progress company, which provides predictive maintenance solutions and products that help detect anomalies through Cognitive Anomaly Detection and Prediction (CADP), explains that data collected from machinery can indicate when performance is declining. That means a technician can get involved before the equipment fails or shuts down.

Consequently, companies can address anomalies long before they lead to equipment crashes, lengthy downtimes, and lost productivity and revenue.

2. Managing IT security intrusions

Computers interact best with each other, and the IT realm uses that fact for a variety of IT security and support functions. As hackers and bad actors from around the world continue ramping up cyberattacks, IT teams can use AI to more easily track hackers’ movements within a system and shut them out faster.

As reported in Harvard Business Review, a 2017 global study by Tata Consultancy Services found that 44 percent of companies surveyed were using AI “in detecting and fending off computer security intrusions in the IT department.”

As one of the most significant technological advances in modern times, AI has–not surprisingly–made the biggest impact on IT professionals. In addition to its cybersecurity applications, AI also helps resolve tech support issues, makes it easier to adopt new technologies, and ensures that no unsafe machines are connected to corporate networks.

3. Engaging better with customers

At first glance, marketing may not seem on par with manufacturing and IT security when it comes to AI adoption. Yet marketers and brands are beginning to use the technology to greatly enhance how they interact with consumers.

AI helps companies create the products and services that customers want, and it enables them to improve customer relationships in a world where interactions are increasingly digital.

How does AI do this? Dara Treseder, CMO for GE Ventures, discussed AI during a presentation at MediaLink + CDX Brand Innovation Salon in January, explaining that CMOs can start to leverage data to better understand who their customers are and adopt a deeper, more personal approach to customer engagement.

Like Amazon and Netflix, which use AI to personalize recommendations based on user activity, other companies can leverage the technology to keep their consumers engaged as well. Treseder mentioned the San Francisco Museum of Art, which uses an AI bot to serve up art on demand, as a prime example of this engagement.

Art lovers can text a keyword–even an emoji–and receive a text back directing them to a piece of art in the museum’s collection that matches what they sent. Treseder also pointed to Nike’s AI-driven interactive design experience, which uses motion capture and projection mapping to allow customers to customize their shoes in-store.

When we think of artificial intelligence, many of us still consider it somewhat of a sci-fi notion or even a threat that should be avoided at all costs. The truth, though, is that AI is a current technology, not a future concept. Business leaders must start recognizing its importance, or their consumers will migrate toward businesses that do.

YouTube and Facebook Trending Tools Highlighted Parkland Conspiracy Theories

It takes a special sort of heartlessness to create a conspiracy video about a teenage survivor of one of the deadliest school shootings in US history. But it takes a literally heartless algorithm to ensure that thousands, or even millions, of people see it.

For a brief period on Wednesday, YouTube awarded the top spot in its Trending section to a conspiracy video claiming that 17-year-old David Hogg, a survivor of the Marjory Stoneman Douglas High School shooting that killed 17 students, was in fact an actor. The prime placement of the video, which has since been removed, shocked YouTube users and members of the media alike. It shouldn’t have. YouTube’s screwup is only the latest to highlight the fundamental flaws of the algorithms that decide what gets surfaced across all social platforms.

On Trend

YouTube, Facebook, and Twitter all have a section designed to surface the most newsworthy, relevant information in the midst of a vast sea of content. But time and again, they have utterly failed. In the worst cases, the algorithms backing these trending sections drive bot-fueled hashtag campaigns promoting gun rights to the top of Twitter Trends, and fake news stories about former Fox news anchor Megyn Kelly into Facebook’s Trending Topics portal. Human curation hasn’t worked out much better. Reports that Facebook’s curators suppressed news from conservative outlets in trending topics set off a two-year cascade of crises for the social network.

But even at their most benign, these algorithmically derived trends rarely serve their expressed purpose. Based largely on conversation volume, trending tools naturally drive the public consciousness toward topics of outrage; an outrageous topic trending only adds to the outrage. How many times have you clicked on a trending topic on Twitter, only to see an endless scroll of Tweets decrying that the topic is trending in the first place? The conversation about the trend becomes the trend itself, an interminable loop of outrage that all started because some line of code decided to tell millions of people that topic was important.

The Parkland video topping YouTube’s trending page seems especially galling because it appears to have gotten there not by accident, but as the result of an attempt on YouTube’s part to fix fake news. YouTube says its system “misclassified” the conspiracy video “because the video contained footage from an authoritative news source.” Whatever minimal nuance was needed to block the Hogg conspiracy, algorithms lack it.

Though YouTube got most of the blame on Wednesday, Facebook ought to have shared it. David Hogg’s name also appeared in the company’s Trending Topics section. As of Wednesday afternoon, the first story that surfaces when users clicked his name was a news clip debunking rumors Hogg is an actor. But just three results down sat another video, showing a visibly nervous Hogg stumbling over his words with the caption, “This one is David hogg, the video that keeps coming down on YouTube. Seems like he’s been scripted #davidhogg #actor #falseflag #censorship #floridashooting #florida.”

Top videos under the trending topic “David Hogg,” as seen on Facebook on February 21, 2018.


Below that, Facebook ranked another conspiracy post by former Sports Illustrated swimsuit model Amber Smith as the top Public Post on the topic, above legitimate news sources like the Toronto Star and CBS Boston. Smith’s post reads in part, “Fascist-Book will take this down soon so view quickly.. David Hogg just 6 months ago was in an anti-gun rally (pictured, gee, no kidding!), he is not a student at the recent false flag event in Florida that was staged to take away your rights. Please, fight for your rights!”

Top public posts under the trending topic “David Hogg,” as seen on Facebook on February 21, 2018.


In a statement, Mary deBree, head of content policy at Facebook said, “Images that attack the victims of last week’s tragedy in Florida are abhorrent. We are removing this content from Facebook.”

It’s a standard response that does little to prevent future disinformation campaigns from spreading on the platform, and does nothing to mitigate the damage that has already been done.


The system is broken. It directly contributes to the spread of fake information that has plagued social media platforms for years. So why not scrap it? Why have a trending module at all? It’s largely because of money, says Dipyan Ghosh, a fellow at the think tank New America who recently left his job on Facebook’s privacy and public policy team. “The Facebook of 10 years or five years ago isn’t the Facebook of today,” says Ghosh. “This Facebook has grown tremendously in its size and influence around the world, and part of that is because of the promotion of particularly engaging content that attracts eyeballs and keeps them on the screen for long periods of time.”

Facebook and YouTube’s best answer so far, other than vague promises of algorithm improvements, has been for each to pledge to build a team of 10,000 moderators to take down problematic content. But more than 400 hours of content gets uploaded to YouTube alone each minute. Ten million humans would have a hard time keeping up, much less 10,000.

Twitter, meanwhile, announced Wednesday that it was making changes to the way automated accounts, or bots, are allowed to operate on the platform, which could have important repercussions for Twitter Trends, arguably the most easily gamed of all of the platforms. These coordinated networks of bots sync up to promote the same hashtag in rapid succession in order to get a given topic trending.

As Clint Watts, a fellow at the Foreign Policy Research Institute and a former FBI special agent, recently put it during a congressional hearing on terrorism and social media, “The negative effects of social bots far outweigh any benefits. The anonymous replication of accounts that routinely broadcast high volumes of misinformation can pose a serious risk to public safety and, when employed by authoritarians, a direct threat to democracy.”

Twitter has stopped short of banning bots entirely, but it will drastically limit the ways in which they can interact with each other. In a blog post, the company detailed a number of new limitations for third-party developers designed to stop users from posting or liking simultaneously from multiple accounts, or to rally multiple accounts behind a single hashtag all at once.

It remains to be seen how effective any of these changes will be at cleaning up these trending tools. Hoaxers and trolls have, after all, found a way around almost every obstacle these platforms have put in their way up until now. Why should this time be any different?

By introducing the concept of what’s trending, tech companies told their billions of users they were going to show them the news they needed to know. And yet at a time when social platforms have repeatedly fallen down on the job, it’s worth wondering whether the public really needs their help.

