Honeywell: As Good As It Gets

On December 13, 2017, Honeywell’s (HON) management team held an investor meeting where it provided the company’s fiscal 2018 guidance to the financial community. The 2018 guidance and management’s commentary were well-received by the market. HON shares are up only ~1% since the investor meeting, but shares are outperforming the broader market by a wide margin on a YTD basis.

Source: Nasdaq

There was a lot to like about Honeywell’s 2018 guidance and, in my opinion, the bull case for this industrial conglomerate may be stronger now than it has ever been. Moreover, I believe that Honeywell is as good as it gets in the industrial space, so investors should not be worried about the company’s ‘premium’ valuation.

The 2018 Guidance – Good, Better, Best

Many people, including myself, were worried when Mr. Darius Adamczyk, CEO, took over for Mr. David Cote in April 2017 but this company has not missed a beat over the last seven-plus months. Mr. Adamczyk has actually done an impressive job winning over the market, as shown by the fact that HON shares are up over 20% since he took over as CEO. More importantly, however, Mr. Adamczyk and team have this company in a great position in a changing industrial environment and it appears that this narrative will likely also play out in 2018.

After initially going over the material from the investor meeting, I thought that Honeywell was going to have a lackluster fiscal 2018, but after further review, it appears that management was just trying to tone down expectations. Why do I think this? It’s simple. It is hard denying the fact that it appears more likely than not that the U.S. economy, including the industries that Honeywell operates in, will experience growth over the next 4 quarters. Plus, I believe that management was talking out of the other side of its mouth when it stated that several key business units were operating in very favorable environments.

For the aerospace division, management only projected for low single digit (1-3%) organic sales growth for 2018. Let’s remember that most companies operating in this space are actually calling for significant growth in the years ahead (more on this below). And yes, the tax bill passing (not signed by the President, as of December 21, 2017) will bode well for Honeywell and its business prospects. At the end of the day, I believe that the lackluster 2018 guidance was simply management trying to set the company up for success in the new year. Remember, the market is overly bullish on Honeywell so any type of setback (i.e., analyst estimate miss) will significantly impact sentiment.

There was way too much information shared to cover in just one article, so I will spend a few minutes on what I considered the 3 most important points that management made during investor meeting.

1) Good – A Strong Finish To 2017

The company guided for a strong finish to the current year. For Q4 2017, management expects to report organic sales growth in the high single-digit range and earnings per share to reach ~$1.84 (up from the $1.74 that was reported in Q4 2016).

As shown, management also expects to reach the high end of its earnings guidance for full-year 2017, which would translate into ~10% YoY growth for adjusted EPS. Furthermore, Honeywell’s improvements in generating cash have not been highlighted enough, as management guided for FCF to be in the range of 5%-7% for full-year 2017. Simply put, this company is projected to cap off a great year with a strong Q4 earnings report.

2) Better – A Great Outlook For 2018

Next year’s guidance is more important than the Q4 2017 results, in my opinion, so it is encouraging that management expects to keep the impressive momentum going through 2018. Management guided for both sales and earnings to grow over the next four quarters, in addition to a nice uptick in margins.

These estimates, including the only 2-4% sales growth, are impressive when you consider the backdrop. Fx and restructuring costs are likely to be headwinds over the next 12 months but these factors are not enough to derail the company. In my mind, it is encouraging that management anticipates for the prospects of oil and gas industry to improve in 2018, at least as it relates to the company’s operations, because Honeywell’s O&G division has been a major drag on the consolidated results. 2018 is shaping up to be a game-changing year for Honeywell. But, it gets better.

3) Best – A Promising Capital Return Story

The most important takeaway from Honeywell’s investor meeting, of course, in my opinion, was the capital return numbers that are being thrown around.

Honeywell recently announced that its board authorized a new $8B buyback program, which is on top of the already $1.5B that is remaining from a previous program. This is a material buyback announcement because it would allow for the company to repurchase almost 7% of the total shares outstanding. Let’s also remember that Honeywell recently increased its dividend by 12% a few months ago.

This company’s capital return story is not only about buybacks or dividend either, as management expects to also focus on finding strategic acquisitions. Plus, as management described, the tax bill passing will be a positive development for Honeywell’s capital deployment plans for 2018.

Putting It All Together

What’s not to like about a company that: (1) guided for a strong finish to 2017, (2) expects to report impressive top- and bottom-line growth over the next 12 months, and (3) has a capital return story that has legs? Honeywell has shown over and over again that its bull case is intact and, in my opinion, the company’s story actually keeps getting better.

To start, getting back to the Aerospace division, I believe that this operating unit will greatly contribute to Honeywell meeting analysts’ estimates in 2018. This division has several significant tailwinds that should allow for it to continue the substantial growth that it has reported in the recent past. Honeywell is a key supplier to many players in this industry so it will do well when others are doing well. For example, Boeing (NYSE:BA) (a major customer) is forecasting for significant growth for its business over the next few decades.

Source: Boeing’s Current Market Outlook 2017-2036

In addition to the commercial growth, Honeywell has a defense business that recently reported 7% YoY growth in its backlog. The defense businesses of Honeywell’s aerospace portfolio is not the only operations that are performing well, as the company is also building momentum in Commercial Aviation. While Honeywell is projecting for only a “modest pace for near-term orders due to an uncertain economic and political environment along with a very competitive used aircraft market” for the business jet aviation industry, current forecasts are for 8,300 new business jets worth $249B to be delivered from 2017 to 2027.

Source: Honeywell’s October 2017 Press Release

The improving prospects in almost all areas of the aerospace segments, including the digital space (i.e., Connected Aircraft), should allow for this operating unit to keep the substantial sales growth going through 2018 and beyond. Moreover, management has implemented several cost-cutting initiatives that are directly contributing to the increasing margin for the aerospace division.

Source: Aircraft Supplier Conference, September 2017

And it gets better because, in addition to the aerospace division, management has recently pulled two other levers that should create value in 2018. First, Honeywell has made several small tuck-in acquisitions that should add value to the company’s business offerings that are already in high demand. The two recent examples are: (1) the 25% stake taken in the Chinese supply chain software company Flux Information Tech, and (2) the acquisition of SCAME Sistemi to bolster its connected building solutions. Both of these acquisitions may not move the needle in 2018, but looking out, these are exactly the type of assets that will bode well for the company’s long-term business prospects.

