As Zuckerberg heads to Brussels, British lawmakers ask for answers

LONDON, May 22 (Reuters) – British lawmakers want their European counterparts to quiz Facebook FB.O CEO Mark Zuckerberg about a scandal over improper use of millions of Facebook users’ data, as he will not give evidence in London himself.

FILE PHOTO: Facebook CEO Mark Zuckerberg testifies before a House Energy and Commerce Committee hearing regarding the company’s use and protection of user data on Capitol Hill in Washington, U.S., April 11, 2018. REUTERS/Leah Millis/File Photo

Zuckerberg will be in Europe to defend the company after alleged misuse of its data by Cambridge Analytica, a British political consultancy that worked on U.S. President Donald Trump’s election campaign.

But while he will answer questions from lawmakers in Brussels on Tuesday, and is meeting French President Emmanuel Macron on Wednesday, he has so far declined to answer questions from British lawmakers, either in person or via video link.

Damian Collins, chair of the British parliament’s media committee, said on Tuesday that he believed Zuckerberg should still appear before British lawmakers.

“But if Mark Zuckerberg chooses not to address our questions directly, we are asking colleagues at the European Parliament to help us get answers – particularly on who knew what at the company, and when, about the data breach and the non-transparent use of political adverts which continue to undermine our democracy,” he said in a statement.

Last month, Facebook Chief Technical Officer Mike Schroepfer appeared before Collins’s Digital, Culture, Media and Sport Committee, which is investigating fake news.

But the lawmakers have said his testimony and subsequent written answers from the firm to follow-up questions have been inadequate.

Collins outlined deficiencies in Facebook’s answers so far in a letter to Rebecca Stimson, head of public policy at Facebook UK, which has been shared with the EU lawmakers who will quiz Zuckerberg. Collins requested a response from Facebook to his questions by June 4.

Reporting by Alistair Smout; Editing by Kevin Liffey

Microsoft, Google find fresh flaw in chips, but risk is low

(Reuters) – Cyber security researchers have found a new security flaw that affects a broad swath of modern computing chips and is related to the Spectre and Meltdown chip flaws that emerged in January.

Silhouettes of mobile users are seen next to a screen projection of Microsoft logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration

The newest chip problem, known as Speculative Store Bypass or “Variant 4” because it’s in the same family as the original group of flaws, was disclosed by security researchers at Microsoft Corp (MSFT.O) and Alphabet Inc’s (GOOGL.O) Google on Monday. Though the flaw affects many chips from Intel Corp(INTC.O), Advanced Micro Devices Inc (AMD.O) and Softbank Group’s (9984.T) ARM Holdings, researchers described the risks as low, partly because of web browser patches already issued earlier this year to address Spectre.

The Meltdown and Spectre flaws, which emerged in January, can allow passwords and other sensitive data on chips to be read. The flaws result from the way computers try to guess what users are likely to do next, a process called speculative execution.

FILE PHOTO: The Google logo is pictured atop an office building in Irvine, California, U.S., August 7, 2017. REUTERS/Mike Blake/File Photo

When the flaws emerged in January, researchers warned that they were likely to find new variants of Spectre in the future. Earlier this month, German computer science magazine c’t reported that a “next generation” of flaws had been found in Intel’s chips and was likely to be disclosed this month. Intel declined to comment on whether Monday’s announcement was related to the German magazine’s story.

In its research findings, Microsoft said that patches issued for common web browsers earlier this year greatly increased the difficulty of carrying out an attack with the newly discovered flaw.

Chips from Intel, AMD and ARM all have patches available, either directly from the makers or through software suppliers such as Microsoft. Intel said it expects a performance slowdown of between 2 percent and 8 percent from the patches, and ARM said it expects a slowdown of between 1 percent and 2 percent.

However, Intel said that because of the low risk of a real-world attack, it would ship its patches turned off by default, giving users the choice whether to turn them on. AMD also advised leaving the patches turned off due to the difficulty of carrying out an attack.

The security problems do not appear to have impacted chipmakers’ stock prices. Intel shares are up nearly 16 percent to since the start of the year to $54.32, and AMD shares are up 18.3 percent to $12.99 since the start of the year.

Reporting by Stephen Nellis; Editing by Cynthia Osterman

Using Tinder Doesn’t Lead to More Casual Sex, a New Study Says

A new study has found that Tinder and other picture-based dating apps don’t increase users’ success in pursuing casual romantic connections. That’s not because the app doesn’t work, but because people inclined to have casual sex do so at similar rates whether they’re using an app, or more old-fashioned methods.

The study, conducted by researchers at the Norwegian University of Science and Technology and highlighted by Scienceblog.com, was based on a survey of over 600 young Norwegian students—so its findings can’t necessarily be globally generalized.

But they make intuitive sense. According to the researchers, rates of casual sexual activity are determined by an individual’s level of “sociosexual orientation,” or openness to sex outside of a serious relationship. That personality trait was far more determining of their level of sexual activity than whether or not they used dating apps. In other words, those looking for flings will find them online just as easily as at the grocery store or park.

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Tinder got its reputation as a “hookup app” quickly after its 2012 release. That was largely thanks to its focus on user portraits in place of the detailed personal profiles used on sites like Match.com or OkCupid, and the decisive “swipe” mechanism that let users rapidly filter dozens or hundreds of prospective dates. One writer notoriously slammed the app as a sign of a “dating apocalypse” and the end of romance.

If Tinder really were about nothing but detached sex with almost-strangers, the new study would be a turnoff for the entire userbase—they might as well go outside. But it was already increasingly clear that no-strings sex isn’t what all—or even most—Tinder users are looking for.

For some—particularly women—Tinder has long been at least as much a source of entertainment as a serious way to look for romantic partners. The new study affirmed that women spent more time on dating apps, but were more discerning about swiping right. Women also used the app to boost their own self-esteem. Men were, not too surprisingly, more focused on pursuing (short-term) connections.

Which, if it doesn’t make easier, Tinder does at least make more convenient.

Tesla: Tsunami Of Sales And Profits In Q3

Bullish expectations for Q3

This article explores the bullish projection that Tesla (NASDAQ:TSLA) is about to become profitable in Q3.

Among the expectations discussed below are that Tesla Model 3 sales in Q2 will be 20,000 cars fewer than production due to federal tax credit rules. This will appear to be poor sales, but in reality will be due to stockpiling cars for sale in Q3 due to the way the tax rules are written.

While this means Q2 revenue will be reduced, it also means Q3 revenue will be increased. As a result, Model 3 should become a top 20 selling vehicle in the US in Q3 with a potential of 80,000 units sold into the US.

