Air Canada: System-wide outage disrupts airport, aircraft operations

MONTREAL (Reuters) – Air Canada on Monday said a system-wide computer outage is affecting the carrier’s operations, including booking, airport operations and aircraft departures.

FILE PHOTO – An Air Canada Boeing 777 is refuelled at Sydney airport after being given the all clear to resume its journey to Vancouver July 28, 2011. REUTERS/Tim Wimborne

The airline’s technology teams are working to identify and repair the issue, and it is also implementing temporary measures to maintain a limited operation, Air Canada said in a statement.

“Today’s computer issues have had a wide impact on our customers and we apologize for any inconvenience,” Benjamin Smith, President, Passenger Airlines at Air Canada, said in the statement.

Calgary International Airport said on Twitter that Canada’s largest carrier “is experiencing a network outage nationwide, and departing passengers are being checked in manually, which is causing a bit of congestion in the terminal.”

Vancouver International Airport said in a statement that the outage is “causing delays.”

Reporting By Allison Lampert; editing by Grant McCool

Stock Exchange: How Do You Handle A Losing Streak?

The Stock Exchange is all about trading. Each week we do the following:

  • Discuss an important issue for traders;
  • highlight several technical trading methods, including current ideas;
  • feature advice from top traders and writers; and,
  • provide a few (minority) reactions from fundamental analysts.

We also have some fun. We welcome comments, links, and ideas to help us improve this resource for traders. If you have some ideas, please join in!


Our previous Stock Exchange asked the question: Do You Trade the 50-Day Moving Average? We noted this metric is used by so many traders that it often serves as a magnet, then support or resistance. But when something sends it through, it hits a lot of stops (for example, the S&P 500 and Nasdaq had been skipping along the top of their 50-Day moving averages for a year, until the uptick in volatility started in February). If you missed it, a glance at your news feed will show that the key points remain relevant.

This Week: How Do You Handle A Losing Streak?

If you’ve been trading long enough, you’ve undoubtedly experienced a losing streak at some point. And the important question is, how do you handle it? Do you make adjustments or stick strictly to your plan? One important key is to not get frustrated and start making silly mistakes such as inappropriate position sizing or risk taking. This is where the psychology of trading comes in (i.e. the classic forces of fear and greed, for example).

The relationship between trading and psychology is a frequently covered topic across financial markets because the two are often so very interconnected. For example, Adam Grimes penned an excellent article earlier this week titled “Thinking about Thinking: Probability and Psychology in the Markets.” In it, Grimes looks at a few practical ways in which psychology can cause brains to “misfire” when we’re trading, particularly with regards to strings of losses. He explains what is obvious to many (i.e. “a string of winners can easily lead to overconfidence and to taking too much risk on the next trade”), but he also explains the less obvious:

“Evolution probably favored cognitive development of paranoia, pattern recognition even when patterns are false, and immediate action.”

It’s an interesting 1,100 word read if you have a few minutes.

One reason traders build trading models (such as the ones we use later in this report) is to help avoid many of the common psychological errors that human traders make (another reason is because models can sift through lots of data much more efficiently than humans). However, as the Reformed Broker points out in his article from Wednesday (“Fear and Greed are Undefeated”):

“Even if a fund is quantitative, rules-based and emotionless in how it operates, the investor flows coming and going into the funds will be as emotionally driven as they are everywhere else.”

It’s a good point, and interesting to think about. He goes on to give an example using CTA investments, whereby he points out an unfortunate case of investors chasing hot money only to wind up disappointed. There was a similarly interesting article in The Wall Street Journal a few months ago (The Morningstar Mirage) whereby the authors tried to poke holes in Morningstar’s popular star ratings because they’re based simply on past performance, and there’s a tendency for mean reversion among top performers (i.e. what outperformed last period, tends to underperform this period). The WSJ article wasn’t exactly fair to Morningstar (or successful in its critique), but it’s another fun read, nonetheless.

Regarding our own trading models, we know, from testing, what to expect. And this helps us hang in there during the inevitable bad streak. It also helps if performance remains strongly positive in periods of relative underperformance, especially considering the returns have a lower correlation with the market, a powerful risk-reducing diversification benefit.

Model Performance:

Per reader feedback, we’re continuing to share the performance of our trading models.