Additionally, I believe that the previously announced spin-offs – the Transportation Systems & Homes And Global Distributions units – will likely turn out to be long-term catalysts for HON shares. As described in this article, the restructuring plan will allow management to unlock value, while at the same time streamline operations and focus on the company’s core operations (Aerospace, Building Technologies, Performance Material And Technologies, and Safety And Productivity Solutions).

The recent investor meeting simply re-affirmed my bullish thesis for this company and it actually caused me to rethink my 12-18 month price target. Lastly, if all of this was not enough, it is important to note that HON shares are also trading at what I consider a reasonable valuation.

Valuation

Honeywell’s stock is trading at a reasonable valuation based on forward earnings estimates.

Chart
HON PE Ratio (Forward) data by YCharts

At 21x forward earnings estimates, HON shares may appear overvalued but I could make the argument that this company has the best prospects out of this peer group. To this point, Honeywell reported above-average sales growth over the last 5 years and the company is projected to significantly grow earnings over the next 5 years.

HON UTX MMM GE
EPS next 5Y 8.22% 4.27% 10% 13%
Sales past 5Y 1.50% 0.50% 0.30% -3.30%

(Source: Data from Finviz; table created by W.G. Investment Research)

This is one of the many reasons why Honeywell deserves a ‘premium’ valuation. Per Yahoo! Finance, Honeywell has a “Buy” rating and a price target of $165/share (7% upside from today’s price). I, however, believe that Honeywell will not only grow into its current valuation but I anticipate for the company’s forward estimates to get ratcheted up over the next two-to-three quarters. As such, I believe that HON shares will be trading north $175 over the next 12-18 months.

Risks

A global recession is the most significant risk to my investment thesis, at least in the near term. I do not believe that a recession is not likely to happen over the next 12 months, but if one were to materialize, Honeywell’s businesses would be negatively impacted in a major way. Furthermore, investor sentiment is extremely bullish for Honeywell at this point in time and it largely revolves around the prospects for the aerospace division, so a slowdown in this industry would likely result in shares selling off.

Another risk point relates to the company’s restructuring plan because there is no guarantee that the spin-offs will go without a hitch. If the company has cost buildups or issues with the formation of the two separate entities, Honeywell’s stock could be under pressure in late 2018/early 2019.

Bottom Line

My biggest takeaway from Honeywell’s Outlook Investor Meeting was that this company appears to be well-positioned for 2018 and beyond. Honeywell is as good as it gets if you are looking to invest in the industrial space. This company is a best-of-breed industrial conglomerate that has promising business prospects, especially if the global economy continues to improve in 2018. Additionally, there are several catalysts – tax reform bill, spin-offs, and potential infrastructure spending bill in 2018 – that are likely to play out over the next 12-18 months, so investors with a time horizon longer than 1 year should view any pullbacks as long-term buying opportunities.

Author’s Note: Honeywell is a core holding in the R.I.P. portfolio, and I have no plans to reduce my stake in the near future.

Full Disclosure: All images were taken from Honeywell’s 2018 Outlook Investor Meeting, unless otherwise stated.

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

If you found this article to be informative and would like to hear more about this company, or any other company that I analyze, please consider hitting the “Follow” button above. Or, consider joining the Going Long With W.G. premium service to get exclusive content and one-on-one interaction with William J. Block, President and Chief Investment Officer, W.G. Investment Research LLC.

Subscribers to the premium service have access to my 12-18 month price target for Honeywell, in addition to having exclusive access to a more in-depth analysis of the company.

Disclosure: I am/we are long HON, GE.

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

Better Dividend Aristocrat: McDonald's Or Coca-Cola?

Investors looking for high-quality dividend growth stocks should consider the Dividend Aristocrats. When it comes to dividend growth stocks, the Dividend Aristocrats are hard to beat. They are a group of stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. You can see all 51 Dividend Aristocrats here.

McDonald’s (MCD) and Coca-Cola (KO) are both Dividend Aristocrats, and the two companies are closely tied. Those who enjoy a trip to McDonald’s, often wash it down with a Coca-Cola. McDonald’s and Coca-Cola are both highly profitable companies, with strong brands, and should continue to increase their dividends each year.

But the past year has treated McDonald’s and Coca-Cola much differently.

Chart
MCD Year to Date Total Returns (Daily) data by YCharts

Coca-Cola has had a good year, with a 15% total return (including share price appreciation and dividends). But Coca-Cola is no match for McDonald’s, which has produced a 46% return year-to-date. McDonald’s has delivered more than three times Coca-Cola’s returns in 2017.

McDonald’s has been the far more rewarding stock to own, and its investors have done much better than Coca-Cola’s. But due to its huge rally, McDonald’s now appears to be overvalued, while Coca-Cola still has a reasonable valuation. This article will discuss why value and income investors might favor Coca-Cola for 2018.

Business Overview

Winner: McDonald’s

Coca-Cola and McDonald’s both have tremendous brands, and lead their respective industries. For example, Coca-Cola is the 5th most valuable brand in the world, while McDonald’s has the 9th most valuable brand. But right now, McDonald’s fundamentals are in better condition.

Coca-Cola is the world’s largest beverage company. It owns or licenses more than 500 non-alcoholic beverages, including both sparkling and still beverages. It sells its products in more than 200 countries around the world, and has 21 brands that generate $1 billion or more in annual sales.

The core sparkling beverage portfolio includes the flagship Coca-Cola brand, as well as other soda brands like Diet Coke, Sprite, Fanta, and more. Coca-Cola also has a large portfolio of still beverages, including Dasani, Minute Maid, Vitamin Water, and Honest Tea. Coca-Cola enjoys top market share positions across a number of its core product categories.

Market shareSource: 2017 Investor Day Presentation, page 4

Coca-Cola’s growth has not been as impressive as McDonald’s in recent periods. For example, in 2016, Coca-Cola’s organic revenue increased 3%, while adjusted earnings-per-share rose 5%. Earnings growth was due to price increases, volume growth, and share repurchases. Organic revenue increased another 2% over the first three quarters of 2017, driven by price increases.