This is an average per month sales of about 27,000 Model 3 cars, making it the 12th best selling vehicle in the US ahead of the Nissan Altima (see list below).

Tesla Q3 sales will match the total number of cars sold by Tesla in all of 2017.

Elon Musk has adopted “profits” as his current goal. This replaces his previous goal of fast expansion of the product lineup. The former goal required capital input to fund rapid expansion. The new goal will flip the losses upside down and generate profits now that the bottlenecks are being eliminated one after another.

Most authors write that Tesla is shutting the production line down to “fix problems”. I suggest that Tesla is shutting the production line down to install new machinery that will increase the production speed. Increased production speed means increased gross margin, and if the increase is large enough, net profits.

Showing profits will potentially increase stock price and eliminate the potential for bankruptcy. This in turn will eliminate the bear thesis that Tesla is about to go under and is therefore a good stock to short.

With the short thesis proven wrong, I expect the stock to increase to a new plateau above $400 per share. This was my expectation a year ago, but the bottlenecks delayed the realization until now.

However, sales will likely remain low for May and June. I don’t expect this share price increase to be realized until after a barrage of sales in July make what I’m suggesting here obvious.

Let’s now explore why I’ve come to the above conclusions.

Model 3 may enter top 20 selling US cars in Q3

This week, Tesla has reached 500 cars per day, or, 3,500 cars per week. Bloomberg just increased their production estimate to 3,523/wk.

According to Electrek, Tesla is well on its way to reaching 5,000 cars per week by the start of Q3 in July.

If Tesla reaches this target for next quarter, the Model 3 will enter the top 20 list of US vehicles sold. A rate of 5,000 cars per week means an annual rate of 250,000 cars and a monthly rate around 20,000 cars. I expect Tesla will sell 80,000 Model 3 cars in Q3 so look for 27,000 or so cars per month on the list below.

That rate is between the Jeep Grand Cherokee and the Toyota Tacoma. If realized, the Model 3 will become a top 20 selling car in the US, next quarter.

This data was published by Focus2move here:

Today, the Model 3 is the best selling EV, but it isn’t on the top 100 list. Neither is any other EV. Every one of the top 100 selling cars in the US have an internal combustion engine. And while Tesla is now projected to be building more than 3,000 cars per week, which is to say over 12,000 cars per month (which would place the Model 3 around the #40 position of vehicles sold in the US), I expect this will not happen in May or June.

The reason? The federal tax credit.

It is beneficial for any company to cross the 200,000th car sold into the US threshold, early in a new quarter. Doing so wins that company an extra quarter of sales where customers receive the full tax credit.

Tesla would likely cross that mark this quarter if it sold all the cars it builds, as soon as they are built. To avoid this, Tesla is likely already stockpiling vehicles for a blow out delivery rush starting in July.

Several authors have noticed that the production figures are higher than reported sales figures. Tesla should have built over 6,500 cars in April, but sold fewer than 4,000. That’s a 2,500 or so discrepancy.

There are articles projecting that the discrepancy results from poor build quality and cars piling up for re-work and being stored in parking lots until Tesla can get around to fixing them.

I contend that thesis is wrong, and instead, Tesla is piling up a tsunami of cars for sale in Q3. Here’s why.

How the Federal Tax Credit works

The federal tax credit phases out over a 4-quarter (1-year) period beginning the second quarter after a company sells their 200,000th car.

If Tesla actually sold the cars produced, I expect the company would cross the threshold this quarter. By delaying the 200,000th US sale until after July 1, Tesla adds nearly an entire extra quarter of sales to the program, benefiting their customers. Tesla will sell nearly 60,000 more cars under full tax credit.

For this reason, I think one should expect sales to be flat this month and next (in Q2), while a 20,000 car stockpile ready for Q3 sales is accumulated.

Musk’s Increased Confidence

Elon Musk has stated several times that Tesla will not need to raise money this year. During the recent earnings call, he explicitly stated Tesla will not raise money this year.

Much was written about Musk’s behavior on that call. Most articles in one fashion or another, assert that Musk is cracking under the pressure. If so, Tesla may be headed for a crash near term.

So many people bought into that notion that 400,000 new shares sold short overnight after the earnings call. The stock price dropped 10% in one day.

Since then, however, the stock price has fully recovered and the divide between the bullish and bearish theses has widened.

Listening to the call, it made perfect sense to me that Elon was annoyed by the callers who had read the release and yet asked questions about things specifically stated in that paper. It was as if the callers were saying they knew the paper said they would be profitable, but they don’t believe it and so are trying to figure out what Elon is lying about. Feeling like he was being called a liar, I believe, is why he lost his cool.

But that isn’t what’s interesting. What’s interesting is that he is so confident that he will not need to raise funds that he didn’t bite his tongue.

What this means is that for the first time, Musk is placing profits ahead of expansion and rapid growth. And what’s more, he fully expects to reach profitability.

Bloomberg’s Model 3 Tracker diverging from reality

Bloomberg’s Model 3 Tracker website has been excellent at following the ramp up in Model 3, until April. The analysis has a flaw that doesn’t account for the federal tax credit deviation from business as usual.

The Tracker assumes that when a car is built and ready for sale, that Tesla will sell it as quickly as possible. This has been true, until this past month. Now, and until the end of June, Tesla can benefit its customers best by holding back about 20,000 (total) cars built in Q2 and then selling them in Q3.

Here’s the VIN data from the wild, plotted as yellow dots. Notice the gap in the numbers from about 23,000 to 25,500 representing about 2,500 cars that are absent from the public. Where did they go? Were they built?

Tesla should have built around 6,500 Model 3 cars in April. This is based on Tesla statements that they built 2,000+ cars per week for 3 weeks in a row (2 in April), and then shut down the line to add improvements and further speed the line production. April production should have been ~6,500 cars.

Instead of 6,500 Model 3 cars sold in April, Tesla only sold 3,875 M3 cars according to InsideEVs here.

We know Tesla built over 4,000 Model 3 cars in the first 2 weeks of April and would have needed to shut the line down for the rest of the month if cars produced were the same as cars sold. That makes no sense.

One logical explanation is that Tesla “sold” fewer cars than it “produced” by around 2,500. If these cars are being stockpiled, then in May and June this discrepancy should get much worse.

Tesla should build around 10,000 Model 3 cars in May and around 18,000 cars in June. But Tesla will likely sell just 5,000 per month for those two months to remain below 200,000 cars sold into the US. That means Tesla may accumulate 2,500 + 5,000 + 13,000 = 20,500 cars more than it sells in Q2.