And as alluded to earlier, we find that blending a trend-following / momentum model (Athena) with a mean reversion / dip-buying model (Holmes) provides two strategies, effective in their own right, that are not correlated with each other or with the overall market. By combining the two, we can get more diversity, lower risk, and a smoother string of returns.

And for these reasons, I am changing the “Trade with Jeff” offer at Seeking Alpha to include a 50-50 split between Holmes and Athena. Current participants have already agreed to this. Since our costs on Athena are lower, we have also lowered the fees for the combination.

If you have been thinking about giving it a try, click through at the bottom of this post for more information. Also, readers are invited to write to main at newarc dot com for our free, brief description of how we created the Stock Exchange models.

Expert Picks From The Models:

This week’s Stock Exchange is being edited by Blue Harbinger; (Blue Harbinger is a source for independent investment ideas).

Holmes: I recently purchased WW Grainger (GWW) on March 1st, when it was down. What do you think of this stock?

Blue Harbinger: Grainger is a distributor of maintenance, repair and operating (“MRO”) supplies to businesses and institutions, and the company has increased its dividend every year for more than 45 years in a row. Here is a look at the Fast Graph.

Holmes: That’d be interesting if I was a dividend growth investor, but I am technical model, and I typically hold my positions for about six weeks.

BH: Well, Grainger announces earnings in a little over 5-weeks, so I’m sure you are aware of that because earnings announcement can cause the price to move significantly. By the way, why did you buy Grainger?

Holmes: I am well-aware of the upcoming earnings announcement. And I like these shares because I am a “dip-buyer,” and Grainger’s dip over the last week is the sort of set up I like to see.

BH: Honestly, this looks like a really boring company to me. It’s a low beta stock and the company was founded back in 1927. The shares have perked up a little since you purchased, perhaps because investors liked what Grainger said at the Raymond James Institutional Investor conference back on March 6th. I’m surprised you bought this one, Holmes, but I do see the dip you’re talking about. I’ll check back with you on this one in about 6-weeks.

Holmes: Thanks. How about you, Road Runner, what do you like this week?

Road Runner: I bought Lam Research (LRCX) on 3/1. What do you think?

BH: The shares are up since you bought, so nice job. Why did you buy?

RR: I like to buy stocks at the low end of a rising channel, as LRCX was back on 3/1 when we bought, as shown in the following chart.

BH: I actually like that purchase, but I’m partial to the semiconductor industry, in general. I still think that old story about computers eventually taking over the world has merit, and the computers are going to be powered by semiconductor chips. It’s already happening with all the artificial intelligence, self-driving vehicles, and the Internet of Things.

Road Runner: Interesting. You haven’t been working a little too hard lately, BH, have you? And if the computers do take over the world, I’ll be out of this trade long before then. I typically hold for about four weeks.

BH: Thanks. Interesting trade, Road Runner. And by the way, we wrote about man versus machine in this Stock Exchange Series a few months ago: Stock Exchange: What Can Traders Learn From Poker AI?

Road Runner: Earlier in this report we covered cognitive paranoia—re-read it.

BH: Thanks Road Runner. How about you, Felix—what have you got this week?

Felix: I bought Twitter (TWTR) on 3/5. I am a momentum trader. What do you think?

BH: Twitter is certainly a momentum stock lately. I seem to recall Athena also bought Twitter back on 2/22. Per Twitter’s recent earnings announcement, it’s nice to see the company finally turning a GAAP profit for the first time. However, I don’t think this company is growing fast enough to get excited about. According to the earnings release, fourth quarter revenue grew by only 2% year over year, and net margins are only 12%. Plus, it makes me a little uncomfortable that CEO Jack Dorsey is also the CEO of Square (SQ). I question his focus. And honestly, I like Square’s business and growth potential much more. Here is a look at the Fast Graph for Twitter.

Felix: I typically hold my positions for about 66-weeks, which is significantly longer than the other traders.

BH: Good luck. Anything else for us this week?

Felix: Yes, here is my ranking of the top stocks in the Russell 1000 Large Cap index:

BH: Thanks for sharing. Lots to talk about in that ranking. I see you like Square (SQ), semiconductor industry company Micron (MU), and US Steel (X)—Jeff has covered the steel tariff twice in the last week:

Felix: Thanks. How about you, Oscar—what do you have to share?

Oscar: This week I am sharing my top 20 ranking of the high volume ETF universe.

