ICE Reportedly Uses Facebook Data to Track Suspected Illegal Immigrants

Cambridge Analytica isn’t the only entity using Facebook data for its own ends.

The U.S. Immigration and Customs Enforcement (ICE) has relied on Facebook data to find and track immigrants suspected of being in the U.S. illegally, according to a new report by The Intercept.

The report tells of one instance in which ICE used backend Facebook data to determine when the account of the person in question was accessed, as well as the IP addresses corresponding to each login. The agents reportedly combined this data with other routinely used records, such as phone records, to pinpoint his location.

Alongside Facebook’s Cambridge Analytica scandal, the Intercept story underscores questions about Facebook’s data privacy, but the use of Facebook data in ICE’s investigations is not illegal. The Intercept reports that the Stored Communications Act lets law enforcement request information from third-party record holders, including Facebook.

Facebook corroborated this point, telling The Intercept that “ICE sent valid legal process to us in an investigation said to involve an active child predator,” explaining that it responded to this request “with data consistent with our publicly available data disclosure standards.” However, Facebook denies that the data was used to identify an immigration law violation, saying it “does not provide ICE or any other law enforcement agency with any special data access to assist with the enforcement of immigration law.”

Beyond the legal issue, the report further demonstrates the increasingly aggressive tools ICE is using in its mission to crackdown on immigration and comply with the Trump administration’s deportation drives. Last September, ICE worked with Motel 6 to obtain guest information and in January immigration agents targeted dozens of 7-Eleven stores, arresting 21 people suspected of being in the U.S. illegally.

Oracle: Stop The Talk, Do The Walk

On December 17, I noted in this article that it was time for Oracle (NYSE:ORCL) to deliver upon past promises. I noted that the company reported slower growth in its key cloud business in the second quarter, with a further slowdown foreseen in the third quarter. The slower pace of growth of this key business does not rhyme with comments made by management, which continues to talk up the business in recent quarters and on its conference calls.

Shares fell to $48 back in December following the disappointing news as I patiently waited for a further pullback to levels in the low $40s before initiating a sizeable position. After having risen to a recent high of $53 in March, it appears that the sizeable pullback has now arrived, with shares having fallen towards the $44 mark, although still not at $40.

Softening Trends

The reason for the pullback can be directly traced to the guidance for the current fourth quarter, as third-quarter results were quite reasonable. Third-quarter revenues were up by 6% to $9.8 billion, as the annual growth rate was in line with the growth percentage reported in the second quarter and down a point from 7% reported in the first quarter.

While this sounds rather stable, it really is not, as the weaker dollar continues to provide a greater tailwind to the reported numbers, with revenue growth amounting to just 2% in constant currency terms. While a 32% growth number or the $1.6 billion cloud business looked good and surpassed the initial guidance, it marked a slowdown from the 44% growth in the second quarter and even the 51% growth rate reported in Q1.

The fall in growth was most pronounced in cloud software SaaS revenues, which were up by 33% to $1.2 billion, as this was still up 55% in the second quarter, in part offset by a slight acceleration in PaaS and IaaS revenues, which grew by 28% to $415 million.

Traditional on-premise software revenues were up 4% to $6.41 billion, although flat if you account for currency moves. Hardware and service revenues were down by 7% and 6% in constant currency terms, respectively.

As total expenses were up just 2%, Oracle has seen real leverage in terms of operating earnings, which jumped 15% to $3.41 billion. The company reported a big loss, but that is mainly the result of the changed tax legislation.

Oracle reported an adjusted earnings number of $3.5 billion, for earnings of $0.83 per share. Excluded in this adjustment is a pre-tax $879 million combined adjustment, split pretty evenly between stock-based compensation expenses and amortisation charges, as well as a small restructuring item. If we assume that half these costs are real structural costs to investors, that works out to nearly $0.10 per share, or perhaps 8 cents if we account for taxes. That means adjusted earnings probably come in at $0.75 per share on a realistic basis.

Big Cash, Solid Earnings Power

For the first three quarters of this year, Oracle reported adjusted earnings of $2.15 per share, as the seasonally stronger fourth quarter makes a $3.05-3.10 per share number look reasonable for the current fiscal year. If we assume that realistic charges to adjusted earnings trend at $0.30-$0.40 per share, realistic GAAP earnings come in at around $2.70 per share.

Note that Oracle furthermore has a fortress balance sheet with cash holdings of $70.4 billion, although debt has risen to $60.7 billion, for a shrinking net cash position of roughly $10 billion. With 4.2 billion shares outstanding on a fully diluted basis, net cash holdings have risen to just little over $2 per share.

Operating assets are valued at levels closer to $42 per share, which, combined with the estimated realistic GAAP earnings, means that multiples have compressed to 15-16 times earnings.

The good news is that following the changed lax legislation, which involved a big tax bill in the fourth quarter, Oracle no longer has to engage in huge overseas borrowings. The company spent $1.5 billion on interest last year despite the fact that it has a net cash position. After applying a 20% tax rate, that works out to $1.2 billion, or $0.30 per share, as this expensive financing scheme gets wound down over time, resulting in both declining cash balances and debt levels as well, allowing Oracle to forfeit on the expensive “spread”.

This creates another road map to pro forma earnings of $3 per share by now, reducing valuation multiples another turn to just 14 times earnings.

Expectations Are Coming Down

The third-quarter results were actually a little stronger than Oracle guided for itself back in December, aided in part by the weakening dollar since the start of the year. The reported $0.85 per share in reported earnings is seen comfortably ahead of the company’s own guidance of $0.71-0.73 per share provided alongside the release of the second-quarter results.

For the current fourth quarter, adjusted earnings are seen at $0.89-0.92 per share, which looks very decent given the $0.85 per share number posted for this past quarter. Truth be told, adjusted earnings came in at $0.85 per share in the final quarter of 2017, indicating that annual earnings growth is slowing down quite dramatically. I have to stress that the guidance is based on constant currency terms, as reported adjusted earnings are seen three cents lower following the change witnessed in exchange rates.

More worrisome, perhaps, are the projected revenue trends for the quarter, with dollar sales seen up just between 1% and 3%. In constant currency terms, revenues are seen flat at best, but could fall by 2% as well. What’s worrisome is that it is not just the legacy business which is slowing down, but that despite all the great talk, the cloud business is moving lower as well, with growth projected to go down to 19-23%.