Trending Machine

'Black Panther' Discussion: This One's Gonna Be Fun

In case you haven’t been near a theater, TV, mall, or interstate overpass, and haven’t seen the news, Black Panther opened this weekend. And it opened big. Like, history-making box office numbers big. With good reason—T’Challa (aka Black Panther) is a hero fans have been anticipating for a long time. As WIRED’s Jason Parham noted last week before Marvel’s latest movie “black superheroes were never afforded the same deification” as their white counterparts, but now Panther director Ryan Coogler has made a movie that shows what a superhero movie can truly be. A lot of us here at WIRED saw the movie over the weekend, and now that the worries of spoilers have receded (yes, this post will have them, continue at your own risk), it’s time we finally talk about it at length. Here we go—Wakanda forever!

Angela Watercutter: OK, I’m not going to say too much right off the bat because I want to know what my colleagues thought, but I will just say that Black Panther lived up to the hype. Like, the anticipation for this movie had been building for months and I was starting to worry that nothing could live up to what fans were hoping for with this movie, no matter how talented everyone working on this film is, but judging from the reaction at the screening I saw, people are thrilled. Did you guys have the same experience? How did you feel walking out of the theater? Did you sense that your fellow theater-goers were satisfied?

Peter Rubin: Angela, we were both in Hall H for Marvel’s panel at Comic-Con last July, and after Ryan Coogler surprised the crowd with some BP footage, we both know what was possible. The mood in that room—among attendees, Comic-Con staffers, and the crew itself—was not your usual “ah, this looks cool!” anticipation. Something cathartic happened in there. And even though I had the opportunity to go to a press screening earlier last week, I skipped it, because I wanted to see it for the first time in a theater full of people who were invested in it.

I wasn’t disappointed. Not by the movie, and not by the feeling of joy and lightness (and yes, Oakland pride) that was occupying every chair at in that theater. Two seats over from me was a young kid, seven or eight years old, in a full-on T’Challa suit; in the 24 hours since I saw the movie, I haven’t been able to stop thinking about the T’Challas (and Okoyes and Shuris) all over the country, stepping out into recess feeling like heroes. Justice, you’ve already seen it twice, right? What kind of differences did you notice in the two screenings—either in the crowd’s reception or in your own enjoyment?

Justice Namaste: The first screening I went to (second one is today!) was in Oakland on opening night. The only screening I’ve been in that nearly matched the energy in the theater during Black Panther was during the opening weekend of Get Out, when one of my friends actually fell out of their chair during the pivotal scene.

Visually, no other Marvel movie has ever come close to Black Panther—the lush Wakandan landscapes, the vibrantly colored costumes, even the wearable tech was beautiful. And that moment where the Royal Talon Fighter dips below the veil and we get an aerial look over the Golden City? Jawdropping.

But even with all this to mull over, when I left the theater, what was left ringing in my ears was Erik Killmonger’s last words: “Bury me in the ocean with my ancestors who jumped from ships, ‘cause they knew death was better than bondage.” In my opinion, the driving relationship in the film was that between T’Challa and Killmonger. (Or, thought of another way, the one between T’Chaka and N’Jobu, but realized through their sons.) T’Challa and Killmonger didn’t spend much time together on screen when they weren’t trying to murder each other—their lack of real dialogue was one of the movie’s more disappointing choices—so the tension between them was largely ideological, but it still drove the story. The “son reckoning with his father’s legacy” trope is a staple of the MCU, but it’s a limited one. Using a villain like Killmonger to complicate the idea of what heroism actually looks like, though? That’s a much more fascinating story.

Phuc Pham: As much as I enjoyed watching T’Challa grapple with both his opponents and his emotional demons, I couldn’t shake the sense that his heroic arc was a copy-paste of the superhero’s journey that Marvel has come to rely on. I mean, this is the fourth guy that has had a plot twist regarding his father upend his world.

Killmonger, on the other hand, was much more interesting to me. While T’Challa does his whole superhero thing, his archenemy points to actual systemic oppression, grounding Marvel’s universe in the real world in a way that feels new and bold. His motivation, essentially, is black liberation the world over—which to me qualified as the biggest heroic endeavor in the film. (At least until you realize that the means to achieve that end are vibranium weapons and a high body count.) Like you, Justice, I wish T’Challa and Killmonger had spent more screen time hashing out their ideological differences. The scenes when they engage in ritual combat are visceral—no Black Panther powers allowed!—but also seemed like wasted opportunities for some fight chatter about how best to rule Wakanda as well as improve the lives of the African diaspora.

Watercutter: Totally. I also wanted Killmonger and T’Challa to have more time to actually talk about their differences. Because, unlike almost every other Marvel villain before, Killmonger didn’t just want to rule to be a ruler. He wanted liberation, and in that he and T’Challa weren’t too far apart—they just had different ideas of how to achieve it. In that final scene that Justice mentioned, I truly didn’t want Killmonger to go. I wanted him to join T’Challa and stay in Wakanda. That, to Jason’s point, doesn’t happen often in these films. Maybe it happened a bit with Loki, but he’s always been a character with many allegiances. (And yes, Peter, I remember that Comic-Con Hall H panel—I’ve never felt anything like that a SDCC, and doubt I ever will again.)

Jason, in your great review last week you talked about how Black Panther showed what a superhero movie could do. What do you think it demonstrated in how it portrayed both its heroes and villains?

Parham: I didn’t think Michael B. Jordan’s acting was particularly strong, but I do agree that Killmonger as a character was perhaps the film’s most compelling—because he really wasn’t your typical antihero. I think Jelani Cobb at The New Yorker was correct in that the real villain was history itself. Killmonger’s rage was merely a product of the times, and all the despair he’d seen firsthand around the world. That’s a heavy burden to reckon with, but not an untrue one. In doing this, Coogler positioned the film in a really smart way, giving it historical currency but also contemporary heft, and all without feeling like he was trying to make some obvious political statement.

One of the more brilliant aspects of the movie—a credit to Coogler and Joe Robert Cole’s fine script—was its insistence on complicating character arcs, especially with people like W’Kabi and M’Baku, who expertly straddled the line between good and bad. Then there’s someone like Okoye, who is fiercely loyal to Wakanda in every regard. Her inner confliction felt so palpable—being forced to serve an unfit king and wage war against her lover (Danai Gurira’s Okoye was maybe my favorite character, along with Shuri and M’Baku). Everyone felt like they were doing what was best for Wakanda, which you can’t really fault them for. It felt like a truer reflection of what it means to be alive in the world today. Black Panther succeeds on so many levels. I’m curious: what did everybody think were some of the stronger aspects of the film?

Namaste: This is the obvious answer, but I just have to say it—the women. The strongest part of the film was undoubtedly all of the women characters. And that extends to the women behind the scenes as well. Lupita Nyong’o’s Nakia, Angela Bassett’s Ramonda, Letitia Wright’s Shuri (and of course Okoye and the rest of the Dora Milaje) were complex characters whose identities and motivations did not revolve solely around men. The audience saw Okoye as both a warrior and a lover, Nakia as an undercover spy who’s more concerned with protecting human rights than gathering intelligence, and Shuri as a younger (and better?) Tony Stark.

Not to mention the fact that their actions and beliefs are key to driving the story forward. Nakia is the first character who really pushes T’Challa to consider what Wakanda’s responsibility is to oppressed people across the rest of the world. And T’Challa would likely be dead 10 times over without Shuri’s engineering brilliance. Speaking of which, I’ve seen Letitia Wright being called the breakout star of the film, a title she most certainly deserves. As Shuri, she delivers some of the funniest lines, while also masterfully navigating a series of tense and heart-wrenching moments. Sure, T’Challa might be the Black Panther, but these women are far from secondary characters.

Pham: I’m so glad the writers decided to adapt Nakia and the Dora Milaje away from the ways they’re set up in some of the older comic book runs, where Nakia has an unrequited crush on T’Challa and the Dora Milaje—in addition to their role as royal guards—are a pool of potential queens. So extra kudos to film-Nakia for asserting she doesn’t want to be a Dora.