Meanwhile, McDonald’s is the largest publicly-traded fast food company in the world. It operates over 37,000 locations, in more than 100 countries around the world.

2016 was a year of recovery for McDonald’s. Global comparable-restaurant sales increased 3.8% for the year. Adjusted earnings-per-share increased 16% last year. McDonald’s has enjoyed a successful turnaround, driven by increased franchising and new menu initiatives such as all-day breakfast.

2017 has been another good year for McDonald’s. Revenue declined 6% over the first three quarters, but this was driven mostly by the sale of its businesses in China and Hong Kong, and increased franchising. However, these initiatives have improved McDonald’s profitability. Adjusted earnings-per-share increased 16% through the first three quarters.

Valuation

Winner: Coca-Cola

While McDonald’s has reported stronger growth over the past year, the bad news is that investors now have to pay a hefty price for this growth. In the past four reported quarters, McDonald’s had adjusted earnings-per-share of $6.40. Based on this, the stock has a trailing price-to-earnings ratio of approximately 26.9.

McDonald’s is valued significantly above the S&P 500 Index, which has an average price-to-earnings ratio of 25.8. Therefore, McDonald’s appears to be slightly overvalued, while Coca-Cola is still valued below the S&P 500.

Coca-Cola had adjusted earnings-per-share of $1.89 per share in the past four quarters. As a result, the stock trades for a price-to-earnings ratio of 24.3. McDonald’s is valued approximately 11% above Coca-Cola.

McDonald’s valuation premium could be justified, if it continued to generate significantly higher earnings growth than Coca-Cola. But analysts expect McDonald’s momentum to slow in the years ahead, while Coca-Cola is still in the early stages of its turnaround.

According to ValueLine, McDonald’s is expected to increase earnings-per-share by 7% in 2018, and by approximately 9% per year from 2020-2022. For its part, analysts expect Coca-Cola to grow earnings by 3% in 2018, but growth is expected to accelerate to 11% per year from 2020-2022.

Dividend Analysis

Winner: Coca-Cola

When it comes to dividends, Coca-Cola has the advantage. There is no doubt that McDonald’s has an impressive dividend history—it has increased its dividend every year since its first payout in 1976. The most recent hike was a 7% raise on September 21st.

In the past five years, McDonald’s has a compound annual dividend growth rate of approximately 5.5%. Coca-Cola has increased its dividend by 7.7% per year, over the past five years, which is a higher dividend growth rate than McDonald’s in the same time frame.

The other disadvantage of McDonald’s dividend, is that it has a fairly low yield. Due to the huge share price rally in the past year, the stock has a dividend yield of 2.3%.

Chart
MCD Dividend Yield (NYSE:TTM) data by YCharts

On the other hand, Coca-Cola’s share price has not appreciated nearly as much as McDonald’s, which has kept its dividend yield elevated. Coca-Cola has a dividend yield of 3.2%.

This means Coca-Cola offers 39% more dividend income than McDonald’s, which is a significant difference.

Coca-Cola also has a longer history of dividend increases than McDonald’s. Coca-Cola has increased its dividend for 55 years in a row. In addition to being a Dividend Aristocrat, Coca-Cola is also a Dividend King, an even smaller group of just 22 stocks. You can see all 22 Dividend Kings here.

Final Thoughts

McDonald’s and Coca-Cola are both world-class brands. Each stock is likely to generate positive returns for shareholders moving forward, through earnings growth and dividends. But investors should try to avoid buying stocks when they are overvalued. Future returns can be mediocre or poor, even from strong businesses, if too high a price is paid for earnings growth.

McDonald’s has enjoyed a massive rally this year, which has elevated its valuation, while Coca-Cola has not rallied nearly as much. Coca-Cola remains fairly valued, and has a higher dividend yield than McDonald’s. As a result, value and income investors might prefer Coca-Cola to McDonald’s right now.

McDonald’s and Coca-Cola are both high-quality Dividend Aristocrats. But there are other Dividend Aristocrats that are even more undervalued than McDonald’s and Coca-Cola. Our service Undervalued Aristocrats provides actionable buy and sell recommendations on some of the most undervalued dividend growth stocks around. Click here to learn more.

Disclosure: I am/we are long MCD.

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

The Best Games of 2017, From 'Nier: Automata' to 'Legend of Zelda'

2017 was an incredible year for videogames—a mixed bag of genre, style, and mood. The best titles ranged from sweeping adventures to tense shooters to meditations on the existential burden of life. Some of the games released this year will go on to be lauded as the most important, profound videogames of this generation. If you don’t know how to dive into videogames in the coming days, here is where to start.

10. Lone Echo

Virtual reality’s great promise has always been that of escape, and nowhere has that been put to better use than in Ready At Dawn’s captivating, compelling space adventure. Half puzzle-heavy exploration, half zero-G playground, Lone Echo delivers what traditional gaming cannot: a truly embodied adventure. Most of that is due to an ingenious locomotion mechanic, which eschews the all-but-default teleportation to lets you move through the game via combination of thrusters and pushing off solid surfaces. The disc-golf-in-space multiplayer companion, Echo Arena, has become a fan favorite, but it’s Lone Echo that will be remembered as a singular, medium-defining game.

System: Oculus Rift

  1. Everything

You might begin life as a polar bear. Or a kangaroo. Or a twig. Maybe a mitochondria. Then you might grow and reach with your mind and perception until you’re a galaxy, or the sun, or the magic of consciousness itself. In David O’Reilly’s meditative masterpiece, you can be, literally, everything. Everything derives power from a logic of interconnectedness, weaving a philosophical fable about the nature of objects while teaching the player a mechanical dance that surprises and stir. You ever wondered what the world looked like from the perspective of a soda can? Now’s the time to find out.