As always, if you exclude the numbers, you get the sense that this is an amazing growth company listening to the conference call, while in reality, growth is flat at best in constant currency terms. Hence, the valuation is depressed quite a bit. Using potential realistic GAAP earnings of close to $3 per share if the interest spreads come down a bit, operating assets trade at 14 times earnings for a 7% earnings yield. The problem, however, is that underlying growth is close to zero despite all the talk about growth and focus on the growing areas, while nothing has been said about the lagging legacy businesses either.

This makes the company a perfect value play, as the transformation will in all likelihood take many more years, resulting in another round of disappointment for investors. While more M&A could be a solution, the net cash position has been coming down quite a bit already. Given that Oracle has great assets and underperforming legacy assets, a split of the business might be an idea, to the extent possible. By doing so, the company could take advantage of the 10 times sales multiple which this market is often attaching to “cloud” plays, thereby creating value through the sum-of-the-part calculations.

The cloud currently makes up $6-7 billion of the near-$40 billion conglomerate, as a 10 times multiple could value this at $65 billion. If we assume that the very profitable $33 billion remaining business might fetch a very reasonable 4 times sales multiple and we apply net cash, we end up with a $50 per share valuation already.

Following the latest plunge, I have bought a quarter of my desired “full” position, as I remain sceptical about Oracle, but am simply too attracted to the valuation of the business at this point.

Disclosure: I am/we are long ORCL.

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.

Why Some Schools Pay More Than Others When Buying From Apple

When administrators in Ohio’s Mentor Public Schools were buying MacBooks during the 2015-16 school year, the local Best Buy was offering a lower price than Apple, even after the company’s standard discount for school districts. Superintendent Matt Miller pushed for a better deal, but Apple said it would not budge from its price list. The company prohibits most third parties from selling new devices to school districts, so Miller couldn’t place a bulk order with Best Buy as a district official.

Frustrated at the thought of spending money he could use elsewhere in his budget, Miller devised an extreme workaround. He told Apple he would buy gift cards for each of his 2,700 high school students, bus them to Best Buy and let them purchase their own MacBooks. He threatened to invite local news outlets and create a media circus.

Apple backed down. While the company listed those MacBooks at $829 per device, it charged Mentor Public Schools $759 each, according to school officials. The 8 percent discount saved the district nearly $200,000.

Miller, now superintendent of the Lakota Local School District in Ohio, can be a bulldog at the negotiating table, but thinks he shouldn’t have to be. “I’m just tired of fighting that fight,” he said.

Miller is one of many vocal critics of the wide disparities in education technology pricing, which he and others contend is becoming an increasingly pressing problem as more devices and software enter U.S. classrooms. Almost 14 million devices were shipped to schools last year, up from 3 million in 2010, according to the market research firm Futuresource Consulting. Technology has become a vital component of teaching and learning, and it is considered a classroom requirement to adequately prepare students for life after graduation. The market research firm IDC estimates that $4.9 billion was spent on devices by K-12 schools in 2015, and the Software and Information Industry Association estimates that nearly $8.4 billion was spent on software.

Yet the same device or program can cost more from one state to another and even from district to district. Responsibility to negotiate with vendors falls on school districts that often do not have the time or resources to drive a hard bargain. Many also don’t have information about discounts that other school districts have received, and, when purchasing from a company like Apple, which has a reputation for being rigid with pricing, some district officials don’t even know they can ask for larger discounts.

The Benefits of Transparency

Although purchasing information is technically public, it is not widely disseminated and is rarely available online. School officials’ knowledge is often limited to the information they can get by calling colleagues in other districts — if they even have the time to do that. Some educators and advocates have begun to argue that more shared information and pricing transparency would help schools save money. The Technology for Education Consortium, a nonprofit formed to facilitate exactly that, estimates that school districts could collectively save at least $3 billion if they all got the best deals on hardware and software purchases. That’s nearly 23 percent of the total amount spent.

And there’s evidence that increased transparency works.

Efforts by the national nonprofit EducationSuperHighway to publicize how much districts pay for broadband have allowed many school systems to negotiate bandwidth deals to get greater capacity for a fraction of the cost. With school budgets stretched thin, even small deals on ed tech can make an impact.

“Every dollar saved for this necessary utility can and should be repurposed for the teaching practices that can improve education,” said Daniel Owens, a partner at The Learning Accelerator, a nonprofit focused on expanding blended learning in U.S. schools. “This is public money that should be used in the best possible way.”

Administrators at some schools buy their own tech; elsewhere, district officials handle the task. The negotiating process depends on the products that schools want. When buying specific software, administrators may have to purchase directly from one company. But they might be able to advocate for deals if they have a large order. Or, if they know a company has given discounts in the past, school officials can request a repeat bargain.

For some hardware, districts can comparison shop. To buy Chromebooks, the most-purchased device on the ed tech market, school districts can check prices from Google, Acer, Samsung, HP and others.

The Chromebook market is considered a buyer’s market; if school district purchasers don’t like a price from one vendor, they can try another. That’s all part of Google’s strategy to get into as many classrooms as possible. The company has held down the overall cost of Chromebooks, too, and schools have jumped at the opportunity to buy the devices at low prices.

Everything Apple produces, on the other hand, is proprietary. Many district officials say they are willing to pay more for what they call higher-quality devices that have greater functionality, last longer and have resale value even years later. But, with very limited exceptions, school districts must purchase Apple products directly from the company — the issue Ohio’s Miller ran up against. That policy, the rationale for which Apple officials would not discuss, ensures that Apple will not have to compete with others to make bulk sales to schools.

While purchasing scenarios differ from product to product, and exact comparisons can be difficult to make because of variations in things such as warranties and device memories, price disparities in product costs remain a constant.

Discounts Vary Widely

A Hechinger Report analysis of Apple purchasing documents from 75 school districts around the country found big disparities in prices on devices, warranties and professional development support. Five districts received double-digit percentage discounts, while dozens of others got no money off at all, even when making large purchases.

Many of the discounts uncovered by the Hechinger analysis came on iPad Airs in the year before Apple discontinued them. Some discounts came on accessories, AppleCare and teacher training. But even among those discounts, there was wide variation.

Apple officials declined to comment on discount practices and instead directed the Hechinger Report to the company’s published price lists.

In June 2017, Henry County School District in Georgia got $21,196 knocked off an Apple purchase of more than $3.2 million, a savings of just 0.66 percent. By comparison, in February 2016, Lawrence School District in Kansas got a discount of nearly 24 percent that dropped a $4.1 million bill to $3.15 million. Lawrence officials said that the person in charge of that purchase had left the district, and they were unable to explain the discount; many other districts said they had received discounts without knowing precisely why.