There hasn’t been an MCU film that’s as focused on technology since the Iron Man trilogy, and I was struck by how hopeful Black Panther, both the movie and the character, are how a future shaped by it doesn’t have to be dark and bleak. Production designer Hannah Beachler has said how Blade Runner inspired her vision of Wakanda’s capital Birnin Zana, and it shows. The dense urban landscape, replete with pristine skyscrapers and dusty merchant stalls, certainly hearken to traditional cyberpunk environments. Here, though, Afrofuturism shines figuratively and literally. Wakanda forgoes the dim and damp settings of futuristic cities (why are the streets always slicked with rain?) for a warm glow that almost makes you root for Killmonger’s vision of an empire upon which the sun never sets.

Thematically, the film also bucks the trend of Marvel movies in which new technology always begets catastrophe. Tony Stark’s bleeding-edge armaments always seem to end up in the hands of terrorists while Chitauri tech enables a middle-aged megalomaniac to hunt high schoolers in his spare time. Meanwhile, T’Challa not only prevents vibranium from being weaponized but also closes the film with plans to open a Wakandan outpost in Oakland—a city adjacent to Silicon Valley wealth yet wracked by a 20 percent poverty rate—to share and exchange knowledge. In an age when technology is often abused for nefarious and disruptive ends, the Black Panther’s techno-optimism seems to be a call for fewer divisions, not more.

Rubin: The rest of you have already ticked off just about everything that made this movie so appealing, so in hopes of adding something new to the mix, I’ll close with the idea that Black Panther created an entirely new lane for the MCU. After all 4,000 characters band together to (presumably) defeat Thanos in the two Avengers: Infinity War movies, Marvel is going to need a way to move forward, and Wakanda’s entry onto the global geopolitical stage is one of those ways. The MCU has its cosmic arm, its street-level arm, its mystical arm—and now Wakanda links the political intrigue of the Captain America movies with the deeply personal stories of a fully-fleshed world.

Does that mean we’ll see a Dora Milaje prequel movie in 2021? An M’Baku standalone? Only time will tell, but with a roster of new characters, ready-made internal conflict, and a rising cadre of filmmakers who are ready and able to tell these stories, the MCU’s prospects as a long-range paracosm have never been better.

Retirement Strategy: Inflation Is A Scourge On Retirees' Well-Being

Photo Source

Rarely do I write an article such as the one I am penning right now, but I think it is important to put inflation in perspective for regular folks, along with my opinion.

It seems that while the prices of everything we actually spend money on have never stopped increasing, the government numbers are finally showing signs of what it considers inflation. The Producer Price Index shot up in January, indicating that overall inflation is heading up. This is what the actual report had to say (emphasis added):

The Producer Price Index for final demand increased 0.4 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in December and moved up 0.4 percent in November. (See table A.) On an unadjusted basis, the final demand index rose 2.7 percent for the 12 months ended in January.

You can read the report yourself and get as confused as I was, but the bottom line is that inflation is heading up, officially, even though we all knew that prices have gone up basically every day for as long as we have lived, “unofficially.” The hardest hit are fixed income folks, as well as the poor.

The value of the fixed amount these folks receive becomes less with every day that goes by, and it is simply an awful fate to have to face, and it just keeps getting worse.

Photo Source

What Is Inflation Anyway?

As described right here, the brief overview is as follows:

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

As a result of inflation, the purchasing power of a unit of currency falls. For example, if the inflation rate is 2%, then a pack of gum that costs $1 in a given year will cost $1.02 the next year. As goods and services require more money to purchase, the implicit value of that money falls.

While Central banks use all sorts of ways to reduce or contain inflation, it usually is just the raising or lowering of our interest rates. Hardly a panacea for those who are just trying to make ends meet.

How Inflation Eats A Portfolio

I found this interesting article with a very straightforward chart of what various levels of inflation can do to the amounts needed to spend to maintain the same lifestyle.

What starts out as $40,000/year spending can wind up anywhere between $70,000/year and $164,000/year after 30 years, just to maintain the same standard of living, depending on whether inflation averages just 2%/year or is as high as 5%/year.

Obviously, this can impact a portfolio of just about any size.

As A Fixed Income Retiree, We Can Run But Cannot Hide

I don’t need to tell anyone that, as a retired person, we have limited choices when directly facing inflation. We can avoid buying things, change brands to lower-priced ones, or simply go without. Not a pretty picture. Also, quite unrealistic.

The ONE way for a retiree to fight inflation is to play their own game. Let me explain:

  • While inflation affects consumers, it can actually help public companies, savers, and investors. Companies gain pricing power, which enables them to raise prices to cover costs, as well as adding a few points for pure profit (administered price inflation). This goes straight to the bottom line and increases earnings. I found this report on inflation to be revealing.

  • Companies will make more money and as a result become more profitable. By using interest rates as an inflationary guide, this article shows the relationship via a chart at different environments. For dividend growth investors, this should translate into continued dividend payments as well as higher increases by aristocrats and kings.

  • By investing in dividend paying blue chip dividend kings that have paid and increased dividends paid for a minimum of 50 consecutive years, an investor should be able to AT LEAST stay within “fighting” distance of the overall inflation rate by having their income stream from dividends continue to rise as long as the companies invested remain profitable and viable. The following chart and dividend growth facts show a typical look at how dividend growth stays up with, and even surpasses, average inflation of 2.4%/year:

PG Dividend data by YCharts

The Dividend King Retirement Portfolio Might Help Us Stay EVEN

Photo Source

I am not saying that this approach is without risk or is foolproof, but it has seemed to work for many who follow this approach and should be at least considered by the average person as an investment approach. Not just for an income stream, but to keep up with inflation over the long term, when we need it the most!

The model Dividend King Retirement Portfolio currently consists of Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ), 3M (NYSE:MMM), Emerson Electric (NYSE:EMR), Cincinnati Financial (NASDAQ:CINF), Lowe’s (NYSE:LOW), Hormel (NYSE:HRL), Colgate-Palmolive (NYSE:CL), Dover (NYSE:DOV), and AT&T (T).

These stocks are not the high growth stocks they once were, and there is no way of telling if they ever will be again. That being said, these stocks have shown that through both good and bad times, low and high inflation, they have been able to pay and increase dividends continuously for over 1/2 century. It does not mean all of them will continue, but I like the history myself and feel my risk is being mitigated.

Take a look at each stock and see for yourselves. You CAN fight inflation! Simply by owning Dividend King stocks, if you so choose.

What is YOUR approach to inflationary pressure?

The Bottom Line

Nothing is risk-free, but inflation can eat away at our purchasing power. To me, dividend growth investing helps offset some of the disastrous effects of inflation during retirement.

Not To Bore You, But…

Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something: stock picks, technical strategies, books, videos, subscriptions with “secret ideas,” gadgets, and even snake oil.

My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:


Seeking Alpha is a business, and believe it or not, they do need to make a few bucks to keep bringing you all of its amazing content at virtually no charge! To that end, Seeking Alpha will be charging some nominal fees to access older (and remarkable) content from its extraordinary library of information, not just from me, but from all authors.

ALL of my articles will REMAIN free until they are placed behind the paywall after a MINIMUM of 10 days. ONLY TICKER SPECIFIC ARTICLES WILL BE PLACED BEHIND A PAYWALL, NOT ARTICLES SUCH AS THIS ONE! If you are a REAL TIME FOLLOWER you will be notified IMMEDIATELY of any of my new (and FREE) articles, just as you have received in the past!

**One final note: The only favor I ask is that you click the “Follow” button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this and how I can offer my experiences to as many regular folks as possible, who might not otherwise receive it.

Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. The long positions held are based upon what the model portfolio holds, and I personally could have held all of the stocks noted at one time or another.

Disclosure: I am/we are long CINF, CL, DOV, EMR, HRL, JNJ, KO, LOW, MMM, PG, T.

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

Additional disclosure: The portfolio is for educational purposes only and not an actual portfolio. The long positions are based on the model portfolios.