System: PlayStation 4, Microsoft Windows

  1. Resident Evil 7

In Resident Evil 7, you open doors by pressing into them, face first. It’s a neat little metaphor: the act of moving forward is an act of dogged, perhaps irrational, persistence. In this brilliant revival of one of gaming’s originary survival horror franchises, it’s the sort of subtle touch that goes a long way. And Resident Evil 7 is full of subtle touches: the scattered trash in the derelict rural manor your hero is trapped in; the unsettling, flowing, almost oil-y design of the game’s monsters; the way videotapes are used to create a hallucinatory alternate reality experience while also playing with found footage horror tropes. Resident Evil 7 is two-thirds a brilliant horror adventure, and one-third a solid action game. It’ll undoubtedly be frustrating when the horror starts to run dry, but every step taken on the way is more than worth it, if you have the courage to get that far. Play in VR at your own risk.

System: PlayStation 4, PlayStation VR, Xbox One, Microsoft Windows

  1. Yakuza 0

Taking place in Tokyo’s Red Lights District during the late 80s and early 90s, Yakuza 0 is one of the most riveting, carefully crafted dramas ever put in front of a videogame controller. It’s also a game where one of your main characters uses Street Fighter moves and random objects on the street to fight vengeful clowns. Yakuza 0 manages an impossible alchemy, merging a self-serious crime drama largely about real estate with some of the goofiest and off-beat supporting material the creators at Sega could come up with. It feels, on the whole, like a love letter to what videogames are capable of. Games are places where powerful, fascinating drama can happen. They’re also places where a giant dude named Mr. Shakedown will chase you through the streets of Tokyo and try to steal your cash until you learn how to beat him up with a baseball bat. Yakuza 0 sees the dissonance, and it loves it. And you’ll love it, too.

System: PlayStation 4

  1. Splatoon 2

Splatoon 2 is the rare multiplayer shooter that has the power to reach beyond the core “gamer” marketplace that those games usually cater to. Part of that is the platform: the Nintendo Switch is a console built for people who hate the nonsense of modern videogame consoles, and that gives any game on it an allure it might not otherwise have. But more than that, it’s in the design. The squid-kid world of Splatoon is bright and playful, awash in colorful ink, aquatic pop stars, and Harajuku high fashion. And cleverly, the designers use this aesthetic to create a shooter that actually doesn’t employ violence at all. Victory is a matter of covering as many surfaces and enemies with ink as possible. Nobody gets hurt. Splatoon 2 is a marginal refinement of the original game, and that might make it less compelling for returning players, but the core of the experience remains so solid and wholesome that not changing enough can hardly be considered a flaw.

System: Nintendo Switch

  1. Hellblade: Senua’s Sacrifice

Hellblade: Senua’s Sacrifice is a controversial game, largely because of a single page of text that appears before the experience even begins, claiming that Hellblade is a story about mental illness, specifically psychosis, and that care has been taken to make that representation thoughtful and accurate. Whether or not that’s true, or to what extent telling that kind of story is appropriate in a game mostly about obscure puzzles and hack-and-slash combat, is a question worth debating. But Hellblade is, at its heart, a game that rises above those conversations, and above the sum of its own components. The story of Senua, a warrior journeying into the land of death in search of her lost love, is an uncanny screaming death knell of pain and perseverance. It’s held together by the brilliant work of Melina Juergens, whose motion capture and vocal acting as Senua is possibly the best performance in the entire medium. Hellblade is flawed, sometimes monotonous and sometimes infuriating, but it’s unlike anything else I’ve played this year, and its imagery and sound will stay with me for a long, long time.

System: PlayStation 4, Microsoft Windows

  1. Super Mario Odyssey

At its best moments, Nintendo’s flagship Mario title for the Nintendo Switch feels like Super Mario at his best. His most surreal, his most silly, his most unpretentiously fun. Operating out of an effortless dream logic, Super Mario Odyssey is the story of Mario Mario (that’s his real name, I swear) travelling across the multiverse to crash a wedding party with the help of his friend, a cap that has the power to possess anything in the world that doesn’t have its own hat. The cap’s name is Cappy. This premise doesn’t require you to understand or accept it. You just have to follow it, jumping, flipping, and wah-wah-wah-hoo-ing to whatever unlikely, unpredictable turn it offers next. If it had Luigi, and left some of its insensitive cultural tendencies behind (Mario, take off that sombrero, please), Super Mario Odyssey would be perfect.

System: Nintendo Switch

  1. PlayerUnknown Battlegrounds

I have spent roughly half my time with PlayerUnknown Battlegrounds hiding in a shed. Surprisingly, that’s not a complaint. PlayerUnknown Battlegrounds has a simple premise, one with surprising power. Take a large map, a derelict Eastern European city, perhaps. Fill it with a hundred players. Litter weapons around, some vehicles, some traps for funsies. Last player alive wins. This straightforward idea, literally cribbed from a movie, imbues every single moment of Battlegrounds with tension. Every movement in the grass, every shadow out of the corner of your eye, could be one of 99 other players with you in the crosshairs. Under that kind of scrutiny, every single microdecision becomes terrifying. Which is how I find myself hiding in a shed, over and over and over again, aiming a shotgun at a door that may never open. But let me tell you: hiding has never been so riveting.

System: Xbox One, Microsoft Windows

  1. The Legend of Zelda: Breath of the Wild

The commanding image of Breath of the Wild is a sweeping vista. Encountered roughly five minutes into the game, this vista–a wide shot of a whole continent’s worth of wilderness, open and ready to be explored–is a promise. Lots of videogames offer this promise, of freedom, of unfettered and truly organic exploration, but most fail. So many game worlds feel empty, and dead, and basically constructed. Which, in a very real sense, they all inevitably are. But some special games have enough of their creators in them that their worlds feel real, and beautiful, and are able to pass off the illusion that you’re not just running through handcrafted levels but through a full, living place. Breath of the Wild is one of those games, and it uses such a place to deconstruct and resurrect the mythology and ideas of The Legend of Zelda, a game that was originally very simple: a story of a boy, and a big, scary place, and the promise of someone he loves at the end of the journey. No sequel in this series’ thirty years has so captured the elegance and joy of that story. And now it’s hard to imagine how any other game after it could.