Northern Illinois’ Glencoe School District 35 got a 4 percent discount last winter when it spent almost $425,000 on hundreds of Apple products, including iPad Air 2s, MacBook Airs and iMacs. The district saved about $17,700 on its order, including $181 off each 10-pack of iPad Airs, which normally cost $4,530.

Superintendent Catherine Wang said that the 1,200-student K-8 district always asks Apple sales reps whether there is an education discount or a bulk discount available. But Apple’s sole-source policy limits the district’s bargaining power.

“We have zero flexibility with saying, ‘Oh gosh, we can get this from another vendor for $100 less, what can you do for me?’ ” Wang said. “There’s much less wiggle room with Apple.”

Others school districts don’t even ask.

Jeff Mao, who led the Maine Learning Technology Initiative for a decade, finds people working in schools tend to have a “defeatist attitude” when negotiating with vendors, often failing to ask for discounts in the first place. But, Mao said, schools can make particularly compelling cases for discounts. They are spending public dollars, for children, and they’re at the mercy of extremely tight budgets, after all. Even when he worked in a small district in Maine with just 3,000 students, Mao negotiated prices with Apple, securing a discount on his orders.

“No matter how big or small you are,” Mao said, “you have to push the idea that you are an educational buyer. You deserve a break, to some degree.”

Mao found that negotiating on the extras that came with the devices gave him the most room at the bargaining table as he brokered three successive statewide contracts.

To win the 2013 contract from the Maine Learning Technology Initiative, Apple had to meet a long list of needs relating to software as well as hardware. Mao said the company’s original bid didn’t include an app that would help students learn computational thinking, something he had asked for from the start. Mao argued that an additional app was necessary to meet the requirements of his request and pushed Apple to include it without increasing its per-device price. The company eventually agreed.

In another example from that same year, Mao and others from his team were on the phone with Apple representatives. Mao muted the phone so he could discuss an offer but then couldn’t unmute. He said his team’s silence prompted the Apple reps, who didn’t know about the phone problem, to lower their offer. Because of the fluke technological glitch, the final costs were even lower than Mao said he would have accepted.

Keith Madsen, director of technology at East Allen County Schools in Indiana, said he bargains on everything. Apple knocked 14 percent off a big order he placed in 2016, saving the district $425,000.

When it comes to software licenses, Madsen said he has seen prices drop 20 percent over the course of a couple weeks of negotiating.

“We’re always working on trying to get that license down as much as we can because obviously education has a very limited budget,” Madsen said.

Sharing Data

Many districts seem to miss out on the best deals for ed tech because they simply don’t know how little they could be paying. The Technology for Education Consortium (TEC) is attempting to change that.

According to the nonprofit, about 150 school districts have joined the group and are sharing their ed tech purchasing data.

The consortium’s review of iPad Air purchases in 2015 found that some districts paid as much as $115 more per device than other districts for the same model and warranty package. On Chromebook purchases, some districts paid up to $90 more for the same product and services.

And while hardware can be the starting point for educational technology, the bulk of district spending is on software. TEC found that, collectively, 95 of its member school districts bought 360 different apps, and prices on the most-purchased apps varied by 20 percent. In one extreme example, prices ranged from $4.97 to $7.54 per student for licenses for Accelerated Reader, a product of Renaissance Learning. A Renaissance executive said pricing decisions are complex, and influenced by factors such as timing and volume, but that the company supports the TEC’s efforts to increase transparency.

Brent Maas, director of marketing and outreach for the Institute for Public Procurement, a nonprofit association for procurement officials, is among those who consider more transparency to be the solution. With enough transparency, districts can establish benchmarks for prices and identify seasonal trends that impact costs. But this doesn’t always mean they’ll refuse to buy products for anything more than rock-bottom prices, he said, just as consumers might decide they’re comfortable paying $100 more for a TV in January than they would have paid on Black Friday.

“It’s about an agency identifying what’s their tolerance,” he said. “It’s hard to do that now because it’s difficult to achieve broad data.

“On the whole, I would say most folks are running somewhat blind. They’re doing the best based on what they know.”

Without a centralized place to look up how much peer or neighboring districts pay for ed tech, school district purchasers are necessarily limited.

TrueCar and Kelley BlueBook enable potential buyers to see very clearly how much a car is worth with a simple online search. Healthcare Bluebook does the same thing for medical procedures. And EducationSuperHighway brought pricing transparency to school district broadband purchasing.

“Creating that transparency was really the starting point for us,” said Evan Marwell, CEO and founder of the nonprofit. Being able to show that some districts were paying the same monthly price as neighboring districts but getting just a fraction of the bandwidth uncovered a hidden problem.

Now, with the organization’s free Compare & Connect K-12 tool, school districts can see exactly how much other school districts pay for broadband and compare it with their own contracts.

In addition to the Technology for Education Consortium’s work, districts in some regions are banding together to share their own purchasing information and capitalize on deals that their peers have successfully negotiated.

But districts need to be careful when looking at others’ purchasing information, said Karen Cator, president and CEO of Digital Promise, a nonprofit that supports education innovation through technology. The same product might come with different amounts of technical support or professional development help, for instance.

“You can oversimplify the situation by just simply looking at the price of the product from one place to the next because there’s so much else involved,” said Cator, who worked at Apple for 12 years. “Many times companies have a good reason for variations in pricing and sometimes they don’t.”

Because of that, though, Cator thinks the answer is to seek detailed and complete transparency about what exactly other districts bought and how much they paid. “You can see very quickly if you’re comparing apples and oranges,” she said.

Mao questions whether transparency will actually lower costs for school districts. He said there’s a chance that more companies will refuse to negotiate with schools, leaving them to pay higher prices overall. But Marwell, from EducationSuperHighway, said he heard the same concerns when he started advocating for price transparency in bandwidth purchases, and the worst-case scenarios haven’t materialized. Vendors have not colluded to charge more, he said.

For Miller, the Ohio superintendent, price disparities in ed tech purchasing are an equity issue. He hopes lawmakers will consider passing regulations that require companies to offer districts good deals. The federal E-rate program already does this for telecommunications companies that provide goods and services to schools, and the Federal Communications Commission has issued fines and sued companies found to be overcharging districts.

The bottom line, for Miller, is that something has to change.

“Technology is a great equalizer for kids across the country,” Miller said, “and, I think, to maximize that, school districts need to be on an even playing field.”

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

Learning Curve

Value Stocks In Short Supply – The Only 2 I Would Take

I recently wrote an article on 11 value stocks left in an aging bull market. Here are the results of my follow-up on those stocks that sifted out during the value screening. Two of them made it into the buy category, seven are put into the hold bucket, and the rest in sell.