Bloomberg’s model averages the estimates of cars produced with cars sold. But that’s averaging apples and oranges, it doesn’t work.

Last week the production estimate was 1,752 and this week it is 3,523.


Bloomberg needs to separate the sales and production projections into two different values. Otherwise they are trying to average apples and oranges. This would be fine any other time except now, where unusual strategy makes sense to benefit customers who desire to receive the federal tax credit.

Potential Q3 Sales

This brings us to estimate potential Q3 sales based on these optimistic expectations.

First, if Tesla succeeds at ramping to 5k/wk by the beginning of Q3, then it should have produced about 30,000 M3 cars in May and June. If it sells 10k of those to hold #1 BEV position for those months, there would remain 20,000 cars in stock.

Second, Tesla should pass 5k/wk build rate and increase to higher than that during the middle of Q3. That means Tesla should build more than 60,000 cars in Q3. VIN filings must significantly increase to meet that pace, and those filings will be public information.

For the past month, VIN filings are about 3,800 cars per week. This is well on its way to 5,000 per week by the end of the quarter. Tesla should also build about 25,000 of Models S and X in Q3.

Tesla will be coming out with the dual motor and possibly also ludicrous mode variants of the Model 3 in Q3. Tesla is taking orders for the higher cost variants of Model 3 first, so I expect the average price to remain high and will use $50k for these estimates.

The total M3 cars sold in Q2 should be around (20k + 60k) * $50k = $4B.

The total MS and MX sold should be around 25k * $100k = $2.5B.

The total revenue from cars should be in the range of $6.5B with a gross profit of $1.3B if they make the 20% margin figure claimed. I’ll ignore the energy side for this treatise as small by comparison.

Given that Musk has firmly asserted the company will not need cash, and also that it will be profitable and cash flow positive, I suspect that Musk is thinking Tesla will manage something like the above.

Model 3 is about to enter the US Top 20 list

The Model 3 is about to climb the ranks of other vehicles, and if the above figures are met, it will pass Toyota Corolla and Honda Accord, landing in a tie with the Jeep Grand Cherokee for top selling vehicles in the US for Q3.

I admit that this comparison is, and isn’t, fair. The Model 3 is an EV whereas all of the top 100 cars sold in the US today have internal combustion engines, ICE.

The Model 3 is the best selling EV and the only mass produced EV. In this regard, the comparison is NOT fair since it is different from all of the rest of the cars on that top 100 list.

However, any other car company could have launched an EV instead of their ICE models. And, they could have built their own equivalent of the Supercharger Network instead of relying on other businesses to do so for them. So in this regard, the comparison IS fair and demonstrates that people want electric cars with good range and a fast charging system that is already deployed.

That this is so is confirmed by a recent Consumer Reports article about a AAA survey showing that 20% of Americans expect their next vehicle purchase to be an EV. US car sales dropped by 2% in 2017 according to JDPowers. That marked the end of a 7-year run of steady sales growth. Given the AAA survey of intentions combined with blooming sales of Model 3, I expect we will see US sales of internal combustion engine cars drop by a larger figure in 2018.

There are not enough good EVs to replace the drop in ICE vehicle sales.

Jaguar I-Pace, for example, claims 350kW charging capability. But the claim is a farce. Today, no 350kW chargers exist out on the open road and it will likely be several years (if ever) before a network of charging stations is built. It isn’t clear yet that the 350kW charging standard will even work.

Upon introduction this summer, anyone that purchases an I-Pace will be forced to use the only chargers actually deployed… the same ones used by the Bolt and Leaf that only charge at 50kW instead of Tesla’s 120kW. Charging an I-Pace will take more than double the time to charge a Tesla.

What this means is that counter to claims that Tesla is about to face a swarm of new contenders, the fact is that none of them can hold a candle to the charging speed of the Supercharger Network. Ironically, all of the contenders should increase Tesla sales, as once anyone reviews charging infrastructure, Tesla is the only logical brand choice.

Introduction of the competition should further increase Model 3 sales until such time as a new charging infrastructure is actually in place, and, assuming Tesla is unable to use that new infrastructure. If Tesla CAN use that new infrastructure, then Tesla remains the best EV choice bar none, simply for its enhanced number of charging stations.

Conclusions

Tesla is building more cars than it is selling. This may indicate that Tesla is accumulating cars to be sold in Q3 due to tax phase out rules.

If Tesla makes the production targets it has disclosed, it would generate approximately $6.5B in Q3 gross sales with around $1.3B in gross margin. Even without cutting back on spending, that much extra gross margin should yield net profits.

The Model 3 may rise from below rank #100 for sales into the US now, to above position #20 next quarter. That is, the Model 3 appears poised to jump 80 positions in the US top 100 vehicle sales list, beginning in July.

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.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Spotlight On Gambling Reset And Banking Bill

Welcome to Seeking Alpha’s Stocks to Watch – a preview of key events scheduled for the next week. Follow this account and turn the e-mail alert on to receive this article in your inbox every Saturday morning.

While investors will surely have their eyes on trade talks, developments in the oil market and rising interest rates in the week ahead — a sideline show will continue to be the complete reset in the gambling industry following the Supreme Court decision that opens up legalized sports betting. Notable movers since the SCOTUS decision came down include Dover Downs (NYSE:DDE) +46%, Scientific Games (NASDAQ:SGMS) +13%, Churchill Downs (NASDAQ:CHDN) +11%, Penn National Gaming (NASDAQ:PENN) +8%, The Stars Group (NASDAQ:TSG) +8% and Caesars Entertainment (NASDAQ:CZR) +8%. Across the pond, bookmaker stocks William Hill (OTCPK:WIMHY), Paddy Power (OTC:PDYPF), GVC Holdings (OTCPK:GMVHF) and 888 Holdings (OTCPK:EIHDF) also jetted higher. Expect even more price swings with new names as the ramifications become clearer. Nomura Instinet analyst Harry Curtis reminds that the upside potential from the Supreme Court decision down the road includes higher traffic and customer engagement at land-based casinos, as well as digital offerings and tech/financial partnership opportunities. On that last point, there’s a sense major players such as Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Visa (NYSE:V), Mastercard (NYSE:MA) and Google (GOOG, [GOOGL]]) aren’t going to completely ignore the developments. On the economic calendar this week, data on new and existing home sales will capture some attention.