System: Nintendo Switch

  1. Nier: Automata

WIRED made one significant mistake with its gaming coverage in 2017: we never reviewed Nier: Automata. This is my fault. I came to the game a month or two late, and there was no room for coverage in our calendar. And yet Nier: Automata is so excellent, such a significant contribution to the medium of gaming and to my own life that I cannot in good conscience place any other game in the #1 spot. It’s the story of two androids caught in an ancient, horrible war, but that explanation doesn’t do Nier: Automata justice. It is a genre-hopping, brilliantly written, intricately crafted magnum opus about persistence, and love, and hope in the face of absolute loss. Game director Yoko Taro has famously said he makes “weird games for weird people,” but Nier: Automata might be for everyone.

System: PlayStation 4, Microsoft Windows

Desperate Bitcoin Investors Who Forget Their Passwords Are Resorting to Hypnotherapy

Help is in sight for that batch of early-Bitcoin-adopters who are sitting on untapped bounties because they’ve forgotten the passwords needed to get into their ‘wallets’.

A hypnotist in South Carolina has recently begun offering to help people recall forgotten passwords or find misplaced storage devices. Jason Miller charges one bitcoin plus 5% of the amount recovered–though he claims that rate is flexible.

“I’ve developed a collection of techniques that allow people to access older memories or see things they’ve put away in a stashed spot,” he told The Wall Street Journal.

A number of investors who bet on Bitcoin years ago are now in a painful limbo. In the way that bank accounts are protected by passwords, Bitcoin wallets that use ‘keys’ to transact are also typically guarded by complex security codes. However, unlike a bank, Bitcoin has no central hotline to call for a reset.

Elon Musk tweeted last month that he’d misplaced part of his bitcoin, and many other bitcoin owners have watched in similar distress as the price of the cryptocurrency surged over 20-fold at times this year to more than $19,000. On Tuesday morning, it was trading at $18,000.

Read: Elon Musk Doesn’t Know Where He Left His Bitcoin

One such mourner is Mr. Philip Neumeier, who bought 15 bitcoins for roughly $260 in 2013, when he was toying with the idea of accepting the virtual currency on his e-commerce site, reports the WSJ. Now that his cache’s value is nearly $300,000, he’s trying to recover that long-forgotten password. Though he considered hypnosis to help recall the subconscious memory, he decided instead to build a supercomputer that tries to use “brute force” to crack the code.

The brute force required is hot and heavy work, and so the five foot-tall computer system sits in a 270 gallon tank of special mineral water to disperse the heat it generates, says the WSJ. Mr. Neumeier suggests it might even take a few hundred years to run through every possible combination of letters, numbers and symbols.“I should probably be about 332 years old by then—hopefully bitcoin will be worth something,” he said to the WSJ.

Read: Commentary: 3 Reasons Bitcoin Is Worth So Much Right Now

The WSJ reports another case of a father who wiped the old laptop where he kept his password. Youssef Sarhan is live-tweeting his saga.

“It’s a slippery slope to going crazy,” Mr. Sarhan said to the WSJ. “It’s like trying to crack open your own brain.”

However, even he won’t be able to help James Howells, a British IT worker who says he threw away a hard drive with 7,500 bitcoins on it in 2013, and is now trying to work out how to locate the hard drive in the landfill site where he believes it’s buried. They were worth $130 when he threw it away – and they’re worth $126.7 million now.

Uber dealt blow after EU court classifies it as transport service

LUXEMBOURG (Reuters) – Uber [UBER.UL] should be classified as a transport service and regulated like other taxi operators, the European Union’s top court said in a landmark ruling on Wednesday that could impact other online businesses in Europe.

Uber, which allows passengers to summon a ride through an app on their smartphones, has transformed the taxi industry since its launch in 2011 and now operates in more than 600 cities globally.

In the latest of a series of legal battles, Uber had argued it was simply a digital app that acted as an intermediary between drivers and customers looking for a ride and so should fall under lighter EU rules for online services.

“The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport,” the European Court of Justice (ECJ) said.

“Member states can, therefore, regulate the conditions for providing that service,” it said.

The case follows a complaint from a professional taxi drivers’ association in Barcelona that Uber’s activities in Spain amounted to misleading practices and unfair competition from Uber’s use of non-professional drivers – a service Uber calls UberPOP and which has since been suspended in Spain and other countries.

GIG ECONOMY

Uber has taken the fight to regulators and established taxi and cab companies, expanding from a Silicon Valley start-up to a business with a valuation of $68 billion.

Following changes at the top and legal battles, it recently adopted a more conciliatory approach under its new chief executive Dara Khosrowshahi.

The European case had been widely watched as an indicator of how the burgeoning gig economy, which also features the likes of food-delivery company Deliveroo, would be regulated in Europe.

The ECJ said Uber “exercises decisive influence over the conditions under which the drivers provide their service” and that without the Uber mobile app “persons who wish to make an urban journey would not use the services provided by those drivers.”

The decision is unlikely to have an immediate impact on Uber’s operations in Europe, where it has cut back its use of unlicensed services such as UberPOP and adheres to local transportation laws.

“This ruling will not change things in most EU countries where we already operate under transportation law,” an Uber spokeswoman said in a statement.

“As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we’ll take to ensure everyone can get a reliable ride at the tap of a button.”

Uber is in the middle of a legal battle over its right to operate in London, its most important European market.

Bernardine Adkins, Head of EU, Trade and Competition Law at Gowling WLG said the ruling provided “vital clarity to its (Uber‘s) position within the marketplace.”

“Uber’s control over its drivers, its ability to set prices and the fact its electronic service is inseparable from its ultimate consumer experience means it is more than simply a platform connecting drivers to passengers.”

TAXI LOBBY CHEERS

IRU, the world road transport organization, which includes taxi associations, cheered the ruling as finally offering a level playing field for providers of the same service.

“In the area of mobility, the taxi and for-hire sector was one of the first to embrace innovation and new technologies,” said Oleg Kamberski, Head of Passenger Transport at IRU.

“Finding a solution that allows both traditional and new transport service providers to compete in a fair way while meeting the service quality standards became necessary.”

EU law protects online services from undue restrictions and national governments must notify the European Commission of any measures regulating them so it can ensure they are not discriminatory or disproportionate.

Transport, however, is excluded from this.

The tech industry said the ruling would impact the next generation of start-ups more than Uber itself.