The reason I decided to run this screen was due to indications the market was overheated, from a historical perspective, as I documented in my article Finding Value In An Overinflated Market.

My thought was I was unlikely to find a lot of good values in this market, and my results have thus far supported that hypothesis soundly. From the 11 screened earlier, here are my opinions on buy, wait, and sell.

Most of the wait category have companies that are in turnarounds after experiencing difficulties or are implementing new business models after some restructuring. Those could still be values but need to give time to see if business objectives are being met before taking a position in the stock.


Kelly Services (KELYA) provides workforce solutions to various industries worldwide.

Fourth Quarter YoY results showed an increase in revenue of 9%, gross profits up 15.4%, earning from operations up 43%, but reduced earnings per share of $0.06 down to $0.45 due to charges related to changes in tax law. Sans those changes, EPS were up 57% YoY, so the business is doing well. The following chart shows the revenue mix and growth.

Source: Kelly Services

The same source shows that year-end debt was up at $10 million due to the Teachers On Call acquisition. Teachers on Call provides substitute teacher staffing services and is complementary to the professional staffing services the company already provides.

Capital Cube shows that earnings growth, share and price appreciation exceed peer median, while dividend quality is on par.

Source: Capital Cube

Capital Cube peer comparison shows that Kelly Services is trading more cheaply to book, earnings, and sales than its peers.

Source: Capital Cube

Kelly’s dividend payout is below that of the peer category.

Source: Capital Cube

The current ratio is 1.5 but the profit margins are relatively low at 1.33%.

The stock price turned up in September 2011 and may be due for a cool-off period. However, the business model is still attractive as more part-time and temporary workers enter the economy.

The following chart from the BLS shows that part-time employment continues to increase in the US, and has increased substantially since the 2008 financial crisis. Part-time, project-based, and short-term staffing are a significant portion of the business for Kelly Services.

Source: Trading Economics

I believe that in the event of an economic downturn, demand for Kelly services will also likely increase as companies cut costs by ousting full time, long-term employees and turn to cheaper staffing services to fill the void. I believe the company will remain a solid buy for 2018.

Tech Data (TECD) is a wholesaler and distributor of computer products and software.

Recent annual results have Tech Data increasing revenue 49% YoY to $11 billion due primarily to the acquisition of Technology Solutions. Apple products dominate sales with 19% and no other vendor partner over 10%. So if Apple sales dip substantially, then it may affect profits for Tech Data. This relationship will be key to watch.

European sales increased 37%. The acquisition of Technology Solution added Asia as a regional segment and sales totaled $338 million. I see this last point as particularly bullish for Tech Data due to emerging market exposure and diversification away from US and European markets who may come under economic volatility pressures in 2018. EPS were up 43% to $3.50.

The company is invested heavily in the cloud market, which is their fastest growing, and no offers cloud services in 67 countries. The company is expanding into technology services with the Global Lifecycle Management Services Portfolio, which I see as very bullish as profit margins are likely to be higher in services than in some of the other segments which are more commoditized in nature.

Tech Data is trading below peers from a Price / Earnings standpoint.

Source: Yahoo Finance

The company has a very strong balance sheet, with current ratio 1.26 but a relatively low profit margin of 0.32%, which is a key statistic to watch going forward. Still, the cash hoard of almost $1 billion leaves the company plenty of flexibility to maneuver economic downturns. Price to book is 1.07 and Enterprise Value / EBITDA is a modest 6.01. The company is undervalued by traditional measures.

Further, I believe that the technology space will grow as emerging economies continue to transition from industrial to information based. And with Tech Data’s new exposure to Asia, a key growth market, prospects for increased sales are stronger in 2018 and beyond.

However, shares have plunged since March 8th on revised downward quarterly guidance due to increasing competition since last year. I think the fall was a bit dramatic, as tends to be the case on quarterly target adjustments, which provides investors a nice entry position for a longer term hold position.

Risks include the handcuff to Apple, the increased industry competition, and the relatively low short-term margins. However, I think the market in the longer term offers room for expansion should the company survive current competitive forces. Likely they will have to cut costs and streamline internal operations to stay competitive, but there is no reason to think this cannot happen. Maybe they should hire Kelly Services to reduce some of their staffing expenses!

Looking forward, Q1 results are typically the softest, according to management, with receivables back-loaded into later quarters. Therefore, I would recommend either taking a position now or waiting until the new quarterly numbers are out to take one.

This is a somewhat tepid buy recommendation, but I think the sell-off was overdone and hence my recommendation.


Spok Holdings (SPOK) is a wireless communications provider that specializes in messaging and messaging software. The company has declining earnings within the legacy paging service portfolio, which places it in like company with many aging wireline service telecom companies who have similar declining legacy copper-based portfolios.

The paging service is declining, but due to attractiveness to emergency responders as the paging service is on a separate network from wireless smartphones, the declines in this market have been slowing. The software business revenues are increasing faster than the decline in paging services, so it appears Spok has executed on half their plan in paging services while continuing to expand the other half on communications software Spok Care Connect, for which growth has been particularly strong in the healthcare sector.

This company is going through a transition from traditional telecom to a software provider and I believe the potential growth in software market outweighs the slower ‘melt-rate’ of the paging business. In the medium term, the company should continue to grow overall revenues as a result.

The company has a lot of cash and a healthy balance sheet, having paid off long-term debt and also engaging in share buy-backs of late. The dividend is not high quality but there does not appear to be any near-term threat to it. The key question is how will Spok spend its cash on its next acquisition? Management says prior targets wanted multiples in premium which they are not willing to pay, which is no surprise in this overheated market.

There is both risk and value in this company. If the economy goes into recession, the company has the cash to make a well-timed cheaper acquisition, which is what I would do if I were them. If management stays patient, it can navigate the declining pager business, build up the software business revenues, and wait for cheaper, synergistic acquisition targets during the next recession. If they don’t stay patient and pay too much for their next deal, then investors would be smart to bail out of this stock.

Celestica (CLS) provides hardware design, manufacturing, platform, and supply chain solutions. The company exited the solar panel business in 2016 and is restructuring through 2018 which has put pressure on margins and reduced net income. The big question is if the company finishes the restructuring and then focuses on building higher revenues. The company has announced share buybacks and this will support the share price around the $9.50 to $10 mark, which has served as a strong support level for the stock.

Source: Yahoo Finance

Risk with the company includes reliance on top 10 customers which generated 68% of revenue in 2017 in addition to the double-digit percentage losses in the communications silo. As my readers know from my past articles, telecommunications is experiencing margin compression and the after-effects of billions in mis-allocations of previous capital. Moving forward Celestica will need to diversify its customer base and expand regionally beyond the 70% share of customers in Asia to combat losses from the communications sector declines.