BH: I see you have the Ultra VIX Short Term Futures ETF (UVXY) ranked at the top of your list. Those volatility-based ETFs are tricky, especially with that spike in the VIX a month ago that surprised me, and a lot of others too. I know you are a momentum trader, and you typically hold for about 6-weeks. I’ll keep an eye on UVXY, as well as a few others on your list. Thanks for sharing.


No one gets their trades right all of the time. The trick is to make more money on your winners than you lose on your losers. And the matter of accomplishing that can be inhibited if you let the psychology of a losing streak get in your way. All serious traders have experienced a string of losing trades at some point. And it is critically important to understand the common causes of psychological “misfires” that can result (e.g. fear, greed), so you are prepared to deal with them and ultimately return to growing your profits.

Background On The Stock Exchange:

Each week, Felix and Oscar host a poker game for some of their friends. Since they are all traders, they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check out Background on the Stock Exchange for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am usually the only human present and the only one using any fundamental analysis.

The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.

Stock Exchange Character Guide:




Average Holding Period

Exit Method

Risk Control


NewArc Stocks


66 weeks

Price target

Macro and stops


“Empirical” Sectors


Six weeks




NewArc Stocks


17 weeks

Price target



NewArc Stocks

Dip-buying Mean reversion

Six weeks

Price target

Macro and stops


NewArc Stocks

Stocks at bottom of rising range

Four weeks






Long term

Risk signals

Recession risk, financial stress, Macro

Getting Updates:

Readers are welcome to suggest individual stocks and/or ETFs to be added to our model lists. We keep a running list of all securities our readers recommend, and we share the results within this weekly “Stock Exchange” series when feasible. Send your ideas to “etf at newarc dot com.” Also, we will share additional information about the models, including test data, with those interested in investing. Suggestions and comments about this weekly “Stock Exchange” report are welcome.

Disclosure: I am/we are long LRCX, TWTR, GWW.

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

Starsky Robotics' Truck Takes Its First Human-Free Trip

On Tuesday, ride-hailing giant Uber announced it was doing a very cool, techno-futuristic thing: starting a commercial delivery service that included letting a truck drive itself 344 miles across Arizona. Of course, a trained safety operator sat behind the wheel the whole time, ready to take over if anything went awry.

Pshaw, says a small startup called Starsky Robotics. In true Florida Man fashion, founder and CEO Stefan Seltz-Axmacher decided to do something much bolder and a bit scarier: In mid-February, in the Sunshine State (where regulations are as lax as those in Arizona), he sent his truck down the road for a 7-mile journey—with nobody inside. Now Starsky expects to start making completely driverless deliveries in Florida by the end of 2018, with at least one truck.

Taken together, these two demos offer diverging futures of freight, in which humans play different roles. Uber envisions drivers as bar pilots: They handle the trucks on tricky surface streets from their starting point to the highway, then hop out of the cab and let the machine do the simple long distance hauling on its own. At the end of its journey, the truck exits and meets up with another human, who handles the last few miles to its destination—the way bar pilots guide huge container ships into and out of ports. Trucking becomes a purely local affair, but otherwise looks much like it does today. Silicon Valley startup Embark is going for the same idea, and started shipping refrigerators from Texas to California last fall.

Starsky doesn’t want humans in truck cabs at all. “We want to get people out of the cab because the work is unpleasant and dangerous,” Seltz-Axmacher says. Today’s trucking work, he argues, is bad, with uncomfortable work environments, long hours that leave little time for friends and family, and wages that aren’t high enough to compensate for those downsides. That’s why annual driver turnover in large American fleets hit 95 percent in 2017, according to the American Trucking Associations.

Like Uber and Embark, Starsky’s trucks will handle the highway driving all on their own. But when a human grabs the wheel to negotiate the complex surface streets, they won’t climb into the cab to do it. They’ll work in buildings that look like call centers, monitoring 10 to 30 vehicles per hour via video links and using a videogame-controller-like wheel to take control as needed. (Today, the company employs four truck drivers.)

Driverless taxis may make all the cool headlines as they begin to test around Miami, Phoenix, Pittsburgh, and San Francisco. But the $676 billion trucking industry just might stand the gain the most, especially in the short term, from automated vehicles. To go with the driver shortage, Americans are ordering more stuff than ever before (thanks, Amazon). Beyond potential safety benefits (about 4,000 people die in truck-related crashes every year on US roads), there’s a clear economic case for any tech that can make it easier to keep freight flowing.