“We regret the judgment effectively threatens the application of harmonized EU rules to online intermediaries,” said Jakob Kucharczyk, Vice President, Competition & EU Regulatory Policy at the Computer & Communications Industry Association.

“The purpose of those rules is to make sure online innovators can achieve greater scalability and competitiveness in the EU, unfettered from undue national restrictions,” he added.

“This is a blow to the EU’s ambition of building an integrated digital single market.”

Reporting by Julia Fioretti; editing by Keith Weir and David Evans

Singapore central bank warns against investing in cryptocurrencies

SINGAPORE (Reuters) – Singapore’s central bank issued a warning against investment in cryptocurrencies on Tuesday, saying it considers their recent price surge to be driven by speculation and that there is a risk investors could lose all their capital.

The Monetary Authority of Singapore (MAS) said it is “concerned that members of the public may be attracted to invest in cryptocurrencies, such as Bitcoin, due to the recent escalation in their prices”.

“MAS considers the recent surge in the prices of cryptocurrencies to be driven by speculation,” the central bank said in a statement. “The risk of a sharp reduction in prices is high. Investors in cryptocurrencies should be aware that they run the risk of losing all their capital.”

The city-state’s central bank added that there is no regulatory safeguard for investments in cryptocurrencies and that it does not regulate cryptocurrencies.

It urged the public to act with “extreme caution” and to understand the “significant risks” they take on if they invest in cryptocurrencies.

“As most operators of platforms on which cryptocurrencies are traded do not have a presence in Singapore, it would be difficult to verify their authenticity or credibility. There is greater risk of fraud when investors deal with entities whose backgrounds and operations cannot be easily verified,” the MAS said.

Bitcoin set a record high of $19,666 (£14,700) on Sunday on the Luxembourg-based Bitstamp exchange, its prices having surged more than 1,700 percent this year. On Tuesday, Bitcoin stood at around $17,980, down more than 5 percent on the day.

While Singapore has been an early adopter of fintech, it has not been a major centre for trading cryptocurrencies and none of the big exchanges are based in the city-state.

Reporting by Masayuki Kitano; Editing by Richard Borsuk

China's Tencent, JD.com invest $863 million in online retailer Vipshop

BEIJING (Reuters) – Chinese internet giant Tencent Holdings Ltd (0700.HK) said on Monday it would lead an $863 million investment in apparel platform Vipshop Holdings Ltd (VIPS.N), upping its rivalry in retail with Alibaba Group Holding Ltd (BABA.N).

Tencent will invest $604 million in exchange for a 7 percent stake in Vipshop, while e-commerce firm JD.com Inc (JD.O) – a long-standing ally – will invest $259 million for a 5.5 percent stake, the two firms said in a statement.

The companies did not clarify why the cost of Tencent’s purchased stock was higher than JD.com‘s. Neither company responded to requests for comment on Monday afternoon.

The deal extends a recent push by Tencent into Alibaba’s home turf of retail, where the firm hopes to leverage its messaging service WeChat and its online payment systems to drive shopping demand.

Martin Lau, Tencent’s President, said the tie-up would bring Vipshop Tencent’s “audiences, marketing solutions, and payment support” to help tap China’s rising middle class. Tencent’s WeChat has nearly a billion users.

The looming retail battle reflects a wider, long-running stand-off between Tencent and Alibaba, who have made competing investments in areas as diverse as bike-sharing apps, food delivery and gaming.

“Right now in the Chinese market we have two internet powers,” said Weiwen Han, managing partner for Greater China at Bain & Company. “Investments will either fall into the Alibaba or Tencent camp.”

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He added, however, that such deals were difficult to turn into successful ventures.

“It remains to be seen how they will be integrated successfully, (and) whether or not these will actually be effective investments.”

RETAIL FAULT LINES

Alibaba has been looking to reshape the battle lines of China’s online and offline market. Its Tmall and Taobao platforms dominate online and it has invested over $10 billion in a push into brick-and-mortar stores.

Tencent, Asia’s most valuable company with a market capitalization of $473 billion, plans to invest 4.2 billion yuan ($636 million) for a 5 percent stake in supermarket operator Yonghui Superstores Co Ltd (601933.SS).

It is already a major stakeholder in JD.com.

The latest deal, at a 55 percent premium to Vipshop’s closing share price on Friday, will help Tencent tap the firm’s young, female shoppers and give it access to reams of consumer and transaction data to help it compete with Alibaba’s Alipay.

JD.com’s Chief Executive Richard Liu said the move would help “expand the breadth and reach of our fashion business”. That comes after he said last month around 100 Chinese apparel merchants had left its platform in the last quarter due to what he called “coercive” tactics by competing platforms.

Reporting by Cate Cadell; Editing by Christopher Cushing

The Hard Work and Hustle Before Crazy Valuations and Exits

In February of last year, Appcues – the user activation and onboarding tool developed by Jonathan Kim – closed a seed round of $2.5 million, thanks to investors like Brian Halligan and Dharmesh Shah. That’s on top of the company’s initial seed round of $1.2 million in 2014, bringing Appcues’s total funding to $3.7 million.

That’s a huge accomplishment for any company, but for me, it’s not the whole story. I’m every bit as interested in what got Appcues to this point – in the hard work and hustle that led to the company’s eventual success.

That’s why, after an introduction from our mutual friend, Appcues cofounder Jackson Noel, I jumped on a call with Jonathan to learn how the moves he made early on helped him bring Appcues to life. 

From Journalism Major to Startup Maker 

Jonathan doesn’t come from an entrepreneurial background. In fact, he has a journalism degree from Boston University – the cost of which he describes as having led him to work in computer science.

“I had to get a job to pay for school, and the highest-paying job I could find was in the computer lab,” he says. “I started toying around with computer programming, and I started getting better and better at it. I started working at a dev shop through my junior and senior year; when I graduated, I was looking at the prospect of going into the journalism job market. I decided not to do that. I was either going to do a startup or join an early stage company, and that’s how I wound up at Performable.” 

At Performable, Jonathan was employee #8 out of what would grow to 20 total before he left for Hubspot. Both experiences gave him exposure to the growing pains startups face – lessons he still takes to heart at Appcues.