Hope comes from the military and aerospace sector as geopolitical risk increases and countries like China, Russia, and the US continue to steadily increase their defense spending budgets YoY. Out of 11 analysts, 9 have it as a hold, 2 as buy and 1 as strong buy which shows there is belief to the upside if the company can execute on the new business plan starting in 2018.

Price to book is 1.15 and Enterprise Value / EBITDA is 5.04. The current ratio is 1.94 and book value is $9.58, suggesting a bottom price for the stock this year before the eventual turnaround occurs. That would be my recommended entry point unless management reports better results next quarter, at which point we have likely hit the cycle bottom already.

Signet Jewelers (SIG) engages in retail sale of diamond jewelry, watches, and other products in North America, UK and Ireland, and the Channel Islands. The company’s Zale’s division runs the mall and outlet retail jewelry business.

The profit margin is 8.31% and operating margin is 9.25%. Return on assets is 5.82% and return on equity is 16.71%, which are healthy. The current ratio is 3.32, and Enterprise Value / EBITDA is 3.67 which are both excellent numbers.

Revenues, however, are falling steadily. Investors have posed three major criticisms, which are an alleged diamond swapping scandal with customers, sexual harassment story obtained from court documents, and using cheap financing to goose sales that would affect receivable quality, which has been confirmed by their recent non-prime receivable sale at below stated value.

The company is having to close stores and may be another victim of Internet business stealing brick and mortar store revenues. The company is buying back shares with cash which while it will support the share price and provide gains for shareholders, don’t undress the underlying business weakness issues.

The company has plenty of cash but it needs to diversify sales channels and focus on profitable stores while closing down those that don’t bring strong profits. Management has laid out a plan to do this and execution will determine whether, at this price, Signet is a true value or a value trap.

Sanmina (SANM) manufactures components and parts for several industries as well as providing repair and logistics services. Q1 2018 performance was disappointing due to customer order push-out at the end of the quarter, particularly in the communications sector as a result of transition from 4G to 5G wireless services. Automotive sector performance was down as well, though the company expects infotainment demand in automotive to continue to grow.

The company mentioned that Q2 is seasonally soft, so expect weaker financial performance during this quarter with performance improving in H2 of 2018. The company says the sales pipeline for industrial, medical, and defense sectors is improving. The IHS Markit Score is overall positive for Sanmina, with little bearish sentiment and output in the industrials sector improving.

Financially, the company is very solid. Current assets are enough to pay off all long-term debts, which is a true measure of stability in potentially turbulent economic periods. The company has positive cash flow and is using it to buy back stock, which is common in periods where companies expect market downturns. The buybacks strengthen share price and also pay back larger investors for their contributions before any market shocks occur.

Revenue is 3x market cap, price to sales is 0.28, price to book is 1.28, Enterprise Value / Revenue is 0.31, and Enterprise Value / EBITDA is 6.49. This is pretty much the definition of a value stock and the company is trading below what it should be. Forward P/E is a modest 10.11.

The sector is somewhat boring but stable. If the economy crashes, manufacturing could get hit hard. However, this company is already cheap. Risk is that sales fall in an economic downturn and the company burns cash; however, they should be able to weather the storm. I would wait for the weaker Q2 numbers to be published, let the stock price fall a bit, and take an entry point there waiting on a stronger expected second half if you are interested.

Super Micro Computer (SMCI) develops and provides high performance server solutions.

They are currently dealing with a lawsuit regarding failure to properly record revenues, did not maintain proper internal controls over financial reporting, revenues and income were improperly inflated, and issued materially false statements.

My recommendation as a former auditor: don’t touch this one until the lawsuit is resolved. If the company is found to have materially misstated financials, then they are in trouble as this is a serious charge. There is no reason to buy this stock now until the matter is resolved.

Once resolved and the potential impacts are known, the stock might be cheap. It is currently trading at very modest multiples to book and sales, so I recommend waiting.

First Solar (FSLR) provides solar energy solutions with most sales in the US, Europe, and Asia. The company does most of its business in the US, and in the event of economic downturn, could really hit this company hard. First Solar should consider increasing sales in emerging economies to offset expected market declines in some aging Western bull markets before the expected business cycle turn occurs.

Losses in 2017 were largely due to tax law changes that will be balanced over the full eight years allowed. Sans those charges, the company earned $2.59 per share in 2017. Price to Book is 1.49, Enterprise Value to /EBITDA is 15.76 and the stock is trading over book value per share of $48.81. The price is too frothy at this level. The company has a good balance sheet and a 5.89 current ratio, so I don’t believe there is near-term pressure on the financials.

The weakness of the company is the lack of efficiency gains in its solar products, not seeing strong growth in 2017 which is putting it behind the competition. The company may be in transition to the new Series 6 product and 2018 may be the year the company builds base moving forward.

Long term, the company has brighter prospects as countries are signalling demand for cleaner energy alternatives, and away from nuclear and coal. While I believe renewable energy projects cannot replace the base load capabilities of nuclear, it is clear that solar energy is here to stay especially as cost per watt continues to fall making it at least a viable, if imperfect, power alternative.

First Solar appears to be concentrating on large industrial scale projects which will be accretive to revenues over time, but the company needs to advance R&D and improve their attractiveness compared to their competitors. I expect 2018 to be fairly week for the company but near the end of the year may be a different story.

The stock has moved very strongly in the last month and I believe it is too high to enter, therefore I would wait to see what 2018 brings before investing.

Klondex Mines (KLDX) properties were recently acquired by Hecla, with some implication that certain deposits may be spun off. This is a complicated deal and investors should wait to see the resolution. Plus, the shares have already popped on the news, so the proposed value at time of my analysis has already been realized by current stockholders.

Source: Yahoo Finance


Seneca Corp. (SENEA) provides packaged fruits and vegetables globally. Studies have shown that use of these foods in American households is declining due to substitution of sides from fruits and vegetables at the dinner table, strong reduction in fruit juices at breakfast time, as well as movement into fresh vegetables and fruits and away from packaged.

The company has a very low-profit margin (0.31%) but has reported recent sales increases of 7.1% for nine months ended Dec 31, 2017. The current ratio is over 4 and they are trading under book value, but the declines in product favorability with Americans along with weak profits may haunt them, despite their current favorable balance sheet. I don’t see the long-term upside for the company unless they make a strategic acquisition to boost profit margins. The acquisitions to date capture market share but don’t have much potential to boost margins and keep the balance sheet strong. This company is not a buy at this time.