Airport Controllers Trade the Tower for a Screen-Filled Room

The next time you fly into Florida’s Fort Lauderdale airport, look out the window and see if you can spot what’s missing. The answer? A 160 feet high tower.

That’s what airport officials at the airport say would have been necessary for them to be able to safely control the movement of planes on the ground, taxiing to and from gates and runways at the recently expanded airport. That would be doing things the old fashioned way, by line-of-sight—aka looking at the planes. Instead of an elevated perch, ground controllers at FLL have an even better view from inside a nearby squat, building.

“They have no windows in their building,” says Mike Nonnemacher, the chief operating officer for Broward Country Aviation Department, which controls FLL airport. “It’s all done by radar, and augmented by a system of CCTV and infrared cameras.” A new computer system takes the data from those cameras, and other sensors, and stitches it together into one giant virtual vista.

Controllers sit in front of a video wall, which shows them what’s happening in real time. The infrared images offer improved visibility at night and in the fog. Wearing headsets, they calmly issue cryptic sounding instructions to pilots, and then track the plane moving. It’s the first of its kind in the US, and could set the bar for other airports around the country.

Gregory Meyer/Broward County Aviation Department

In the US, the FAA runs air traffic control, which sees planes safely onto the tarmac. But responsibility for moving these huge machines around on the ground falls on the airport or airline. Their wingspans, which look so elegant in the air, are just a protruding hazard on the ground. Pilots don’t have great visibility out of the cockpit windows, so they rely on ground controllers to tell them which gate to taxi to, where to hold, which path to take, and to warn them of other vehicles like fueling trucks or passenger busses crossing active taxiways. It’s a complicated dance, becoming ever more so as air travel booms and airports expand, allowing takeoffs and landings with barely 30 seconds between them. Airfields usually have one or more towers, so ground controllers can see everything that happens from the runways to the gates.

The layout of the Fort Lauderdale airport makes it a great test case for something new. One row of gates is hidden from direct view of ground controllers, so they used to send someone on foot to scout the scene, report back, and help them keep track of aircraft on a dry-erase board. Tired of all the back and forth and eager to avoid the cost of building a looming tower, they went the virtual route.

The result is that windowless building, inside which ground controllers take in feeds from 66 CCTV cameras, and FAA radar data that includes each plane’s location and call sign. “We take a lot of information, from lots of sources,” says Betros Wakim, the head of Amadeus Airport Technology in the Americas, which designed the software to stitch all that together and present it to controllers in useful ways.

When a plane is ready to leave its gate, ground controllers first make sure it’s safe to move. With their virtual views, they can train cameras toward the plane, check its flight number, and then check the surrounding area. Pushback can be rather hazardous.

“You always have construction and maintenance people who need to be on the runway to do repairs,” says Patti Clark, aeronautics professor at Embry Riddle University, and a former airport manager. Wild animals might be taking a stroll through the grounds. By combining cameras with the radar data, ramp controllers should be able to spot all that, and ward off disaster. “The human factor is always involved, but the more useful and reliable tools you can provide to the human, the better the situational awareness is,” says Clark.

No surprise then, that Nonnemacher says he has already had phone calls and visits from other airports interested in recreating the system, including Tampa, Dallas, and Toronto.

One day, virtual airfield control could remove ramp control centers from airports altogether, freeing up space for terminals or cargo handling areas. It’s all just data, it can be piped anywhere. There’s precedent in Europe; London City airport has just replaced its air traffic control tower with a remote system, and controllers sitting 120 miles away. That same tech is being used in Australia, Sweden, Norway, and Ireland.

So the next time you come in to land at FLL, don’t bother looking for that non-existent tower. Instead, see if you can spot the little building, with the folks inside making your path to the gate—to freedom—quicker and safer.

At the Airport

After Rocky Year, CEO Evan Spiegel Is Still Happy Snap Went Public

Snap CEO Evan Spiegel says he doesn’t mind having to report quarterly financial results to pesky investors, whose disappointment could send the company’s stock plummeting.

“We love it,” the young executive enthused Thursday during a Goldman Sachs technology conference in San Francisco on Thursday.

Snap’s (snap) first three quarters as a public company last year were tough. The messaging company consistently reported disappointing user growth along with sales that failed to meet Wall Street’s expectations, causing its shares to fall.

Earlier this month, however, Snap shared some good news —that it now has 187 million daily active users, which beat analyst projections of 184.2 million, while its sales jumped 72% year-over-year to $285.7 million. After the report, investors sent Snap’s shares up nearly 30%.

For six years as a private company, Snap was insulated from fickle investors and could concentrate on developing its Snapchat messaging app without much distraction. Now that the company is public, however, all eyes are on Snap to show huge growth, especially as Facebook’s (fb) competing Instagram service consistently debuts copycat features and tries to steal users.

Spiegel said that it’s “been energizing” for Snap since going public, and said the company is at an interesting intersection of still being a young company spending lots of cash for growth while being scrutinized each quarter by Wall Street.

Working at Snap is not for the faint of heart, Spiegel said. He likened the company’s tough work culture to how water appears calm right before it boils, using an obscenity in front of the audience of bankers and financial officers.

“For people that are excited about pushing themselves, I think it’s a great place to be,” Spiegel said.

To keep up growth, Spiegel said Snap is focusing on expanding the service outside of the U.S. and Europe, and partnering with wireless carriers worldwide to bundle the Snapchat app into various packages that they in turn sell to their customers. Spiegel previously discussed these carrier deals during the company’s last earnings call with analysts, saying that these partnerships with unspecified carrier companies in “over a dozen markets” would “begin reducing cellular bandwidth costs for Snapchatters around the world.”

He didn’t say how much Snap spent on these types of carrier partnership deals.

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About the big cloud computing bills Snap pays to companies like Amazon and Google to run its service, Spiegel argued that it would have to spend even more and if it had to build and operate it’s own data centers. Snap has agreed to pay Amazon $1 billion over the next five years for cloud services, and another $2 billion to Google over the same time.

Lately, some Snapchat users have been complaining about a recent redesign that splits the disappearing videos their friends from videos shot by celebrities and media companies. Some investors and analysts fear the redesigned app could cause Snap’s users to disappear.

But Spiegel said it’s the right decision because it makes a clear distinction between the private communications of users and their friends, and those of broadcasting networks and big-time stars.

To people who feel that the new Snapchat makes them feel less connected to celebrities who may have appeared to be their friends in the app, Spiegel said “Exactly!”

“They’re not your friend!” he said.

Toshiba says to appoint ex-banker as next CEO

TOKYO (Reuters) – Japan’s Toshiba Corp said on Wednesday it is appointing Nobuaki Kurumatani, a former executive of Sumitomo Mitsui Financial Group, as its chairman and chief executive.

Incumbent CEO, Satoshi Tsunakawa, will become chief operating officer and retain his role as president, the company said.

Kurumatani, currently the president of the Japanese arm of European private equity firm CVC Capital Partners, is a former deputy president of Sumitomo Mitsui Banking Corp, one of Toshiba’s main lenders, which often have a strong influence on its management decisions.

Reporting by Makiko YamazakiEditing by Muralikumar Anantharaman

Qualcomm, Broadcom plan to meet on February 14: sources

(Reuters) – Qualcomm Inc (QCOM.O) and Broadcom Ltd (AVGO.O) plan to meet on Wednesday to talk about the latter’s $121 billion acquisition offer, the first time the semiconductor companies will discuss the potential deal, people familiar with the matter said.

The meeting comes after Broadcom raised its cash-and-stock offer last week from $70 to $82 per share, and made other concessions, including offering to pay Qualcomm an $8 billion breakup fee should antitrust regulators block the deal.

Qualcomm said last Thursday that Broadcom’s new offer still undervalues it and falls well short of the firm commitments on regulatory issues it expected. However, it offered to meet Broadcom to see if it can address what it called “serious deficiencies in value and certainty in its proposal.”