“It was cool to see how the middle-stage culture starts to solidify and how processes start to break down,” he explains. “Then, going to Hubspot, it’s a totally different set of skills and people you need. We were 200-300 people when I joined, and I stayed with the company through about 700 people. It was neat to see what comes after that really early stage, and that perspective helps shape what’s really fundamental when you’re small.”

Leaving Hubspot to Launch Appcues

For Jonathan, entrepreneurship was always the goal. He explains, “I knew when I joined Performable that I was in that bridge between joining a startup or doing one on my own. It was always my plan to do that.”

And while he learned all he could working for Performable and Hubspot, Jonathan’s exposure to the challenges involved in onboarding and activating users within new tools and systems gave him the idea for the engagement processes that would drive Appcues. But before making the leap, Jonathan hustled hard to put himself in the best possible financial position.

“I paid off all my student loans and started saving money,” he shares. “By the time I left Hubspot, I had $20,000 saved up, and I invested all that into starting the company. I moved out of my expensive apartment in Central Square and into an attic with two roommates and my girlfriend, which took our rent down to like $500 each. I bought a bike on Craigslist for $100, and I biked everywhere because I was too cheap to buy a bus pass for $75 a month. 

(As a side note, Jonathan recommends that anyone thinking of going the same cheapskate route he did not start their companies in East Coast towns during the winter, as the bike commuting he experienced was brutal.)

Jonathan cut his costs in other ways, explaining, “I was eating steel-cut oats everyday and a good amount of ramen. I spent probably $100 per month on non-rent, non-utility expenses. When you’ve got $20,000 to last indefinitely, you really have to figure out how to make it stretch. Until we actually started paying ourselves after our seed round, I had $500 left in my bank account.” 

From 23 Customers to 23 Employees

Thanks in large part to Jonathan’s frugality and forward-thinking, Appcues took off quickly. One smart decision he made was to take on consulting opportunities shortly after leaving Hubspot that showed him exactly where his target consumers’ pain points lay with regards to user onboarding. Another early win was a listing on Product Hunt in 2014, which left him with 16 customers who’d promised to pay for his solution (once he finished developing it, of course).

A speaking gig led to a connection with Appcues’s cofounder Jackson, and the pair quickly brought on their first hire in John Sherer, Director of Sales. Jonathan noted that the move was unorthodox:

“The first person we hired was John, who was a salesperson. People are always surprised that we didn’t hire a developer first. But John was literally calling people asking why they weren’t buying and trying to get them to buy. The idea was that he’d learn so much more around the objections and the real must-haves for product that he actually became more effective for product than a developer would have.”

The team’s hard work, hustle and instincts paid off. Appcues, which started with three employees and 23 customers at the start of 2015 now boasts 23 employees and 530+ paying customers – none of which would have been possible without Jonathan grinding it out in the company’s early stages.

If you’re thinking about launching your own startup, Jonathan’s example is a great one to follow. Crazy valuations and flashy exits are fun to watch, but at the end of the day, it’s the kind of hard work and hustle he’s demonstrated that leads to real success.

To catch up with Jonathan, visit the Appcues website or follow him on LinkedIn. Or, for more info on our conversation, leave me a comment below with your follow-up questions:

New Evidence Could Blow Open the Uber/Waymo Self-Driving Lawsuit

Today, after three weeks of legal hemming and hawing, the Northern District of California finally made public a potentially key piece of evidence in the rollicking, roiling, rolling trade secrets lawsuit between self-driving Alphabet spinoff Waymo and ridehailing company Uber.

That evidence is the Jacobs Letter, a 37-page rundown of truly outrageous allegations about Uber’s business practices, put to paper by the lawyer for former Uber employee Ric Jacobs. Originally sent to Uber’s lawyers as part of a dispute between the company and Jacobs, it’s now at the center of Uber’s legal fight with Waymo. Whoops.

And while the letter’s contents most definitely have not been proven true, they include some tremendous new assertions: that former Uber CEO Travis Kalanick himself directed trade theft; that the company employed spies to trail competitors’ executives; that it illegally recorded a call with employees about sexual assault allegations; and that it used a meme-filled slideshow to teach employees how to hide implicating documents from nosy lawyers.

So we—like you, presumably—have a few questions.

Back up. What’s this whole Uber-Waymo thing anyway?

In February, Waymo sued Uber for trade secret theft. It alleged longtime Google engineer Anthony Levandowski secretly downloaded thousands of files, resigned, and used the ill-gotten intellectual property to start his own self-driving truck company, Otto. Uber bought Otto in August 2016 (for a reported $680 million) and put Levandowski in charge of all its autonomous driving efforts. Waymo argues that Uber knew Levandowski had stolen its IP, then used that info to accelerate its own R&D.

After months of discovery, the case was supposed to go to trial in early December, wrapping up in time for holiday hot chocolates and trips to European snow chalets (for the lawyers, probably). Instead, in late November, the US Attorney’s Office made the very unusual move of sending William Alsup, the judge overseeing this case, a new piece of evidence. (Legal experts speculate the government lawyers did this as a sort of courtesy, because Alsup had flagged the trade secrets theft case for them back in May—another unusual move. The US Attorney’s Office confirmed this week it’s investigating the case.)

How true is this letter?

Who knows? An Uber spokesperson writes: “While we haven’t substantiated all the claims in this letter—and, importantly, any related to Waymo—our new leadership has made clear that going forward we will compete honestly and fairly, on the strength of our ideas and technology.”

Earlier this month, new Uber head lawyer Tony West told the company security team there was “no place” for competitor surveillance at Uber, and that anyone involved in that kind of shady behavior should “stop it now.”

During pretrial hearings a few weeks ago, Jacobs took the stand and walked back some of the claims in the letter, including the allegation that an Uber team stole trade secrets from Waymo. “I don’t stand by that statement,” he said, explaining that his lawyer had written the letter, and that he had reviewed it in a rush while on vacation.

Who is Ric Jacobs?

Ric Jacobs is a former Uber global threat operations employee who left the company this spring, after telling top Uber execs he was uncomfortable with his team’s ethically and legally dubious practices. The document portrays him as a whistleblower.