Foot Locker (FL) sells athletic shoes and apparel in many markets. This one is suffering from falling sales like many other small apparel companies.

Comparable sales and gross margins are down. There appear to be challenges with brand mix, and the company has not developed a strong retailer strategy to offset brick and mortar sales losses. However, one bit of good news is that sales per square foot are up a bit since the store closures. That indicates that the overall retail pie is shrinking slowly (slow ice melt) for which the company has some room to develop new sales channels.

Also, the company is facing a lawsuit from disappointed investors claiming the company made false statements, which builds more uncertainty into their future prospects and likely puts more downward pressure on the price.

However, this will likely take time and I expect the revenues to continue to drop in 2018. If the economy takes a hit as I expect it too, this company is really going to struggle as it relies a lot on premium brand sales. This is not a buy at this time.

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

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

Micron: Is The Catbird Seat Heating Up?

Micron (MU) reported Q2 revenue of $7.35 billion and eps of $2.82. The company beat on revenue by $70 million and beat on eps by $0.08. MU fell nearly 8% after earnings. I had the following takeaways on the quarter.

Top Line Growth Remains Gaudy

Last quarter Micron grew total revenue by 71% Y/Y. It followed up that performance this quarter with revenue growth of 58% Y/Y and 8% sequentially. The tremendous leverage driven by higher sales are helping the bottom line. Gross margin improved to 58% from 37% in the year earlier period. This double-impact caused gross profit on a dollar basis to more than double.

Revenue from the Compute & Networking Business Unit (“CPBNU”) was up over 90%, due to increases in average selling prices (“asp”) for products sold into the client market, growth in the cloud driven by out-sized increases in DRAM content per server, and increased sales into the enterprise market. The Storage Business Unit’s (“SBNU”) sales of Trade NAND products was up 45% Y/Y but fell off 9% sequentially; asp for NAND component sales fell, partially offset by increases in SSD sales. Meanwhile, the Mobile Business Unit (“MBU”) revenue was up 20% Y/Y driven by Micron’s low-power DRAM product and sales of mobile DRAM into smartphones.

On a product basis DRAM revenue was up 14% Q/Q and 76% Y/Y. ASP and gigabits sold increased Y/Y in the low 40% range, and low 20% range, respectively; they also grew sequentially. Trade NAND revenue was up 28% Y/Y, but fell 3% sequentially. ASP decreased Y/Y in the high single digits while gigabits sold increased in the low 40% range. ASP also fell sequentially in the mid-teens range. According to management, the ASP decline was caused by a mix shift in the company’s SBU NAND components. This could be a trend to watch going forward.

Micron Is Sitting In The Catbird Seat

The importance of the cloud and gaming segments is creating explosive demand for memory and storage capacity. The secular shift from the previous PC-based market to the current dealer market is amplifying that demand. Micron is poised to exploit this secular shift. According management, memory is also making possible applications like artificial intelligence and virtual reality:

This market now supports a healthy demand environment with several secular demand drivers that I have discussed earlier. More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.

Management estimates DRAM bit growth in the 20% range in calendar year 2018. NAND bit growth could exceed 40%, driven by the transition to 64-layer 3D NAND. The NAND bit growth is predicated on an increase in supply to meet customer demand.

The Catbird Seat Could Get Hot

DRAM makes up over 70% of Micron’s revenue. Its increased asp and bit growth across products has led to the company’s outsize top line growth. Can the DRAM market hold up? Which industry players will increase capacity that could potentially drive down asp? Micron may have partially answered that question on the earnings call.

Micron wants to diversity its portfolio of LPDRAM, MCP and managed storage solutions to meet customer demands. The company also wants to expand its 64-layer 3D TLC NAND capabilities and its portfolio of low-power solutions with 1X LPDRAM and 1X nanometer DRAM designs. Micron needs additional capacity to meet the demands needed by growth in the cloud, artificial intelligence, and increased memory needs in the mobile space. It announced plans to build a $7.5 billion clean room space:

Accordingly, we are executing plans to add clean room space in our NAND and DRAM SAS network. With the support of the Singapore Economic Development Board, we have finalized plans to build additional shelf space in Singapore, adjacent to our existing NAND Center of Excellence. The primary purpose for this new clean room space will be to transition our existing wafer capacity to future 3D NAND nodes …

The first phase of this clean room is expected to be completed by the summer of 2019, with initial wafer output from the facility expected in the fourth quarter of calendar 2019. We are also building out incremental clean room space in our fab in Hiroshima, Japan, which will be available for production at the beginning of calendar year 2019. This clean room space will be used to continue our 1Y nanometer DRAM transition. For fiscal year 2018, we expect our capital expenditures to be in the upper end of our previously guided range of $7.5 billion, plus or minus 5%. Long term, we target capital expenditures as a percentage of revenue to be in the low 30% range.

Micron has cash on hand of nearly $8 billion. Free cash flow for the first half of the year was $4 billion, which equates to a run-rate of $8 billion. The company has ample cash and cash flow to fund its capital expenditure requirements. Its $4.2 billion capital expenditures through the first half of 2018 was exactly 30% of its total revenues. Maintaining this spend should not be a problem going forward.

In the short term, capacity expansion could help meet customer demand requirements without being disruptive to DRAM and NAND prices. What happens if demand peaks or if Samsung (OTC:SSNLF) or Hynix (OTC:HXSCF) follows suit? NAND prices are already facing headwinds. If DRAM prices stagnate it could hurt the MU growth story.


This was another strong quarter for Micron. Declining NAND prices and the uncertain impact on DRAM from capacity expansion make MU a sell.

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

7 Excuses You Use to Put Off Starting Your Business

I have talked with hundreds of people about starting a business. People often tell me would love to start a business–then follow up with a list of reasons why they aren’t able to take the first step. From “I’m not good enough” to “not enough savings” and everything in between, there are many reasons starting a business can feel impossible.

And I understand. Starting a business feels overwhelming. Though I knew from my first lemonade stand that startup life was for me, it took me years of hesitating before I finally took the plunge. Here are the seven common reasons you might be hesitating–and seven ways to overcome these fears.

1. I don’t know how.

The beauty of business is that you can learn everything as you go from web resources, books, and peers. Most libraries have a business desk staffed with knowledgeable librarians who specialize in helping people just like you get started with business planning. Many libraries have free online access to the training database so you can learn online free and at your own pace. When I first started my company, Google was my best friend–anything I didn’t know was only a few clicks away. 

With increasing numbers of people working for themselves, chances are you know at least one person who is self-employed. Take them for coffee, ask them how they got started. It doesn’t have to be in the same industry. Ask for introductions to other entrepreneurs they know.