As part of its bid to take over Qualcomm, Broadcom has also launched a campaign with Qualcomm shareholders to replace Qualcomm’s board. Both companies are due to meet proxy advisory firms ISS and Glass Lewis before their Feb. 14 meeting to argue why Qualcomm shareholders should back them in a vote scheduled for March 6.

Broadcom had requested last week to meet over the weekend, but has now agreed to meet on Wednesday instead, the sources said on Sunday, asking not to be identified because the meeting’s details are not public.

A sign to the campus offices of chip maker Broadcom Ltd, is shown in Irvine, California, U.S., November 6, 2017. REUTERS/Mike Blake

Qualcomm and Broadcom did not immediately respond to requests for comment.

The takeover battle is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc (AAPL.O) and Samsung Electronics Co Ltd (005930.KS) use their market dominance to negotiate down chip prices.

Singapore-based Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. San Diego-based Qualcomm primarily licenses its technology for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.

Broadcom’s antitrust counsel, Daniel Wall of Latham & Watkins LLP, said in a filing with the U.S. Securities and Exchange Commission last week that Broadcom was willing to sell two Qualcomm businesses to resolve any antitrust problems. These are its Wi-Fi networking processors and RF Front End chips for mobile phones.

Qualcomm responded on Thursday that unless Broadcom will agree to do whatever is necessary to ensure the deal closes, a commitment to divestitures without restrictions often referred to as “hell or high water”, it would have to be extremely clear and specific about what actions it would refuse to take.

Broadcom CEO Hock Tan told Reuters in an interview last week that Broadcom decided not to offer hell-or-high-water provisions to Qualcomm because it does not view them as a very well defined legal standard.

Reporting by Greg Roumeliotis in New York; Editing by Alistair Bell

Coincheck heist sheds light on Japan's rush to create cryptocurrency rules

TOKYO (Reuters) – After the Mt. Gox cryptocurrency exchange was stung by a half-billion dollar theft in 2014, Japanese regulators swung into action.

Their goal was to craft rules that both protected traders and allowed a promising sector to flourish. By last April, thought they had arrived at a set of guidelines that did just that.

Japan’s national system to oversee cryptocurrency trading was the world’s first, rolled out even as policymakers elsewhere grappled with how to deal with the sector. Under the Japanese framework, some exchanges would be allowed to operate – even though they hadn’t yet won regulatory approval.

One of those was Coincheck Inc. Last month, hackers stole about $530 million from the Tokyo-based exchange, a theft rivaling Mt. Gox’s as one of the biggest ever for digital currency.

The Coincheck heist exposed flaws in Japan’s system. And for some experts, it raised questions over the country’s dash to regulate the industry – a sharp contrast to clampdowns by countries like South Korea and China.

Interviews with a dozen government officials, lawmakers and cryptocurrency industry leaders depict a regulator that opted for relatively loose rules to help nurture an industry largely populated by start-ups.

Japan’s Financial Services Agency declined to comment.

But proponents of its regulatory approach say the system and the hack were not connected.

“It’s too much to say that the FSA or institutional design was lax because there was one hack,” said former information technology vice-minister Mineyuki Fukuda, previously a supporter in parliament of promoting and regulating cryptocurrencies.


In the wake of the Mt. Gox bankruptcy, Japan didn’t know what to make of bitcoin – or even who should be in charge.

“It’s not money,” Finance Minister Taro Aso told reporters days after the exchange collapsed. “Does the Financial Services Agency have jurisdiction? The Finance Ministry? The Consumer Affairs Agency? The Ministry of Economy, Trade and Industry?”

Amid the vacuum of oversight, the governing Liberal Democratic Party, seeing the fintech sector as a way to stimulate growth, initially called for the cryptocurrency industry to form a body to regulate itself.

That led to the formation of the Japan Authority of Digital Assets (JADA), comprising blockchain and cryptocurrency start-ups and entrepreneurs.

When the FSA was later tasked with creating regulations for cryptocurrencies, it turned to JADA for help. The group lobbied for rules friendly to start-ups, like low capital requirements.

“We had constant discussions with the FSA, giving technical information and ideas,” said So Saito, a founding member of JADA and now general counsel of its successor, the Japan Blockchain Association (JBA).

The FSA’s rules required exchanges to register, operate robust computer systems and address risk management.

But they left the storage of assets to a set of non-binding guidelines. Exchanges should keep the encrypted keys needed to access digital money in “cold wallets” – for example, USB drives not connected to the internet – only if doing so didn’t overly inconvenience customers, the guidelines said.

In effect, the clause left no obstacle to Coincheck’s holding $530 million worth of NEM crypto-coins in an online “hot wallet” – essentially a digital folder stored on a server – from which the funds were stolen.

“The FSA was quite relaxed on protecting consumers on things like cold wallets and hot wallets,” said the chief financial officer of a major Japanese cryptocurrency exchange.


Policymakers across the world have grappled with how to deal with cryptocurrencies. Most have been skeptical about trade in digital assets.

U.S. regulators may ask Congress to legislate more oversight of digital money, the head of the Securities and Exchange Commission said this month.

In Asia, South Korea is embracing strong oversight of cryptocurrency trading, at one point saying it might shut down local exchanges. China, concerned about financial stability, last year ordered some exchanges to close. India this month vowed to stamp out use of cryptocurrencies altogether.

Statistics on cryptocurrencies are patchy because their trading is unregulated in most countries. But Japan accounts for between a third and half of all global bitcoin trade, exchange operators say – a share of the market that has grown as other jurisdictions have cracked down.

As Japan’s rules came into effect last April, exchanges were given six months to register.

But even those that registered but weren’t approved could continue to operate.

Coincheck was among the exchanges that didn’t win approval. By the time it filed its application in mid-September, bitcoin was surging towards a record high of $19,458, which it hit in December.

The exchange had grown to one of Japan’s biggest amid a sharp increase in trading, moving to a new headquarters from a dingy backstreet office. Its share of domestic bitcoin trades soared to 55 percent in December from only 7 percent a year earlier, data from show.

In an interview with Reuters last year, Kaga Kawabata, Coincheck’s business development manager, was dismissive of the FSA’s oversight, even as the exchange prepared to register.

“They have no knowledge. Every year someone moves, and it’s a big pain to educate them,” he said.

The FSA said last week it didn’t approve Coincheck partly because of worries about weaknesses in the exchange’s systems, declining to give further details. It allowed Coincheck to continue operating, calling for improvements without a specific timeline.

The regulator was in a bind, industry insiders said: Coincheck had grown so big that the FSA couldn’t reject its application.

“Consumers would be upset. It was politically difficult to close down Coincheck,” said Masakazu Masujima, a lawyer and adviser to the Japan Cryptocurrency Business Association, an industry body. “So they kept requesting it to improve its systems.”

Reporting by Thomas Wilson and Takahiko Wada; Additional reporting by Minami Funakoshi, Ami Miyazaki and Taiga UranakaEditing by Gerry Doyle

The *Waymo v. Uber* Settlement Marks a New Era for Self-Driving Cars: Reality

The sun had only just come up Friday, but the young self-driving car industry had already moved into a new era. From the bench, federal Judge William Alsup, recovering from a sore throat, called it: “This case is now ancient history.”

Waymo v. Uber, the first great legal fight over autonomous vehicles, ended in a peace treaty Friday morning: Uber gave Google’s sister company a 0.34 percent stake in its business (worth $245 million or $163 million, depending on how you count Uber’s worth), and pledged not to use any of Waymo’s software or hardware in its vehicles. “I want to express regret for the actions that have caused me to write this letter,” Uber CEO Dara Khosrowshahi wrote in a statement posted on the ride-hailing company’s website.

Waymo had alleged that when longtime Google engineer Anthony Levandowski resigned to start his own company, he took thousands of vital technical documents with him, including blueprints for the lidar laser sensor he had helped develop. Uber bought Levandowski’s startup a few months later for almost $600 million in equity and put Levandowski in charge of its struggling self-driving R&D effort. In Waymo’s telling, Levandowski and Uber used Waymo trade secrets to accelerate their efforts.