Notable earnings reports: Monro (NASDAQ:MNRO) on May 21; Ctrip.com International (NASDAQ:CTRP), Urban Outfitters (NASDAQ:URBN), The Container Store (NYSE:TCS) and TJX Companies (NYSE:TJX) on May 22; Target (NYSE:TGT), Hewlett-Packard Enterprise (NYSE:HPE), Lowe’s (NYSE:LOW) and Lion’s Gate (NYSE:LGF.A) on May 23; GameStop (NYSE:GME), Best Buy (NYSE:BBY), Gap (NYSE:GPS) and Splunk (NASDAQ:SPLK) on May 24; Foot Locker (NYSE:FL) on May 25. See Seeking Alpha’s Earnings Calendar for the complete list.

IPOs expected to price: Evo Payments (EVOP) on May 22; CLPS (CLPS), Kiniksa Pharmaceuticals (KNSA), Scholar Rock (SRRK) and GreenSky (GSKY) on May 23; Iterum Therapeutics (ITRM) on May 24.

Analyst quiet period expirations: Ceridian HCM (NYSE:CDAY) and Nlight (NASDAQ:LASR) on May 21; DocuSign (NASDAQ:DOCU), Goosehead Insurance (NASDAQ:GSHD) and Smartsheet (NYSE:SMAR) on May 22.

Upcoming stock splits: DDR (NYSE:DDR) 1-for-2 on May 21, China Lodging (NASDAQ:HTHT) ADS-to-ordinary share ratio to change on May 24 from one ADS per four ordinary shares to one ADS per one ordinary.

Banking bill: The House of Representatives is expected to vote on a banking reform bill next week. The bill would raise the threshold at which banks are considered risks to the system to $250B from $50B. The legislation also exempts banks with less than $10B in assets from some proprietary trading rules. Zions Bank (NASDAQ:ZION), BB&T (NYSE:BBT), Bank of New York (NYSE:BK), State Street (NYSE:STT) and SunTrust (NYSE:STI) are just a few of the banks to keep an eye on with the new rules. On a broader scale, John Hancock Regional Bank Fund’s Lisa Welch observed that the S&P 500 bank index trades at 11.34X earnings estimates for the next 12 months compared with the historical mean of 12.56X. “It’s a sector that benefits from rising rates, a growing economy and a more favorable regulatory environment that’s trading at attractive valuations,” she noted.

Projected dividend hike announcements: Donaldson (NYSE:DCI) to $0.185 from $0.180, DXC Technology (NYSE:DXC) to $0.21 from $0.18, Flower Foods (NYSE:FLO) to $0.18 from $0.17, National Storage to $0.30 from $0.28, Tiffany (NYSE:TIF) to $0.55 from $0.50.

Notable Analyst/investor meetings: Micron (NASDAQ:MU), Monro (MNRO) and (NASDAQ:GLAD) on May 21; Walgreen Boots Alliance (NASDAQ:WBA), Brooks Automation (NASDAQ:BRKS), National Instruments (NASDAQ:NATI), Sanmina (NASDAQ:SANM), Xilinx (NASDAQ:XLNX), Atlas Financial (NASDAQ:AFH) on May 22; Align Technology (NASDAQ:ALGN), Thermo Fisher Scientific (NYSE:TMO), Phototronics (NASDAQ:PLAB), Pure Storage (NYSE:PSTG), Qorvo (NASDAQ:QRVO) and Huntsman (NYSE:HUN) on May 23; Cabot (NYSE:CBT) on May 24.

FDA watch: Loxo Oncology (NASDAQ:LOXO) and Bayer (OTCPK:BAYRY) are expected to hear on a FDA review for larotrectinib NDA, while Lexicon Pharmaceuticals (NASDAQ:LXRX) and Sanofi (NYSE:SNY) should find out whether sotagliflozin NDA for type 1 diabetes has been accepted for FDA review.

Wolfe Research 11th Annual Global Transportation Conference: Companies due to talk at the transportation industry get-together include Genesee & Wyoming (NYSE:GWR), American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), Alaska Air (NYSE:ALK), USA Truck (NASDAQ:USAK), J.B. Hunt Transport (NASDAQ:JBHT), Werner Enterprises (NASDAQ:WERN), ArcBest (NASDAQ:ARCB) and Daimler Trucks (OTCPK:DDAIF). The high cost of freight transportation has been a common topic on the Q1 earnings conference calls of retailers.

Crypto watch: The big blockchain event in New York last week didn’t light a fire under cryptocurrencies as regulatory concerns still linger. Over the last seven days, Bitcoin (BTC-USD) is down 2.3%, Ethereum (ETH-USD) is up 4.6%, Litecoin (LTC-USD) fell 2.5% and Ripple (XRP-USD) dropped 1%. ZCash (ZEC-USD) was one of the cryptos that did break significantly higher, with a 50% pop during the week,

Eyes on crude oil: Saudi Energy Ministry Khalid al-Falih will meet with Russian Minister of Energy Alexander Novak at a St. Petersburg economic summit next week. An election in Venezuela on Sunday could also impact oil prices if President Nicolas Maduro is re-elected to a six-year term. WTI crude oil trades at $71.28 per barrel, while Brent crude is at $78.51.

M&A watch: Shareholders with Bravo Brio Restaurant Group (NASDAQ:BBRG) will hold a special shareholder meeting on May 22 to approve the merger transaction with Spice Private Equity. The deadline for the start of the tender offer by Lilly (NYSE:LLY) for Armo BioSciences (NASDAQ:ARMO) hits on May 23. The go-shop period on the acquisition of VeriFone Systems (NYSE:PAY) by Francisco Partners expires on May 24.

60 Minutes: Alphabet will be featured in a story on the Sunday night news show. Critics are expected to take aim at the tech company over some of its anti-competitive practices.

Box Office: Fox’s (NASDAQ:FOXA) Deadpool 2 is expected to dominate the weekend box office. The Marvel comic book mashup is expected to take in $138M in a wide release of 4,439 theaters. Disney’s (NYSE:DIS) Avengers: Infinity War is predicted to come in second place with $29M to add to its eye-popping $1.69B global box haul through this week. Next Friday, Disney’s Solo: A Star Wars Story opens in a highly-anticipated holiday weekend debut. The U.S. box office is up 4.4% YTD.

Barron’s mentions: Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) are lined up as attractive high-dividend stocks at knockdown prices. All three trade with a forward price-to-earnings ratio of lower than 20 and below their historic norms. Chinasoft International (OTC:CFTLF) and Baozun (NASDAQ:BZUN) are mentioned as two other ways for investors to play the digital explosion in China beyond first-movers Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU) and Tencent (OTCPK:TCEHY). Lowe’s is seen as having limited downside into its earnings report.