2. I’m too young or too old.

I hear twentysomethings say they’re too young and sixty somethings say they’re too old. But it doesn’t matter. The average American will change careers 5-7 times. That’s careers, not jobs. Age is truly one of the most meaningless measures of readiness. You can learn new things, you can adapt to change, and you can start a business at any age. You’re never too young or too old do change your life and start something you’re proud of.

3. What if I fail?

I fail frequently and you will, too. Get comfortable with the reality that 99 percent of everything you do won’t work. But the 1 percent that does work is magical.

4. My parents don’t support my startup dreams.

There are a lot of difficult dynamics at play when discussing your life choices with parents. But unless you’re asking your parents to bankroll your startup, it’s not really up to them. You only have one life, build one that you’re proud of without worrying about the opinions of others.

5. I don’t have the cash.

It’s a common misconception that you need a lot of capital to start a business. If you have access to a computer and the internet, you can start any number of businesses. I started my business with a $500 credit card loan and a hefty chunk of student loans. A lot of the software you need is available free and there are a variety of businesses you can start small.  As you start collecting payments, you can grow your business.

6. What will my friends or partner think?

If your friends or partner don’t support your dreams, get new ones. Seriously. It’s hard to let friends and lovers go, but if they are only contributing negatively to your dreams, it’s time to let them go. Practice now by telling your friends about your business idea–they might surprise you.

7. I’m not good enough.

Stop it. You know you’re wrong about that. It’s going to be scary, but no one else is better equipped to make your ideas and dreams into reality.

Running your own business is a lot work and there are many stressful moments. But the real rewards of building something you’re proud of far outweigh the imagined obstacles. Now you’re ready to start a business–no excuses!

BlackBerry to provide software for Jaguar Land Rover EVs

(Reuters) – BlackBerry Ltd and Tata Motors Ltd’s Jaguar Land Rover (JLR) said on Thursday they reached a licensing agreement to use the Canadian company’s software in the luxury car brand’s next-generation electric vehicles.

FILE PHOTO: A Blackberry sign is seen in front of their offices on the day of their annual general meeting for shareholders in Waterloo, Canada in this June 23, 2015. REUTERS/Mark Blinch/File photo

BlackBerry will provide its infotainment and security software to JLR, in the Canadian firm’s latest licensing deal for its autonomous-driving technology after similar agreements with Qualcomm Inc, Baidu Inc and Aptiv Plc.

BlackBerry’s QNX unit, which makes software for computer systems on cars and has long been used to run car infotainment consoles, is expected to start generating revenue in 2019.

Its Certicom unit focuses on security technology and serves customers such as IBM Corp, General Electric Co, and Continental Airlines.

JLR, which was bought by the Tata group in 2008, said last year that all its new cars would be available in an electric or hybrid version from 2020.

Britain’s biggest carmaker said in January it would open a software engineering center in Ireland to work on advanced automated driving and electrification technologies.

Reporting by Ismail Shakil in Bengaluru; Editing by Amrutha Gayathri

Exclusive: Kaspersky Lab plans Swiss data center to combat spying allegations – documents

MOSCOW/TORONTO (Reuters) – Moscow-based Kaspersky Lab plans to open a data center in Switzerland to address Western government concerns that Russia exploits its anti-virus software to spy on customers, according to internal documents seen by Reuters.

FILE PHOTO: The logo of Russia’s Kaspersky Lab is displayed at the company’s office in Moscow, Russia October 27, 2017. REUTERS/Maxim Shemetov/File Picture

Kaspersky is setting up the center in response to actions in the United States, Britain and Lithuania last year to stop using the company’s products, according to the documents, which were confirmed by a person with direct knowledge of the matter.

The action is the latest effort by Kaspersky, a global leader in anti-virus software, to parry accusations by the U.S. government and others that the company spies on customers at the behest of Russian intelligence. The U.S. last year ordered civilian government agencies to remove the Kaspersky software from their networks.

Kaspersky has strongly rejected the accusations and filed a lawsuit against the U.S. ban.

The U.S. allegations were the “trigger” for setting up the Swiss data center, said the person familiar with Kapersky’s Switzerland plans, but not the only factor.

“The world is changing,” they said, speaking on condition of anonymity when discussing internal company business. “There is more balkanisation and protectionism.”

The person declined to provide further details on the new project, but added: “This is not just a PR stunt. We are really changing our R&D infrastructure.”

A Kaspersky spokeswoman declined to comment on the documents reviewed by Reuters.

In a statement, Kaspersky Lab said: “To further deliver on the promises of our Global Transparency Initiative, we are finalizing plans for the opening of the company’s first transparency center this year, which will be located in Europe.”

“We understand that during a time of geopolitical tension, mirrored by an increasingly complex cyber-threat landscape, people may have questions and we want to address them.”

Kaspersky Lab launched a campaign in October to dispel concerns about possible collusion with the Russian government by promising to let independent experts scrutinize its software for security vulnerabilities and “back doors” that governments could exploit to spy on its customers.

The company also said at the time that it would open “transparency centers” in Asia, Europe and the United States but did not provide details. The new Swiss facility is dubbed the Swiss Transparency Centre, according to the documents.


Work in Switzerland is due to begin “within weeks” and be completed by early 2020, said the person with knowledge of the matter.

The plans have been approved by Kaspersky Lab CEO and founder Eugene Kaspersky, who owns a majority of the privately held company, and will be announced publicly in the coming months, according to the source.

“Eugene is upset. He would rather spend the money elsewhere. But he knows this is necessary,” the person said.

It is possible the move could be derailed by the Russian security services, who might resist moving the data center outside of their jurisdiction, people familiar with Kaspersky and its relations with the government said.

Western security officials said Russia’s FSB Federal Security Service, successor to the Soviet-era KGB, exerts influence over Kaspersky management decisions, though the company has repeatedly denied those allegations.

The Swiss center will collect and analyze files identified as suspicious on the computers of tens of millions of Kaspersky customers in the United States and European Union, according to the documents reviewed by Reuters. Data from other customers will continue to be sent to a Moscow data center for review and analysis.

Files would only be transmitted from Switzerland to Moscow in cases when anomalies are detected that require manual review, the person said, adding that about 99.6 percent of such samples do not currently undergo this process.

A third party will review the center’s operations to make sure that all requests for such files are properly signed, stored and available for review by outsiders including foreign governments, the person said.

Moving operations to Switzerland will address concerns about laws that enable Russian security services to monitor data transmissions inside Russia and force companies to assist law enforcement agencies, according to the documents describing the plan.