Which model of robo-trucking the future embraces is probably up to regulators as much as the free market. (Starsky, for its part, just announced a $16.5 million Series A funding round, led by Shasta Ventures.) Today, eight states permit trucks to “platoon”—that is, use sensor integrations and wireless communications to synchronize accelerating and braking between two or more vehicles, so that only one driver (the one in front) has to pay attention at a time. Peloton Technologies, a California company that has embraced platooning, says it will begin to make commercial deliveries this year.

But the federal government has been slower to contemplate rules for automated trucks than it has for passenger vehicles. Final regulations for testing trucks might be months, if not years, away. Robotic semis aren’t just big and scary, after all—they could threaten the jobs of 3 million men and women who do the work today.

In the meantime, Starsky, like Embark and Uber, will begin to deliver real, live freight with automated trucking technology. But the biggest question remains unaddressed: When the robots take the wheel, who will unleash their thunderous honks at America’s children?

Big Rigs on the March

Facebook Didn't Kill Online Sketch Comedy—The Entire Internet Did

Early last winter, while browsing Manhattan’s Strand bookstore, roommates Carina Hsieh and Claudia Arisso came upon a keychain featuring a tiny version of the totemic, subway-friendly Strand tote bag. “Claudia said, ‘I wish there was a ‘Commuter Barbie’ who came with a Strand bag,’” Hsieh recently recalled. “And I was like, “Oh my God—we have to do that.”

The two women had never written together before, but they quickly devised a script for a “Commuter Barbie” sketch. Arisso, a packaging designer, created an array of Barbie-sized accessories, including a beanie—made out of a black-dyed baby sock—and a tiny pair of pink headphones (to help “tune out the creeps when you’re stuck in the middle seat”). After recruiting a pair of young actors, and hiring a jingle writer, Hsieh and Arisso used their Brooklyn living room to shoot the video, for which they spent around $1,600 of their own money. “The production value was a really big concern for us,” says Arisso, 24. “We wanted to make sure people kept watching after three seconds.” After a few weeks of editing, Hsieh and Arisso had a sharp, spot-on three-minute commercial parody ready to go.

Now, they just had to figure out how to get people to watch it.

Only a few years ago, the solution would have been obvious: Throw “Commuter Barbie” on YouTube, and watch it go viral. That’s the way it had worked since “the halcyon days of sketch video,” says Hsieh, 24, who’s also an editor at “You’d get a link from a friend, and it would already have three million views.”

Related Stories

The site’s arrival in 2005 had led to a boom in viral comedy videos, allowing D.I.Y. digital sketches like “Chad Vader” or “Bird Poops in Mouth” to dominate the web for weeks or months, eventually earning millions of views. But that era, Hsieh knew, was long gone: YouTube was so now overstuffed, it was near-impossible for a sketch to randomly break out, and they worried Facebook’s unpredictable algorithms made it tough to know how a video would be seen (or by whom). At one point, Hsieh and Arisso could have uploaded the sketch to Funny or Die to see if it could get some votes—but that site was hardly the hit-maker it once had been.

Instead, last April, the two women decided to push “Commuter Barbie” via Facebook and Twitter to see how it would play there. (They also put the clip on YouTube, but mostly as an afterthought: “That site was just a dead zone to us,” says Arisso). As it turned out, the “Commuter Barbie” creators had more than just a great sketch; they also had excellent timing. The video debuted just as behavioral problems with the New York subway—and the men who ride it—were becoming a city-wide concern, and within 24 hours, “Barbie” had earned write-ups in Gothamist, BuzzFeed, and the The Washington Post’s website (which declared it a “parody masterpiece”). It wound up getting nearly 900,000 views, more than half from Facebook—a hit by modern standards—and the attention helped land Hsieh a manager. Even the official Barbie Instagram account gave its seal of approval.

“We got lucky,” Hsieh says. “It was the ideal version of going viral–even if the numbers don’t necessarily tell that story.” But only a year later, she says, the rules for what works and what doesn’t online have totally changed. “I don’t even know how I’d release future videos,” she says. “It just feels like a weird new landscape.” And even Commuter Barbie doesn’t know how to navigate it.