Uber says that’s not true, and its employees testified Jacobs was demoted for performance issues, resigned after he was caught downloading documents, then used trumped-up charges to extract a big payout in “consulting fees” on his way out the door—$4.5 million, plus another $3 million for his lawyer. Is Jacobs an extortionist? Would Uber pay that much to a bad actor? The letter only tells his side of the story.

What did Uber’s shadowy Strategic Services Group and Marketplace Analytics team actually do?

The letter says the Strategic Services Group was made of spies who allegedly handled human intelligence collection and stole data and info from competitors. It says Market Analytics members acquired trade secrets, competitive intelligence, code, and details on the operations of competitors’ apps—sometimes directly at the behest of then-CEO Travis Kalanick.

The letter also recounts some very sketchy (and, remember, alleged) fraud-like espionage behavior. Jacobs’ lawyer writes that SSG infiltrated Facebook groups and WhatsApp group messages for anti-Uber protestors, Uber drivers, and taxi operators. It alleges the Market Analytics team remotely accessed confidential corporate communications from a competitor, impersonated rider and drivers on the competitors’ platforms, and used the competitors’ data to “steal” drivers and riders for its own service. This sounds like—but is not necessarily—a reference to Uber’s “Hell” project, which used secret software to track rival Lyft’s drivers. (That program is reportedly being investigated by the FBI). The letter also alleges Uber stole a taxi driver database containing 35,000 records.

Did Uber surveil competitors?

During a pretrial hearing this month, one Uber employee testified that a vendor had passed along a taped conversation between executives at Didi Chuxing and Grab (Uber competitors from China and Singapore, respectively). The letter describes a similar (but maybe not identical?) situation, wherein, at the personal direction of Kalanick, “multiple surveillance teams infiltrated private-event spaces at hotel and conference facilities” where executives were staying, to record private conversations.

Does Uber really have an active mole within a competitor’s ranks?

Quoth the letter: “To date, Jacobs is aware Uber still benefits from at least on well-place [sic] [human intelligence] source with access to [REDACTED] executives and their collective knowledge of [REDACTED] on-going business practices.” Yeesh.

Did Uber hide stuff from legal proceedings on purpose?

The Jacobs letter details a complex system of shielding documents from eventual lawsuits, using forwarding techniques and strategic marks on draft documents to assert attorney-client privilege. It also alleges Uber employees used non-attributable devices, wiped clean after each use, and ephemeral messaging apps like Wickr and Telegram to communicate about things they’d rather not have regulators and lawyers see. (Experts note there are perfectly good reasons to use such devices and anonymizing techniques.) The letter says one Uber official trained the company’s autonomous driving unit to “impede, obstruct or influence the investigation of several ongoing lawsuits against Uber.”

Is anyone here working pro bone-o?

The letter alleges an Uber employee “developed a training using innocuous legal examples and the ‘lawyer dog’ meme to produce a slide deck that taught the ThreatOps team how to utilize attorney-client privilege to impede discovery.”

Did Uber actually wiretap an employee?

Among the creepiest allegations: Uber did not tell employees it was recording them during a call about the sexual harassment allegations. Recording a phone call without the consent of all parties involved is illegal in California.

What did Uber have nailed to its wall?

“Like a ‘scalp’ collected, the Market Analytics team proudly has a [REDACTED] nailed to the wall in their workplace to signify their successful theft of [REDACTED] trade secrets,” the letter says. Twitter’s best guess: a pink Lyft mustache.

Does the Jacobs Letter even matter?

Again, it’s unclear whether any of these allegations are true, or why Jacobs had his lawyer write the letter in the first place. Still, Waymo will undoubtedly use the details here to argue Uber had established protocols to conceal its alleged trade secrets theft.

Whatever the truth, the letter will have an immediate effect: The court has found Uber should have definitely turned over this 37-pager during the discovery process. And that’s a problem.

“To use a legal term, Uber is in deep doo-doo,” says Peter Toren, a federal prosecutor who specializes in trade secret litigation. “Judge Alsup is not going to be pleased with this at all.”

Alsup already has already been very impatient with Uber’s lawyers. Now, he could impose monetary sanctions on Uber, charging them court costs and/or Waymo’s bills associated with the trial delay, which could add up to hundreds of thousands of dollars. He could also allow the Waymo team to draw “adverse inferences” from Uber’s omission—to argue that, because Uber couldn’t produce ephemeral messages and hid documents, it’s fair for the jury to assume that they were filled with nefarious dealings.

Finally, the Jacobs letter could be used to supplement other lawsuits in the galaxy of those filed against Uber—or to launch entirely new ones. “To the extent that somebody now has a cause of action they may not have had before, it gives them evidence,” says Toren. Waymo lawyers are not the only ones reading the Jacobs letter. And they won’t be the only ones with questions.


More Uber, Waymo Problems

Data integration is one thing the cloud makes worse

One, enterprises have too many decisions to make. Two, it’s difficult to find success with complex data integration. Those are the two main excuses I hear these days, as enterprises move to the cloud. Whatever the justification, the lack of attention to data integration is beginning to cause some real damage. 

So, what went wrong? Enterprises have so much coming at them that they don’t think about every approach and technology that they need to think about. Security, management, monitoring, and governance are getting the attention they need, but data integration has fallen off the radar screen.

A byproduct of this behavior? More data silos. We all know that data silos are bad, but we seem to be building more data silos—not only on premises but in the public cloud. 

Data silos by themselves are not bad if they are integrated with other data silos. This means that as one silo is updated, the other silos are aware of the update and can immediately exchange information. 

The idea is that you need a “single source of truth” for data, using an old Oracle phrase. A single record of a customer, inventory, sales, or other information you want to track. 

But without a data integration strategy and technology, a single source of data truth is not possible. Systems become islands of automation unto themselves, and it doesn’t matter if they are in the public cloud or not.

The cloud makes many things better, but it makes data integration worse. Indeed, as you migrate applications and data to the cloud, as well as build new applications and databases, chances are you’re forgetting about data integration. 

The result is a far-diminished value of the systems you use, because the data is redundant and out of sync. Enterprise IT should treat data as a single consistent resource that can span all systems and platforms, both cloud and noncloud. If you overlook this aspect, you won’t find the business value you’re seeking.