In large part, the lawsuit encapsulated the stakes in the early days of an industry that’s now booming. Back then, a good lidar system was so rare and coveted that it might be worth stealing. A single engineer like Levandowski, who helped found Google’s self-driving car team a decade ago, could merit a palace coup. And just two companies—Google, the progenitor of self-driving tech, and Uber, the virile challenger eager to convert its millions of human-operated cars into much more profitable robots—command nearly all the headlines and attention of anyone eager for a world where human drivers are a lol-worthy memory.

That world looks different now. More than 20 companies are currently developing lidar, making the sensor more necessary commodity than secret sauce. A pedigree like Levandowski’s loses its luster as a new generation of engineers, trained in robotics and machine learning, emerges. At least half a dozen companies not involved in this brouhaha have proven they can make cars drive about without human help. Waymo v. Uber was a fight over a once jealously guarded technology that today verges on commonplace. And now that the suit is settled, everyone can turn to the next chapter in the textbook, the one where all the companies grow up and figure out how to deploy the thing they’ve all created.

“This is evidence that the autonomous driving problem is not going to be solved by a single silver bullet,” says Shahin Farshchi, a partner at the venture capital firm Lux. “It’s a matter of building many things and getting many things to work together.”

As any good historian will tell you, a moment like the Visigoth-induced fall of Rome in 476 or Judge Alsup’s decree that “there’s nothing more for me to do here” doesn’t really trigger an epochal shift. It’s just a convenient marker. The transition from developing self-driving technology to actually deploying it happened independent of this case. Even before Waymo filed its lawsuit, others were turning a horse race into a stampede: General Motors acquired self-driving startup Cruise. The mysterious startup Zoox started testing in San Francisco. Waymo alum Bryan Salesky decamped for Argo AI and partnered with Ford. Former Google self-driving chief Chris Urmson founded Aurora and is now working with Volkswagen, Hyundai, and Chinese automaker Byton.

Of course, the settlement has tangible effects. First, Uber lives. The threat of a billion-dollar penalty or an injunction that could shut down its entire self-driving program has evaporated. As Uber co-founder and former CEO Travis Kalanick testified, the company sees autonomous vehicle tech as vital to its existence. If someone else figures out how to run a taxi service without a driver before Uber does, then Uber loses.

Uber wins that second life pretty cheaply, too. No money changes hands as part of this deal; Waymo receives a mere 0.34 percent stake in the ride-hailing company. Each party in the lawsuit will pay its own lawyers. And with that, Khosrowshahi ticks another box off his lengthy Fix Uber list, which also included a house cleaning after the company revealed it had paid off hackers following a 54-million-account security breach and an apology tour in London for safety infractions.

Waymo, meanwhile, maintains its position at the head of the self-driving pack, and shows competitors it’s willing to bleed a bit to stay there. “It was great from Waymo’s perspective to put everyone on notice: ‘We take our leadership position seriously and we will go hammer and tong after anyone who will upset that,”’ says Reilly Brennan, cofounder of the transportation-focused venture capital firm Trucks.

That goes for its own engineers, too. Pierre-Yves Droz, Waymo’s current lidar technical head, testified Thursday that, OK, yes, he had taken an outdated version of one lidar setup to Burning Man. And yes, he had taken two other versions home (with his bosses’ permission). Uber lawyers seemed prepared to argue that this wanton toting-about of self-driving tech proved that Waymo’s lidar wasn’t a trade secret after all. You have to hide stuff for it to be a secret.

So expect no more lidar shows at Burning Man, and no more carelessly protected servers. It’s time for the self-driving space, Waymo included, to grow up and be diligent about keeping their tech in-house. This is a real industry now. The money is still theoretical, but the autonomous vehicle market could be worth $7 trillion by 2050, according to a 2017 Intel report.

Protecting intellectual property means telling employees what is and what isn’t secret—especially if they’re about to leave. “The critical juncture to reinforce those expectations is in the exit interview,” says John Marsh, a lawyer with the firm Bailey Cavalieri. “The employer says, “Hey, by the way, you signed this agreement about trade secrets when you started here; if you have questions, come see me. I expect you’re going to abide by this.’”

In the abridged trial, an Uber lawyer asked Waymo hardware engineer Sasha Zbrozek whether anyone at Google looked for activity that signaled someone was downloading huge numbers of files.

“No,” Zbrozek responded. “But nobody monitors when you get water from the fridge either.”

The time for such freedom could be ending. As autonomous driving technology approaches reality—the you give someone money to ride in this thing kind of reality—expect better defined policies and lots more rules. And maybe a camera watching the water dispenser, too.

Waymo’ Autonomy

Alibaba kicks off sponsor deal in Pyeongchang

PYEONGCHANG (Reuters) – Alibaba Group Holding Ltd (BABA.N) is launching a project that will create a “smarter” and more connected athletes’ village and stadia and make all Olympics stakeholders “more money”, its executives said on Saturday.

Many of Alibaba’s plans are still concepts since it has not had enough time to implement its technology after signing a deal last year worth hundreds of millions of dollars as a cloud and e-commerce partner with the International Olympic Committee.

But IOC president Thomas Bach said some of Alibaba’s plans “can become operational pretty soon” while Alibaba founder Jack Ma said they expected to be realized at the next Winter Games in Beijing in 2022.

“We want to make the Olympic Games so everyone can make more money,” Ma said, adding that “everyone” meant groups such as host cities’ organizing committees, athletes and sponsors.

Alibaba is one of the few top Olympics sponsors signed with the IOC until 2028.

It has said it wants to upgrade the technology that keeps the Games running.

It also unveiled its “sports brain,” on Saturday, a suite of software products designed to improve the back office of how sports events are run.

Ma, who appeared onstage with Bach, said he was moved by North Korea and South Korea marching together in the opening ceremony on Friday since it reflected “peace and prosperity”.

Former NBA player Yao Ming was in the audience at the media conference, which featured an interpretive dancer and a magician pulling a bird out of a hat.

Alibaba has about 200 to 300 employees on the ground in Pyeongchang to study how the games run and help find ways to save future host countries money.

Alibaba’s Tmall and Taobao shopping platforms dominate online retail in China. But it is not well known in many parts of the world, including in the United States where Inc is the e-commerce leader.

It is using an international branding campaign focused on the Olympics to help introduce it to markets such as the United States and Great Britain.

Editing by Greg Stutchbury

An Investigative Analysis Suggests Realty Income Is Now Declining Organically And Faces 30%-45% Downside Risk

Report Entitled “O No, Growth Gone Negative”

Spruce Point Capital Management is pleased to announce it has released the contents of a unique research report on Realty Income Corp. (NYSE:O) (“O Realty” or “the Company”). Spruce Point has conducted a critical business and financial review and believes that Realty Income’s same store rent metrics overstate its image as a healthy, growing enterprise. Based on our industry normalized approach, which includes vacancies, we believe that Realty Income is in fact declining organically. We believe the overstatement of approximately 2%, makes the difference between the cosmetic appearance of a growing enterprise vs. a declining one.

As a result, based on our case study analysis of similar REITs that have swung to declining growth, and a detailed valuation analysis, we have issued a “Strong Sell” opinion and a long-term price target of approximately $28-35 per share, or approximately 30-45% downside risk. Please review our disclaimer at the bottom of this email.

Executive Summary

The Allure of Rising Magic Dividends: Realty Income (“O Realty” or “the Company”) promotes itself as “The Monthly Dividend Company®” and preaches “The Magic of Rising Dividends” – it even goes so far as to market itself differently to retail investors vs. sophisticated institutional investors. The Company is very dependent on issuing stock at inflated prices to fund its acquisitive growth strategy, keep its cost of capital low, and consistently raise its dividend. The model has worked well for years when times were good, but we believe this magic cycle is about to break down as investors reassess O Realty’s growth profile amidst deteriorating tenant quality, rising interest rates, and a more volatile and discerning capital market backdrop

O Investors Not Getting The Complete Picture on Same Store Property Reporting: Our forensic accounting work indicates that the true underlying economic performance of O Realty’s properties, as measured by Same Store Rents (SSR) are declining vs. the appearance that it is growing. The Company disclosed its SSR growth rate of 1.2% in 2016. Our industry normalized definition of same store property performance suggests that that SSR declined by 0.8% in that period – an astounding 2.0% overstatement. Once investors come to grips with our differentiated point of view, we expect a major revaluation in O Realty’s share price. There are ample case studies to show 40-50% share price declines when investors revalue a REITs declining performance. For example, Wall Street has penalized a few REITS (DDR (NYSE:DDR), Brixmor Property Group (NYSE:BRX), Kimco Realty (NYSE:KIM)) that own retail properties where the same store growth profile has swung from positive to negative growth. We believe that O Realty is the next REIT that is going to be penalized for a deteriorating growth profile by investors.