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It’s a common comedy-world dilemma now: In an era of niche audiences, social-feed upheaval, and an overcrowded/underfunded competitive space, the future of the scripted digital-comedy bit—once a staple of online culture—is looking appropriately sketchy. “It seems like a dead scene to me, man,” says comedy writer, performer, and director Matt Klinman, who’s worked with such outlets as Adult Swim and the Onion. In a Twitter thread last month, and in a subsequent interview with Splitsider, Klinman put the blame on Facebook, which he says has harmed publishers with its shifting algorithms and generally closed-off-feeling ecosystem (a common complaint among media executives).

But that’s just one of several factors that have made online sketch-comedy increasingly difficult to pursue. “I know a lot of people who just want to make something for fun and for free, and we have no idea where to put it,” Klinman says. “Where can you put a sketch where people would even see it?”

A good online sketch still has the chance to thrive in 2018: Performers like Jimmy Tatro and Dylan Marron regularly command big numbers on their videos, and as do established outlets like Smosh and College Humor. The recently revived Super Deluxe, meanwhile, has found success with a series of smart, strange, Facebook-friendly bits (including the work of Vic Berger, the best political sketch-artist of the digital era). And the medium itself can still produce the kind of must-watch sketch that comes out of nowhere, as with last month’s hilarious Stranger Things send-up “Joyce Byers’ Master Class.”

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But the golden era of online sketch, when the goofiest idea could hit eight-figure views, is clearly over. Earlier this year, Funny or Die—which recently announced it was migrating its original website to Vox—announced a round of layoffs that included several short-form writers. Last summer, NBCUniversal shut down Seeso, an all-comedy digital platform that had commissioned a handful of sketch shows. Seriously.TV, a Facebook-heavy, millennial-aimed comedy platform, hasn’t released a new video on its social feeds since last fall. And with the exception of Saturday Night Live segments—always popular, especially if they involve Trump—it’s rare for a short-form web sketch to even approach the million-view mark anymore. To put it in Monty Python terms, online sketch is the parrot at the bottom of a cage: It’s hard to tell if it’s deceased, or simply stunned. But it’s definitely flat on its back.

Low Risk, High Reward

The modern web-sketch boom began, appropriately enough, on a lazy Sunday: In the early hours of December 18th, 2005, someone uploaded a ripped version of SNL’s “Lazy Sunday” digital short to YouTube, which was then just a few months old. The bit earned millions of views, as well as the wrath of Paramount, which had it pulled down a few months later. But the real measure of the sketch’s success was the numerous parodies it inspired, many of which went straight to YouTube. “Lazy Monday,” and “Lazy Muncie” were low-budget and star-free, yet they earned hundreds of thousands of views.

Suddenly, you didn’t have to be on SNL to get your crazy-delicious sketches in front of viewers audience. And while sites like College Humor had been increasing its comedy-video output for years, the sudden rush of sketches onto YouTube was proof that sketch comedy—a long-running artform that had already proved adaptable to stage, radio, and TV—was finally ready to spill on to the web. Soon enough, YouTube was a comedy Narnia, birthing dozens of hit clips, from the “Literal Video” of a-ha’s “Take on Me” to “Sexy Pool Party” to the music-spoof “Potter Puppet Pals”.

The platform’s egalitarian ethos and gatekeeper-free structure made it possible for young, unknown comedians to get millions of views, launching several careers along the way: Broad City began as a series of YouTube clips, while Insecure creator Issa Rae’s breakthrough came via her web series “The Misadventures of AWKWARD Black Girl.” “It was like, ‘Oh wow—with a little bit of production value, and a funny idea, you can be huge on YouTube,” says Nate Dern, a comedy writer and former artistic director at New York’s Upright Citizens Brigade, or UCB. “At the time, that felt like a realistic way to like make it in comedy.”

One advantage of YouTube was they way it offered high visibility at a low budget. “Drive Recklessly,” by the sketch troupe The Midnight Show, starred Heather Anne Campbell as a car-crashing driver who suddenly finds herself staring down Hitler (approximately 43,147 sketches have been performed about Hitler in the last decade; “Drive Recklessly” is one of the few funny ones). The video was shot on a single weekend afternoon, and cost about five bucks. “I think we broke a CD jewel case and threw it in my face for the broken-glass effect,” says Campbell, who wrote the sketch. It went on to earn more than 4 million views, and landed Campbell some high-profile meetings.