Sources: EDGAR, Bloomberg, CNBC and Reuters.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Fed Up With Apple's Policies, App Developers Form a 'Union' Ahead of WWDC

Nearly two years ago, Apple revealed its plans for a revamped App Store. It introduced ads within search results in the iOS portion of the store, rolled out more ways for developers to offer subscriptions, and sweetened the revenue deal for app makers who did offer subscriptions. The changes marked the most significant update to the App Store since it had opened for business, and it was part of an effort by Apple to show that the company was attuned to developers’ needs, even as the company raked in billions of dollars from their apps each year.

But as the iOS App Store approaches its tenth anniversary, some app developers are still arguing for better App Store policies, ones that they say will allow them to make a better living as independent app makers. Now a small group of developers, including one who recently made a feature-length film about the App Store and app culture, are forming a union to lobby for just that.

In an open letter to Apple that published this morning, a group identifying themselves as The Developers Union wrote that “it’s been difficult for developers to earn a living by writing software” built on Apple’s existing values. The group then asked Apple to allow free trials for apps, which would give customers “the chance to experience our work for themselves, before they have to commit to making a purchase.”

The grassroots effort is being lead by Jake Schumacher, the director of App: The Human Story; software developer Roger Ogden and product designer Loren Morris, who both worked for a timesheet app that was acquired last year; and Brent Simmons, a veteran developer who has made apps like NetNewsWire, MarsEdit, and Vesper, which he co-created with respected Apple blogger John Gruber. (“Brent’s been developing for Apple products since before any of us were born,” Schumacher quipped.)

The union, so far, is loosely-formed. There’s no official strategy in place for collective bargaining and no membership requirements (like dues). The union has goals of reaching a thousand members this week and hitting a mass of 20,000 signees by early June, when Apple will host its annual Worldwide Developers Conference in San Jose, California. But at launch, the four representatives will be the only names attached to the letter. Non-developers are welcome to join as well, they said.

“It’s a non-union union in a way,” Morris, the product designer, said when reached by phone. “I’m not super interested in creating a traditional union; I’m more interested in bringing the voice of indies back into the spotlight and this is a step in that direction.”

“We might eventually incorporate voting on certain things, but right now it’s really about the unification of developers,” Ogden added.

Free app trials have been a sticking point over the past several years for some iOS app developers, who believe that mobile apps–especially premium ones that cost more than a few bucks and aren’t games–should mimic the experience that people have had for years with desktop apps. It’s a particularly thorny issue for app makers who don’t make subscription apps, but who still want to give potential customers a free trial of their apps.

Apple has given developers some ability to offer free app trials, for time periods ranging from three days up to a whole year. But a free trial can only accompany a subscription app. This means that when opting to get the free trial, the customer has to authorize Apple to automatically charge them when a trial ends, developers say. The ideal situation, they say, would allow them to offer free trials for all apps, at lengths they determine, and without barriers that might make people shy away from trying their apps.

Apple has not responded to a request for comment on this story.

Another topic The Developers Union says it will attempt to tackle is revenue sharing. Apple’s longstanding policy gives App Store developers 70 percent of the money made from most apps, while Apple takes 30 percent. Back in 2016, Apple changed this split to 85/15 percent for developers who are able to maintain long-term subscription customers. Google soon followed suit, offering the same revenue split for subscription apps sold through the Google Play Store. But Microsoft is taking it a step further: later this year it will give 85 percent of any non-gaming app revenue to Windows developers if the app was purchased through the Microsoft Store; while 95 percent of the money will go to developers if the customer discovers the app through an external web page or app.

While the open letter says that the union plans to “advocate for a more reasonable revenue cut,” the members have not yet shared specifics beyond that.

Slice of the Pie

Making a living off of making apps is something that’s felt increasingly out of reach for independent developers. Some have described a kind of divergence that’s happening: Apple’s services business is booming, while some developers’ own businesses are floundering.

Apple, in recent years, has started sharing how much it pays out to developers. In January, it said that iOS developers were paid a total of $26.5 billion in 2017, a 30 percent jump from the year before. Since the inception of the App Store, developers have earned more than $86 billion dollars.

But that revenue is credited largely to in-app purchases and currencies–essentially, games. Ben Thompson, who writes the Stratechery blog and who has extensively analyzed the business of app stores, has identified these as “games with repetitive mechanics that can monetize existing users through in-app purchases,” and wrote back in 2013 that other apps, like premium productivity apps, are “a terrible match for app store economics.” Schumacher, Ogden, and Morris call the biggest money-making apps “the guys with the angry faces”–referring to the app icons for games that feature, well, men with angry faces.

Not all developers are thrilled by the union. Schumacher told me that one notable developer he reached out to said that, while he hopes the grassroots effort makes progress, he wasn’t inclined to join. “He said, ‘I make all my income from Apple. I don’t know if I should be throwing rocks,'” Schumacher told me.

And despite the issues they have with the App Store, even the union organizers themselves–with the exception of Simmons, who wasn’t available for an interview–acknowledged that developing for the App Store carries a kind of cache that other software stores don’t.

“Apple is getting a lot right, especially around security,” Schumacher said. This new group is just looking for a few more breadcrumbs, he said. And not the kind you buy in mobile games.


More Great WIRED Stories

5 Tips to Help You Survive Any Work Disaster

Most of us can recall our first big blunder at work, but mine was a doozie. It happened while I was working for a construction company in Idaho. I’d only been on the job a few weeks, and my basic responsibilities involved tearing out old concrete and shoveling new concrete in its place.

My boss owned a huge, 10-speed dump truck used to haul away rubble from various sites. One day, the driver didn’t show up. Sensing an opportunity, I volunteered to take his place.

I knew how to drive a 10-speed. Granted, all my experience had been with hay trucks, but a truck is a truck, right? Wrong. The first thing I did after hauling a full load of concrete to a private dump in the middle of nowhere was sink into a pile of rotten potatoes and tip the damn thing over on its side.

It took at least a full day for me to track down my boss and for us to get the truck upright again. I then drove us back into town. On the way, we stopped for gas, where I promptly sideswiped a car with an ear-shattering screech.

I got fired on the spot. My boss refused to even give me a ride home. Here are five takeaways–for both bosses and employees–from that wonderful experience:

1. Keep your temper.

My boss may have fired me and left me stranded at a gas station, but he wasn’t verbally abusive about it. He didn’t scream at me or insult me. I could see by his expression that he never wanted to lay eyes on me again, but he didn’t add insult to injury.