Dispositions And Vacancies Are Rising And Likely Aiding Occupancy And SSR Metric Inflation: We believe that dispositions and vacancies are likely managed to cosmetically inflate occupancy and aid O Realty’s SSR metric. We show dispositions on the rise as well as a larger percentage of property sales coming from vacancies. These trends may indicate more competition from malls as well as the limited alternative use for many of O’s real estate properties.

Investors Should Be Concerned By Background of Management and Audit Committee Oversight By Board: We find that O Realty’s executive management team is comprised almost entirely of ex-investment bankers, trained in the art of financial engineering. It should, therefore, come as no surprise that O Realty could use financial magic to embellish its performance. We have little faith in the Company’s audit committee raising any objections or concerns about management’s practices. We find that the audit committee is comprised of a PGA golf professional, and former executives from Wells Fargo and KPMG, two scandal-ridden financial and accounting organizations. Given all the factors we have noted, it makes sense that insider ownership trends are at all-time lows and lowest amongst its REIT peers.

Tenant Quality Deteriorating As Retail Landscape Changes: We conducted a deep dive into the tenant quality and found that O Realty has outsized risk exposure to drug stores, grocery stores and movie theaters -three retail subsectors facing disintermediation. Drug stores (O’s largest sector exposure) are consolidating their retail footprint (i.e. Walgreens (WBA) purchase of +2,000 Rite Aid (RAD) stores), while SSS performance at the store front is down. Even worse, headlines such as Amazon (AMZN) teaming up with Berkshire Hathaway (NYSE:BRK.A) and JPMorgan (JPM) to disrupt the healthcare business present a now tangible long-term risk that the traditional drug delivery value chain through a retail footprint could move increasing online. The Amazon risk extends also to the grocery store vertical given its recent acquisition of Whole Foods. We believe that any retail transaction that is done repetitively and frequently (i.e. grocery and drug store) is ripe for online disruption and, therefore, poses significant risk to the traditional brick and mortar chains and their related real estate profiles. Lastly, movie theater trends (both box office sales and attendance) likely peaked in 2015, and theater chains are not expanding screens. Physical movie theater locations are at increasing risk of disruption as Hollywood and media companies (e.g. Netflix (NFLX), Amazon, Hulu) are spending money to produce original content for their own “at home” media streaming offerings, and new releases that skip the movie theater completely.

Interest Rate Tightening Cycle Another Major Negative Backdrop For O Realty: We expect REITs such as O Realty to remain under pressure. Consensus expectations is that the 10 year treasury will surpass 3.0% by 1Q’19 and O Realty’s historical stock performance exhibits negative correlation with increases in interest rates. We expect O Realty to underperform the REIT sector (IYR) given our newly documented growth concerns and premium valuation enumerated below

Operating Metrics Have Deteriorated While O Realty’s Valuation Remains Sky High: O Realty has lured a dizzying array of analysts to relentlessly promote its story and make it the most expensive triple net lease retail REIT by a wide margin. Analysts see an average of 18% upside to $59/share, yet seem to ignore glaring signs of weakness. Even Janet Yellen warned that commercial real estate prices are “quite high relative to rents.” O Realty has the lowest occupancy rate of 98.3%. If it had not sold 91 vacant properties since the beginning of 2016, the occupancy metric might be as low as 96.6%. Furthermore, O Realty essentially has the lowest remaining lease term of 9.6 years amongst its peers and the highest amount of leases expirations (7.8%) versus their peers over the next two years. In that context, we created a dividend sustainability index where we incorporate average remaining lease duration in order to assess O Realty’s sustainable dividend paying ability vs. prior year periods. This index now stands at its lowest level since the beginning of our data set in 2005. Metrics like this can be an early warning sign that the underlying fundamentals are not as safe as they had been historically. We expect that once investors come to grips with the fact that O Realty’s true growth rate is negative, its multiple will re-rate in line with historical precedents, and its share price will decline by approximately 30-45% or $28-35 per share.

Quick Overview of Key Tenants of the Short Thesis

Capital Structure and Valuation Overview

Source: Bloomberg and Company Filings

(1) Data presented for 2017 is as of September 30, 2017

(2) Implied Cap Rate = NOI/Enterprise Value

O Realty’s Virtuous Circle Showing Cracks

Entering a negative feedback loop: We believe that O Realty is highly dependent on keeping its stock premium inflated to lower its cost of capital to pursue growth. However, we will illustrate that its growth is declining, which will lead to a lower stock price, higher cost of capital and lower investment spreads.

Source: 3Q17 Investor Presentation

Same Property Revenues Are Declining, Not Growing As O Realty Portrays

Our definition represents the true economic performance of the property base and therefore does not ignore vacancies. The magnitude of the overstatement is 2%, which is the difference between growth vs. decline

Source: Company Filings (4Q16 Supplement) and Spruce Point Methodology

Interest Rate Cycle is A Macro Negative: O Realty Stock Price vs. 10 Year Yield

Consensus expectations imply a 3% yield for the 10 year by 1Q19 and 3.5% by the 2Q20. As interest rates rise, O Realty’s stock price exhibits a negative correlation.

Source: Bloomberg

Dividend Sustainability Index At Its Lowest Level

O Realty’s share price enthusiasm has been historically aided by its ability to consistently raise its dividend over time. However, when comparing the duration of the remaining lease terms and current run rate FFO, the dividend sustainability index now stands at its lowest levels since our dataset began in 2005.

Source: Company Filings, Spruce Point Estimates

(1) Dividend Sustainability = (Run Rate FFO x Remaining Lease Term)/Run Rate Dividend

Peer Group – Triple Net Lease Retail

We question why the street is valuing O Realty at the highest amongst its peers when its occupancy, lease duration, and near-term lease renewals all reflect a status at the bottom of its peer group. Further, we will show later in this presentation why the growth profile should be questioned.

Case Studies: 40-50% Downside When Growth Goes Negative For REITs

Spruce Point has identified three example of REITs recently revising growth estimates from positive to negative (DDR, BRX, KIM). In each case, the share prices corrected by 40-50%

A Closer Look Into O Realty’s Same Property Analysis

We believe that the underlying economic performance of a REIT should encompass a “Same Store” metric for all properties owned regardless of whether they are occupied or vacant. O Realty excludes vacancies from their same store pool. This is not standard industry practice as we find a majority of retail peers include vacancies.

Source: 3Q17 Supplemental, Page 21

(1) O Realty’s same store pool also excludes properties under development or involved in eminent domain

Our definition represents the true economic performance of the property base and therefore does not ignore vacancies. The magnitude of the overstatement is 2%, which is the difference between growth vs. decline.

Source: Company Filings (4Q16 Supplement) and Spruce Point Methodology

We rebuilt the 2016 SSR pool by beginning with 2015 SSR pool and then adjusting for acquired properties and properties released after a period of vacancy to arrive at proper comparison to the prior year.

A Closer Look Into Asset Dispositions

We believe that dispositions can be managed to cosmetically enhance aggregate occupancy rates across the portfolio as well as selling properties that may result in re-leased recapture rates that would dilute O Realty’s SSRs.

Vacancy trends indicate a tougher triple net lease environment for landlords. Have the recent vacancies issue at malls begun to bleed over to the stand-alone boxes? Are malls and shopping centers now offering leases that typical triple net lease tenants cannot refuse?