In the years following YouTube’s launch, these kind of cheap digital sketches functioned as the web-culture equivalent of a pop single: Three-minutes blasts of distracting fun that were best enjoyed in the company of others. And they were everywhere. Comedy troupes with names like Olde English and Waverly Films were regularly knocking out cult-hit videos, and UCB eventually launched its own short-video arm (its biggest hit, “BP Oil Spill,” earned 13 million views).

It didn’t take long for investors to show up. In early 2007, Anheuser-Busch teamed with a raft of comedy writers for original-sketch depot bud.TV. A few months later saw the arrival of, which enjoyed instant infamy via Adam McKay and Will Ferrell’s potty-mouthed “The Landlord,” which wedded the frills-free look of early YouTube clips with Ferrell’s Blades of Glory-era star power. Funny or Die attracted big names and sizable venture capital, thanks in part to its somewhat stumbled-upon formula for success: Tailor a sketch around a famous person willing to perform “undercover karaoke,” and you’ll get the web’s attention—as well as the attention of other celebs, who will want to get in on the act.

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“That’s why those videos went so big: ‘Oh my God, Marion Cotillard put boobs on her face,’” says former Funny or Die writer and director Alex Fernie, who went on to such shows as Childrens Hospital and Do You Want to See a Dead Body? “It was shocking that we could get people to do these things.”

Peak Sketch

Between 2012 and 2013, sketch comedy reached its cultural zenith. Not only was it still possible to pull in several million views for a cheaply made short—often with the help of social media—but sketch was dominating TV for the first time since the mid-’90s, when In Living Color, MAD TV, The Kids in the Hall, and Mr. Show were all challenging the sagging SNL. Fifteen years later, Comedy Central had Key & Peele, Kroll Show, and Inside Amy Schumer, while IFC had Comedy Bang! Bang! and the Peabody-winning Portlandia (which itself had gotten its start as a series of short online videos, under the name ThunderAnt).

The demand for sketch, in every format, was so widespread that Funny or Die released what might be its finest, most self-lacerating bit yet: “Gungan Style,” about a comedy writer whose Star Wars spoof forces him to confront his own existential anxieties. (It’s the ultimate “make sure you watch all the way through” clip.)

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“Gungan Style” may have been the first warning of the burnout that was yet to come, among both audiences and performers. “It expresses the exhaustion of being a sketch comedy creator,” says Heather Anne Campbell. “There’s this moment of self-actualization, of wondering, ‘What is this going to mean to people when I’m dead?” Online sketch comedy may have started as venue for realizing low-fi, almost throwaway ideas, but it had become a 24-hour industry that constantly required new material—especially now that Jimmy Fallon and Jimmy Kimmel had adopted Funny or Die’s celebrity-participation model.

Meanwhile, YouTube was so overstuffed that amateur comedians were no longer competing for views with the sketch team down the block; they were competing with segments from The Colbert Report and SNL itself.

“All the homegrown stuff that was big in the birth of YouTube doesn’t exist anymore, because you have the glossier, fancier version of it online,” says Sachi Ezura, a producer on The Rundown with Robin Thede who has worked in development at such outlets as IFC and Seriously.TV. “So why would you watch something that looks like it was made in someone’s basement for 100 dollars?”

In the last few years, as view-counts started dropping and fewer comedy sketches seemed to be bubbling into mainstream awareness, even the most optimistic writers and performers were starting to wonder: How much web comedy could audiences stand? When will the bubble burst? And how was anyone making money off this? “I was getting paid to do whatever sketches I thought were funny,” Fernie says of the 2010-2013 golden age. “But if you’d asked me then, I would have said, ‘In no way is this sustainable.’”

Live By the Feed, Die By the Feed

In November 2016, Klinman released a short he’d written, called “Geologist’s Nightmare,” to UCB’s Facebook page. In the bit—which he produced with his sketch team, Whale Thief—Klinman plays a rock-lover haunted by the thought of some people being unable to spot a schist. By that point in his career, Klinman had worked for numerous comedy outlets, had a pretty good idea of what would work online (the Funny or Die video “10 Hours of Walking in NYC as a Man”, which he’d co-written with Dern and some others, had earned more than 7 million views). But the geologist sketch earned just over half a million views on Facebook. “It did really well among geologists, which was awesome,” he says. “But there was no conversation around it. Before, if you did a big sketch, blogs and media would pick it up too. That just doesn’t happen anymore.”