Throughout your career, you’ll find yourself in plenty of situations where losing your temper is understandable–even appropriate. But losing your temper doesn’t have to mean losing your dignity or robbing someone else of theirs. Stay in control. Follow the Golden Rule, and do unto others as you would have them do unto you.

2. Don’t get in over your head.

Driving a truck all day sounded a lot more fun than shoveling wet concrete. This tempted me to volunteer for a position that I manifestly was not qualified to fill. I followed that temptation, much to my shame and sorrow.

Be ambitious, but don’t be cocky. Know your limitations. This isn’t a sign of weakness, it’s a sign of intelligence, and one of the greatest weapons in your intellectual arsenal when it comes to real advancement. Knowing your limitations means knowing what to focus on to improve.

3. Avoid putting blind trust in people at all costs.  

On the opposite side of the coin, the same thing goes for employers. Know the limitations of your employees. When I told my boss I could drive a 10-speed truck, he should have asked one or two follow-up questions.

Not wanting to lose a full day of work, he handed me the keys instead. The irony of that rash move is obvious–he lost a full day of work and had his truck damaged as a result. Encourage your employees to grow their skill sets, but be intimately acquainted with exactly what those skill sets consist of.

4. When the stakes are high, be highly cautious.

I tipped the truck over because of a stupid miscalculation that I’m sure I could have avoided had I just taken some extra time to think. I knew how gravity operated, that the truck was canted at an angle not ideal for raising the bed, but I was nervous and flustered and in a hurry to get the job done.

When in crisis, a minute of cool, centered reflection can save you hours (or days, or weeks) of struggle and pain. The urge to rush through an important but unfamiliar task is based on our natural distaste for discomfort and uncertainty. Take a moment to calm yourself. Think. Breathe.

5. Claim what’s yours.

The pay cycle for my construction job was a day’s pay for a day’s work. I might have tipped my boss’s dump truck on its side and scraped the hell out of a car at a gas station, but I’d still tried to do my best. I still needed the money, and the money was legitimately mine.

I remember pulling up to my boss’s house to pick up my last paycheck. I saw him stare at me through his living room window and then suddenly disappear. His wife answered my knock and handed me an envelope with a look on her face that said, “Just take this and leave here forever.” I did, and I don’t regret it.

3 Ways to Sow the Seeds of Your Startup's Success This Spring

Many business owners measure the success of their company by how much profit they’re bringing in. This isn’t necessarily the wrong way, and a large part of business is learning how to minimize expenses while maximizing revenue, but for fledgling startups that might not yet have a large customer base, these metrics aren’t ideal. Instead, a good indicator you’re on the road to startup success is when you find yourself in a productive, thriving ecosystem.

A Blossoming Ecosystem

An ecosystem is partly defined by the geographic area where you’ve chosen to put down your company’s roots, but it’s also made up of the people you choose to surround yourself with. These people might be your employees, advisors, and investors, in addition to other counselors such as law or finance professionals. The attitudes and outlooks of all of these individuals contribute to your ecosystem, and for your business to thrive, their impact needs to be positive.

Good influences will help you talk through decisions and support you when you’re not sure which option to pursue. They’ll also help you connect with other individuals who they think might have something to offer to you and your business — and the best team members will do so without being asked. To get the most out of your ecosystem, though, you’ll also need to give back.

What can you do to help the people you work with? What are their goals and aspirations, and how are you and your business capable of helping them achieve those goals? In an unhealthy ecosystem, one organism hoards all of the resources for itself. In a healthy one, organisms cooperate to achieve mutually beneficial outcomes that are greater than what any party involved could have achieved on its own.

Once you’ve made sure your ecosystem is the kind that breeds successful businesses and partnerships, take these three steps to cultivate your startup’s success:

1. Network to help your startup sprout essential partnerships.

With the right mindset, networking can happen in any place and at any time, sprouting relationships that are valuable for your startup’s growth. Whether you’re on a bus, at the airport, or getting some work done at your favorite coffee shop, be approachable and strive to make connections on a daily basis. That’s not all there is to it, however. Justin Zastrow, CEO of Smart Armor, points out that “Networking and ‘showing up’ is only half the battle. In addition to networking, you need to learn how to meaningfully and authentically connect with people. Otherwise, your networking efforts will be wasted.”

So much of business is about relationships, but the literature tends to overemphasize forming new relationships and underemphasize nurturing the ones you create. Don’t let connections wither away by falling out of touch. Reach out to your contacts on a regular basis to see what you can offer or how you can help.

2. Join a startup support organization that will help you establish strong roots.

Accelerators and incubators are valuable communities that help startups and entrepreneurs build a solid foundation. These groups will help provide you with a number of key elements necessary to fertilize your startup, including mentorship, working space, networking opportunities, and even financial backing in some cases.

The Ameren Accelerator, for instance, is a partnership that combines the resources of a leading energy corporation, a lauded accelerator program, and a state university system to produce an ecosystem in which energy-focused startups can flourish. The accelerator selects five to seven companies for a 12-week program that connects them with mentors, including current and former business executives, in addition to providing funding opportunities, office space, and other perks.

Different accelerators cater to different industries, so find one that fits your startup idea and do everything you can to join the community.

3. Keep finances fertile by outsourcing.

Startup owners often feel the need to fill certain roles with full-time employees when they could save money and get a better product by outsourcing. If you’re running an e-commerce website, you don’t necessarily have a full team of developers on the payroll, and the same can be true for marketing or finance. An in-house CMO will end up costing a fortune, so don’t be afraid to outsource this role.

Erik Huberman, one of Forbes’ 30 Under 30 and founder and CEO of Hawke Media, says outsourcing positions like a CFO or CMO can save your company between 40 to 65 percentHe explains, “For less money, you can contract someone who will not only get the job done efficiently, but who will also not be looking to justify, retain, or grow his or her in-house position.”

If your startup is like most, you don’t have unlimited resources. Instead of blowing through your budget on one big hire, sow more than one seed by outsourcing certain positions.

Your product might not make it to market until late summer, or you might be hoping to secure a seed investment to finance your dream. No matter what stage of the startup process you’re in, you can set yourself up for success each day by taking the right steps to encourage healthy growth.

Pretium Resources: Struggling To Get On Top

Image: The Brucejack

Investment Thesis

Pretium Resources (PVG) is an attractive new gold and silver producer in Canada. The Brucejack mine has delivered impressive drilling results for years and is considered as one of the best gold projects in Canada, with a high-grade in gold and silver, and a very low theoretical AISC. The mine cleared an essential milestone on July 1, 2017, when the company announced that it achieved commercial production at the Brucejack mine.