The company will also move the department which builds its anti-virus software using code written in Moscow to Switzerland, the documents showed.

Kaspersky has received “solid support” from the Swiss government, said the source, who did not identify specific officials who have endorsed the plan.

Reporting by Jack Stubbs in Moscow and Jim Finkle in Toronto; Editing by Jonathan Weber

GDC 2018: Who Is This Event For Anymore?

San Francisco is a little bit more crowded than usual today, thanks to the 2018 Game Developers Conference. For a week each March, developers from all over the world come to learn, play new games, and hopefully get a job—while journalists congregate to report on the activity of said developers (and also to get jobs). GDC is possibly the most important event of the year for the army of engineers, artists, and businesspeople who make up the commercial videogame industry: a hub of networking, showcases, and creative reflection, a place for both announcements and edification.

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Yet, like videogames itself, the conference seems to be at a crossroads. As the event has continued to grow, and its profile in the industry has increased, its purpose has begun to shift. The usual excitement still exists among those in the professional gaming (not to be confused with esports) community, who change their Twitter names to include variations “at GDC” and who populate the conference’s scheduling app with selfies and meeting requests, but it seems more than ever to be undercut with restlessness: Who is this conference even for, anyway? More than ever, huge platforms are taking a huge share of the show floor and speaking schedule. Facebook, Oculus, and even Magic Leap are all hosting multiple sessions this year.

It’s not just that the industry-wide muddling of the lines between indie and triple-A creator has hit GDC, though that’s part of it. The games ecosystem is home to a complex variety of types of developers, and the intense divide between indie and major is both fuzzier and more important than it’s felt like in the past. Mid-tier titles like PlayerUnknown’s BattleGrounds or the free-to-play Fortnite can become dizzyingly popular in a relatively short amount of time (just look to this past weekend’s record-breaking result when Drake joined forces with a popular Twitch streamer to play Fortnite‘s battle-royale mode) while the difference in costs and resources between small and big games continues to balloon. This year, at least for me, it’s not quite clear what sort of games GDC is meant to showcase, and even less clarity about what sort of developers are meant to attend—and what they’re supposed to take away from their time.

GDC is considered by many in the industry to be an essential event, the core platform for connecting with colleagues, scouting new recruits, and taking stock of the industry. But it’s become increasingly clear in recent years how limited this event really is. Taking place in one of the most expensive cities in America, it’s a stretch simply to afford accommodations for the week of the conference—and that’s not counting expo passes, travel, and any extracurricular activities. For poor or disabled American developers, and especially for international developers, GDC represents a sizable, and difficult, investment. (Meanwhile, foreign developers now have to contend with the increasing risks of entering the country in the first place, particularly if they’re from Muslim or non-white countries.)

So now, in 2018, discontent is running higher than normal, as many in the industry are wondering out loud if the Game Developer’s Conference, once lauded as the Mecca of the industry, is really the event we need.

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'Socially responsible' investors reassess Facebook ownership

NEW YORK (Reuters) – With European and U.S. lawmakers calling for investigations into reports that Facebook user data was accessed by UK based consultancy Cambridge Analytica to help President Donald Trump win the 2016 election, investors are asking even more questions about the social media company’s operations.

A Facebook sign is displayed at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland, U.S., February 23, 2018. REUTERS/Joshua Roberts

An increasingly vocal base of investors who put their money where their values are had already started to sour on Facebook, one of the market’s tech darlings.

Facebook’s shares closed down nearly 7.0 percent on Monday, wiping nearly $40 billion off its market value as investors worried that potential legislation could damage the company’s advertising business.

Facebook Inc Chief Executive Mark Zuckerberg is facing calls from lawmakers to explain how the political consultancy gained improper access to data on 50 million Facebook users.

Cambridge Analytica said it strongly denies the media claims and said it deleted all Facebook data it obtained from a third-party application in 2014 after learning the information did not adhere to data protection rules.

“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.

The scrutiny presents a fresh threat to Facebook’s reputation, which is already under attack over Russia’s alleged use of Facebook tools to sway U.S. voters with divisive and false news posts before and after the 2016 election.

“We do have some concerns,” said Ron Bates, portfolio manager on the $131 million 1919 Socially Responsive Balanced Fund, a Facebook shareholder.

“The big issue of the day around customer incidents and data is something that has been discussed among ESG (environmental, social and corporate governance) investors for some time and has been a concern.”

Bates said he is encouraged by the fact that the company has acknowledged the privacy issues and is responding, and thinks it remains an appropriate investment for now.

Facebook said on Monday it had hired digital forensics firm Stroz Friedberg to carry out a comprehensive audit of Cambridge Analytica and the company had agreed to comply and give the forensics firm complete access to their servers and systems.

“What would be a deal-breaker for us would be if we saw this recurring and we saw significant risk to the consumer around privacy,” said Bates.

More than $20 trillion globally is allocated toward “responsible” investment strategies in 2016, a figure that grew by a quarter from just two years prior, according to Global Sustainable Investment Alliance, an advocacy group.

New York City Comptroller Scott Stringer, who oversees $193 billion in city pension fund assets, said in a statement to Reuters on Monday that, “as investors in Facebook, we’re closely following what are very alarming reports.”

Sustainalytics BV, a widely used research service that rates companies on their ESG performance for investors, told Reuters on Monday it is reviewing its Facebook rating, which is currently “average.”

“We’re definitely taking a look at it to see if there should be some change,” said Matthew Barg, research manager at Sustainalytics.

“Their business model is so closely tied to having access to consumer data and building off that access. You want to see that they understand that and care about that.”

ESG investors had already expressed concerns about Facebook before media reports that Cambridge Analytica harvested the private data on Facebook users to develop techniques to support Trump’s presidential campaign.

Wall Street investors, including ESG funds, have ridden the tech sector to record highs in recent months, betting on further outsized returns from stocks including Facebook, Apple Inc and Google parent Alphabet Inc.

Jennifer Sireklove, director of responsible investing at Seattle-based Parametric, a money manager with $200 billion in assets, said an increasing number of ethics-focused investors were avoiding Facebook and other social media companies, even before the most recent reports about privacy breaches.

Parametric held a call with clients on Friday to discuss concerns about investing in social media companies overall, including Google.

“More investors are starting to question whether these companies are contributing to a fair and well-informed public marketplace, or are we becoming all the more fragmented because of the ways in which these companies are operating,” she said.

Reporting by Trevor Hunnicutt and David Randall; Additional reporting by Kate Duguid in New York and Noel Randewich in San Francisco; Editing by Jennifer Ablan and Clive McKeef