O Realty’s Tenants’ Exposed To Systemic Disintermediation

Amazon has been rumored to enter the pharmacy business (, and the Whole Foods acquisition implies that the expansion of the Amazon ecosystem could pose secular risks to a significant portion of what historically has been deemed safe haven real estate assets for the triple-net lease space. We believe that any retail transaction that is done repetitively and frequently (i.e. grocery and drug store) will move online and poses significant threat to the traditional brick and mortar chains and their related real estate.

Walgreens’ (O Realty’s #1 Tenant) U.S. store foot print is suffering with SSS down since the end of 2015. Further, we see looming risk from store closures from their recently closed deal to acquire 2,186 stores from Rite Aid. In October 2017, Walgreens announced a store optimization program where they will close approximately 600 stores.

CVS (NYSE:CVS) (O Realty’s #11 Tenant) store foot print is suffering with SSS at the store front down since the end of 2012. Further, CVS’s announced acquisition of Aetna is likely competitive positioning in advance of Amazon’s entry in the pharmacy business. We believe omni-channel competition poses severe risk for the traditional brick and mortar pharmacy retail footprint.

Industry Box office and attendance trends are both suffering from systemic issues in the exhibitor business. The shrinking window where content can been seen exclusively in a movie theater versus at home has narrowed significantly. Furthermore, some movies are released via an on demand device at the same time as the theater release. Perhaps, even more alarming Netflix, Amazon, Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), and Facebook (NASDAQ:FB) all are devoting more capital to original content. We believe as these trends become more pronounced that they will pose risk to all of the movie theater chains, which have not been investing in new screen growth (bottom right chart). Lastly, there is limited alternative use for movie theater real estate, so releasing to a new tenant will be challenging without significant capital outlays.

Movie Theaters: 5.1% of O Realty’s Rent

Source: and National Association of Theater Owners

AMC Theaters: #6 Tenant

AMC‘s EBITDAR to Rent is well below O’s corporate average of 2.7x and has weakened significantly in the most recent YTD period. The equity markets have already identified the theater level risk: AMC’s stock is down ~64% from January 2017

O Realty Obscures Tenant Level Disclosure

Investors have asked for tenant level disclosure and now a majority of the retail triple net lease peers are providing detail at the tenant level. Why is O hesitant to provide this level of disclosure?

National Retail (NYSE:NNN): Tenant Level

Spirit Realty (NYSE:SRC): Tenant Level

STORE Capital (NYSE:STOR): Industry only

Vereit (NYSE:VER): Tenant Level

Realty Income: Industry only

Governance and Management Concerns

Investors should not be surprised by our findings that O Realty portrays its results in the best light possible with aggressive presentation of its SSR metrics. O Realty’s management team is comprised of a diversified group of investment bankers – skilled in the art of financial engineering. Prior to joining O Realty, none of its top management team have had much experience rolling up their sleeves and managing real estate at the ground level.

Investors should strongly evaluate O’s Board of Directors, and in particular, its audit committee members tasked with overseeing management’s accounting and financial policies.




Spruce Point Concern

Greg McLaughlin


Currently, the President, PGA TOUR Champions and a Senior Vice President with the PGA TOUR in Ponte Vedra Beach, Florida (2014-present).

A golfing pro with no stated corporate or real estate experience on his bio

Ron Merriman

Audit (Chair)/Corp. Governance

Retired Vice Chairman and partner of KPMG LLP, a global accounting and consulting firm (1967-1997). At KPMG LLP, Mr. Merriman served as Vice Chairman of the Executive Management Committee.

Merriman was a high level executive at KPMG. In recent years during his departure, KPMG has repeatedly been sanctioned by the DOJ for criminal violations (“Largest ever tax fraud” and “Fraudulent Scheme to Steal Confidential Info“). We do not have direct evidence tying him to either of these investigations.

A. Larry Chapman

Audit/Technology Risk

Retired 37-year veteran of Wells Fargo, having served most recently as Executive Vice President and the Head of Commercial Real Estate from 2006 until his retirement in June 2011, and as a member of the Wells Fargo Management Committee.

In recent years, Wells Fargo culture of greed has been exposed through its fake account scandal. A Vanity Fair article explores the issues:
How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers To Fraud

We do not have any direct evidence to suggest Mr. Chapman has done anything bad.

Kathleen Allen

Audit and Technology Risk

Professor at Marshall School of Business and the founding director of the Center for Technology Commercialization at the University of Southern California.

No real estate experience

Insider Ownership Declining, While Passive Index Buying

Insider ownership levels are at the lowest since inception, while index buyers such as Vanguard represent a disturbing trend of increased ownership. We suspect Vanguard might be taking O Realty’s SSR growth figures at face value and plugging them into their financial models to calibrate the share price. We hope our evidence suggesting declining SSR will help to correct the over-valuation issue.

Valuation and Downside Case

O Realty’s bullish analysts point to its advantageous cost of capital, and relative balance sheet strength. We believe that the analyst community needs to spend more time analyzing the core “organic” growth profile of the Company.

We also believe that the underlying systemic pressures in some of its major retail sub-sectors needs to be a risk that investors are appropriately compensated for. We applaud Goldman Sachs for being the lone skeptic and below market price target on O Realty.

We expect many analysts to cut their price targets as O Realty’s business and financial challenges become much more evident.

Source: Bloomberg
(1) Includes analysts that provide price targets
(2) Based on $50/share

O Realty looks priced for perfection. O trades at the highest multiple within their retail triple net lease peers. As highlighted below, when the growth profile of a REIT begins to decline, the AFFO multiple compresses significantly.

We question why the street is valuing O Realty at the highest amongst its peers when its occupancy, lease duration and near-term lease renewals all reflect a status at the bottom of their peer group. Further, we will show later in this presentation why the growth profile should be questioned.

Source: Bloomberg, Company Filings and Spruce Point Estimates

(1) We adjust the occupancy for the 91 vacant property sales since the beginning of 2016

(2) Relative Rank from 1 (best) to 5 (worst)

Spruce Point Estimates 30% To 45% Downside In O Realty

We arrive at our price target by applying a range of AFFO multiples commensurate with precedent REIT stocks going into financial decline (DDR, Brixmor, Kimco)

Please review our disclaimer at the bottom of this email.


This research presentation expresses our research opinions. You should assume that as of the publication date of any presentation, report or letter, Spruce Point Capital Management LLC (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our subscribers and clients has a short position in all stocks (and are long/short combinations of puts and calls on the stock) covered herein, including without limitation Realty Income Corp. (“O”, “O Realty” or “the Company”), and therefore stand to realize significant gains in the event that the price of its stock declines. Following publication of any presentation, report or letter, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. All expressions of opinion are subject to change without notice, and Spruce Point Capital Management does not undertake to update this report or any information contained herein. Spruce Point Capital Management, subscribers and/or consultants shall have no obligation to inform any investor or viewer of this report about their historical, current, and future trading activities.

This research presentation expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly available information, and all of which are set out in this research presentation. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. You should assume these types of statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond Spruce Point Capital Management LLC’s control. This is not investment or accounting advice nor should it be construed as such. Use of Spruce Point Capital Management LLC’s research is at your own risk. You should do your own research and due diligence, with assistance from professional financial, legal and tax experts, before making any investment decision with respect to securities covered herein. All figures assumed to be in US Dollars, unless specified otherwise.

To the best of our ability and belief, as of the date hereof, all information contained herein is accurate and reliable and does not omit to state material facts necessary to make the statements herein not misleading, and all information has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer, or to any other person or entity that was breached by the transmission of information to Spruce Point Capital Management LLC. However, Spruce Point Capital Management LLC recognizes that there may be non-public information in the possession of Realty Income Corp. or other insiders of Realty Income Corp. that has not been publicly disclosed by Realty Income Corp.. Therefore, such information contained herein is presented “as is,” without warranty of any kind – whether express or implied. Spruce Point Capital Management LLC makes no other representations, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use.

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Disclosure: I am/we are short O.

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