Since then, Pretium Resources began to show some signs of vulnerability. The project, well-defined with graphs and projections, began to falter under the weight of what I call the mining reality.

We are now in the midst of an unsettled period where investors are not sure about their investment anymore, and despite the company’s effort to comfort all that it is still in total control, the future is not as robust as initially presented. However, after three-quarters of revenues and production data, we can see that the Brucejack mine is still a good gold mine with potential but certainly not what we expected years ago.

The company seems to get a handle on what needs to be done to maximize production. Joseph Ovsenek, the CEO, said it in a few sentences in the last conference call:

the sampling of our long-hole drill cuttings to give us an estimated grade for each ring that we mine from a stope provides us with good clarity on what we’re delivering to the mill. With the benefit of grade control in place, in March, we produced 32,910 ounces of gold, grating an average of 10.9 grams per tonne, over double the production of January. With Q1 now behind us, we continue to see solid results from the grade control program,

While I believe the stock is reasonably valued by the market after a sudden crash early this year, I am still recommending a long-term hold until gold and silver production and costs stabilize enough to get a better global understanding of the future growth. A possible cautious accumulation could eventually be started at or under $6.75.

Chart

PVG data by YCharts

One critical element that should always be factored in when searching for a fair valuation of PVG is the future gold price. Pretium Resources revenues are directly affected by the price of gold.

Note: I will not comment on the Snowfield prospect that the company owns.

Pretium Resources – a financial snapshot

Pretium Resources 2Q’16 3Q’16 4Q’16 1Q’17 2Q’17 3Q’17 4Q’17 1Q’18
Total Revenues in $ Million 0 0 0 0 0 70.88 107.06 89.42
Net Income in $ Million −26.55 −15.00 −8.56 −4.26 −2.50 −6.98 −2.72 -8.06
EBITDA in $ Million −35.77 −19.82 −8.31 −9.26 −3.65 14.79 31.92 24.62
Profit margin % (0 if loss) 0 0 0 0 0 0 0 0
EPS diluted in $/share −0.15 −0.08 −0.05 −0.02 −0.01 −0.04 −0.01 -0.04
Operating cash flow in $ Million −2.58 −1.51 −4.44 −2.59 −4.73 47.24 33.41 24.72
Capital Expenditure in $ Million 89.08 107.42 121.42 168.19 114.59 56.12 36.51 9.74
Free Cash Flow (YChart) in $ Million −91.7 −108.9 −125.9 −170.8 −119.3 −8.9 −3.1 15.0
Cash and short-term investments in $ Million 287.24 178.49 141.79 171.95 55.31 53.77 56.29 70.54
Total Long-term Debt + Conv. note in $ Million 388.0 407.9 501.2 673.7 689.9 715.2 744.6 758.9
Shares outstanding (diluted) in Million 177.8 178.9 179.9 180.7 180.9 181.3 182.0 182.4
Gold Production K Oz 2Q’16 3Q’16 4Q’16 1Q’17 2Q’17 3Q’17 4Q’17 1Q’18
Gold ounce Production Oz 82,203 70,281 75,689
Silver Production in oz 83,233 96,004 94,730
Gold price realized $/ Oz 1,281 1,211 1,271
AISC by-product $/Oz 788 893 1,004

Source: Company filings and Morningstar.

First-Quarter Production Overview

  • Production totaled 75,689 ounces of gold and 94,730 ounces of silver.
  • 10.9 grams per tonne gold mill feed grade for March; average 9.1 grams per tonne gold mill feed grade for the quarter.
  • Gold recoveries averaged 96.8%.
  • Process plant throughput averaged 2,905 tonnes per day for a total of 261,443 tonnes

Source: PVG press release 1Q’18

Source: PVG Presentation 2017

Gold Production details and balance sheet commentary

The graph above presents a good general idea of the three most important items of the balance sheet: Total cash, total debt and shares outstanding. Total debt has been going up while total cash is still low. The total debt includes what is left of the convertible notes, which is $77.96 million at the end of the first quarter.

1 – Revenues

Pretium Resources released its first-quarter results on May 10, 2018. It was the third full quarter of commercial production. Revenues were $89.42 million, down 16.5% sequentially, with a net loss of $8.06 million or $0.04 per share. The adjusted earnings were $5.8 million or $0.03 a share for the quarter.

Tom Yip, the CFO, said in the conference call:

Total revenues were $89.4 million, and the average realized price for the quarter were $1,271 per ounce. Our average realized price was impacted by TC/RCs related to our concentrate sales, which are narrated within concentrate revenues. If we’d add back the $3.9 million of TC/RCs, we would realize $1,328 per ounce, which was the average spot price for the quarter.

We finally understand why there is such discrepancy between the company’s average realized price and the average price of gold for the quarter.

2 – All-in Sustaining costs AISC on a by-product basis.

AISC is calculated based on the gold sold. Generally, gold sold and gold produced are quite similar, and it makes no difference in general. However, for Pretium total gold and total silver sold were significantly lower:

Gold ounces sold oz 68,651
Silver ounces sold oz 84,234

The company indicated an AISC of $1,009 per ounce on a by-product basis ($893 per ounce in Q4) which means that the production of silver is deducted from the costs.

This AISC is pretty high, but will probably go down as the work progresses. The company is guiding $700-900 per ounce in 2018. As a reminder, Pretium Resources reported an All-In Sustaining Cash Costs (Life of Mine) initially of $448/oz.

The company defines AISC as “the sum of total cash costs, sustaining capital expenditures, accretion on decommissioning and restoration provision, treatment and refinery charges netted against revenue, site share-based compensation, and corporate administrative expenses, all divided by the gold ounces sold to arrive at a per ounce amount.”

However, if the company can achieve $700 per ounce, it will be considered as a very good AISC, well below the industry average which is around $850 per ounce. Joseph Ovsenek, the CEO, said in the last conference call:

on a production basis, all-in sustaining costs are approaching the range of H1 2018 guidance of $900 to $700 per ounce of gold. However, all-in sustaining costs per ounce of gold sold for the quarter were directly affected by low production in January, with production increasing as we advanced through the quarter.

The low gold production in January is the reason why AISC is above $1,000 per ounce this quarter.

2 – Free cash flow

Free cash flow situation is improving with gold production. As expected in my preceding article on PVG, the free cash flow is now positive $15.0 million, and I anticipate the company to generate positive free cash flow over the next three quarters 2018.

3 – Net debt

Net Debt is now $688.4 million about the same from the precedent quarter.

The focus for PVG is to refinance the 7.5% credit facility by the end of 2018, although the company has the option to extend the due date one year to December of 2019 while paying a 2.5% extension fee on the principal and cumulated interest at December 31, 2018.

The company is also looking to extinguish the existing 8% stream owned by Osisko (NYSE:OR), due to start in January 2020 (See press release below). Pretium Resources has two opportunities to take out the stream, once at the end of 2018 for $237 million and again at the end of 2019 for $272 million.

Osisko Stream indicated in its last third quarter press release,

The Brucejack stream agreement has a delivery start date of January 1, 2020 and provides for an 8% gold and silver stream payable to OBL and BTO Midas L.P. (together referred to as the “Brucejack Stream Partners”) (4% attributable to OBL). The term of the Brucejack stream is the date on which Pretium has sold to the Brucejack Stream Partners 7,067,000 ounces of gold and 26,297,000 ounces of silver, including deliveries under the offtake agreement.

Final commentary and technical analysis.

Pretium Resources released its first-quarter results, and I was not impressed with the production again due to a low January production. I was expecting a little over 85k Oz of gold.

It is a work in progress, and it will take a few quarters to adjust to a reasonable production level. I recognize that it is not an easy task and the management is aware of the problem and perform an excellent job to fine-tune the mining operations.

The variability of the gold deposit is the main issue here and has always been the problem.

The head grade was 9.1 g/t during the first quarter. It is not what I consider catastrophic, and the mine continues to be a reliable gold mine. But it is not what we can call a high-grade large-size gold mine advertised years ago.

If we project the first annual production at 375K Oz, based on an AISC of $700 per ounce and gold price at $1,300 per ounce, we get a free cash flow of about $210-230 million, which is around 60% lower than what was forecasted initially.

Therefore, investors will have to adjust and probably lower their long-term expectation until a time when facts will force them to change again.

Technical analysis

PVG is not easy to interpret into a meaningful pattern. I think the stock line support is around $6.75 (buy flag). However, the line resistance is quite uncertain, and I am assuming a rising channel pattern since early March which means a line resistance now around $7.50 (sell flag). I have eliminated the rise in mid-April.

Thus, I expect a period of indecision between $6.50-6.75 (buy flag) and $7.20-7.50 (sell flag if not crossed) until the next quarter results with a potential of a decisive breakout (if good production) and potentially a re-test of the long-term resistance at $9 (sell flag).

Author’s note: Do not forget to follow me on the gold sector. Thank you for your support, I appreciate it. If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks!

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PVG over 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.

With Or Without Sprint, T-Mobile Stock Is A Bargain

The best investments are oftentimes those that come with multiple ways to win. Shares of T-Mobile (TMUS) are now trading well below the levels they were prior to the announcement that they will try to get government approval for a Sprint merger (implying negative odds of approval), as well as at multi-year lows despite strong operating performance that exceeds the competition.

Below are four ways investors can win by buying TMUS today in the mid 50’s:

1) On a standalone basis, TMUS is performing superbly

A few short years ago T-Mobile was uncool and sitting firmly in fourth place within the U.S. wireless sector. CEO John Legere has focused on attracting younger customers (where the growth is) and is willing to gamble on new sales and service initiatives to transform the sector. As a result, other competitors are forced to copy TMUS, on ideas such as including Netflix (NFLX) with service plans and scrapping data limits and contracts.

The results have been no less than staggering, with TMUS adding more net new postpaid customers in 2017 than Verizon (VZ), AT&T (T), and Sprint (S) combined:

Source: Fourth quarter financial reports from each company

2) The stock’s current valuation is around 11x 2019 free cash flow ex-Sprint

T-Mobile’s success has not come with any compromise from the financial side of the equation (after all, it is easy to add customers when profits are not important). According to TMUS’s annual 10-K filings, free cash flow has surged from $690 million in 2015 to $2.725 billion in 2017. On a per-share basis, the figures amount to a jump from $0.84 to $3.13. With high fixed costs, each new customer is incrementally very profitable.

TMUS has laid out guidance for 2019 free cash flow of $4.55 billion, or roughly $5.30 per share. That puts today’s valuation at just 11x next year’s free cash flow, a very low price for a company that is still adding new customers.

3) The company is using free cash flow to aggressively repurchase shares, which supports investors even if no merger with Sprint occurs

Despite a possible deal to buy Sprint, TMUS’s board of directors authorized a $1.5 billion stock repurchase plan in December 2017. As of April 27, 2018, the company has spent the entire $1.5 billion on 23.7 million shares and announced a new authorization for another $7.5 billion through 2020. And that announcement was made knowing full well about the Sprint merger aspirations (only $500 million is slated for the rest of 2018).

4) A deal with Sprint could very well be approved and the potential synergies are impressive

It seems odd that T-Mobile shares are lower today than they were when the Sprint deal was announced. Not only does there appear to be a decent chance of getting approval (the arguments for the #3 and #4 wireless players teaming up to battle the two juggernauts in 5G technology are very strong), but it is hard to argue that T-Mobile has not done a lot to bring down prices in recent years. The idea that they would completely shift strategies after merging with Sprint holds little water. After all, T-Mobile’s disruptive business model is working well and they are adding more customers than anyone else.

To give you an idea of how big the cost synergies are in this deal, consider that T-Mobile has announced a projected annual run-rate of $6 billion for the combined entity (on a net present value basis, they estimate $43 billion of synergies). Compared with T-Mobile’s current stand-alone market value of $49 million, this deal would serve investors extremely well. If the deal happens, it is not unreasonable to think the stock could rise by 60% ($43 billion of synergies layered onto the combined current equity values of both firms of $68 billion) to a level of $90 per share within 2-3 years post-closing. That price would equate to roughly 13 times a $7 per share free cash flow figure (and that $7 could be low given TMUS should surpass $5 on their own next year).

In summary, investors can win with TMUS regardless of whether the coin lands on heads or tails. On a standalone basis, TMUS should continue to take market share, boost free cash flow, and buy back stock. In baseball terms, that is probably a double. However, if the government decides they would not mind three companies of roughly equal size vying for 5G dominance, the Sprint deal could very well happen (no reason to think 25% odds are unreasonable, although I think it might be as high as 50/50). If that happens, TMUS should be a home run for shareholders and customers alike.

Disclosure: I am/we are long TMUS.

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.