“Geologist’s Nightmare” was released not long after Facebook began pushing publishers toward native video—a move that would convince dozens of outlets to place their trust in the power of the feed. In recent months, a few companies have retreated from the strategy, notably Vox, which recently laid off several native-video employees. Klinman thinks online comedians would do well to back off from Facebook, too. “If you talk to the people who are doing the best stuff online right now, they’re all struggling,” he says.

Klinman claims Facebook’s discouragement of outbound links, as well as its opaque algorithms, has made comedy videos difficult to distribute, not to mention monetize. “It’s completely out of your hands how your work gets out to people,” he says. “And if you make something ambitious, there’s no guarantee it won’t get swallowed up by some algorithmic change that you have no control over.”

“We are committed to better supporting publishers and creators as they connect with and build their community on Facebook, and while we don’t always get it right, we think we are making progress,” Facebook responded through a spokesperson, name-checking comedy shows on the company’s Watch platform like “Charlene’s World” and All Def Digital’s “Dad Jokes.” “News Feed still remains important for partners as a discovery surface, where people can find and engage around content that matters to them.”

Another Facebook hurdle, says Ezura, is that the platform tends to favor videos that are quickly digested and visually vibrant, and that can be viewed with captions on—not exactly the elements of a self-produced, three-minute comedy sketch. The site’s glut of clickbaity content, Ezura notes, can be demoralizing for those who got into comedy to make smarter, more daring material.

For anyone working in digital media in 2018, that complaint surely sounds familiar. But digital comedy—which rewards viewers who are willing to take risks on unknown, unconventional performers and ideas—has taken some significant hits in the last year. The recent Funny or Die layoffs, as well as the SeeSo shutdown, are a troubling sign that even the most resourceful comedy outlets are having trouble figuring out an increasingly iffy media landscape (though Funny or Die has had significant success in TV, producing such hits as American Vandal and Billy on the Street, and recently launched a new interview-focused web series with IMDb). Unless you’re making sketches for SNL, or for an outlet with a long-established audiences, the odds of reaching even a few hundred thousand people are slim.

Less Premise, More Person

But while many of Klinman’s peers agree that Facebook hasn’t been great for sketch comedy, they also point to a confluence of factors, from audience fragmentation to larger, web-wrought changes in comedy itself. The early ‘00s was a good time to be part of a smart troupe with a dumb name, but in the social-media era audiences prefer stand-alone personalities rather than group efforts. “I’ve pitched TV shows in the last couple of years,” says Dern, who’s writing a dissertation on comedy. “And especially in the last year, the powers that be are very interested in whether you’re an influencer, or how many followers you have.”

A few years ago, it seemed as though sketch and improv had supplanted stand-up as the best-paved road to a comedy career. Now, says Klinman, “the smart comedians are going back into stand-up.” Solo performing can be cheaper than sketch, and it certainly fits the dynamic of social media: Facebook, for example, has helped earn big numbers for comedy series like “Help Helen Smash” and “Funny in Public,” single-performer shows that earn million of views.

But for a generation that came up with a team-focused comedy philosophy–who spent long nights in airless rooms, bouncing ideas off one another until one of them stuck–the retreat from sketch cam be a bummer. “The best comedy, and the comedy I came up doing, is collaborative—making great stuff with others,” sighs Klinman. ”And you just can’t do that anymore.”

There’s also the possibility, of course, that sketch comedy is simply resting—and not in the dead-parrot sense of the word. In the nearly 15 years since YouTube made digital sketches an easily accessible form, humor has undergone several digital mutations: Blip-length Vine sketches; weirdo memes; punchline-providing GIFs; and a raft of comedy podcasts, which have become a major creative focus for performers who, years ago, would have been filming videos in their backyard. “The way that you can tell jokes now is more varied,” says Campbell. “I’ve laughed more at memes in the last year than I have at any individual sketch. And just look at the way Tumblr threads work—it’s like piling on jokes in an improv scene. Perhaps a two- or three-minute sketch is a little bit tired at this point.”

Campbell’s current gig is on the forthcoming Twilight Zone reboot—just one sign that, even though the sketch-boom has ended, the talents behind many of those hit videos have moved on to long-range, long-form success. Comedy Central’s dark satire Corporate was created by members of WOMEN, a Los Angeles-based sketch group that hosted YouTube videos for years. Members of the Birthday Boys, which created the classic 2010 sketch “Pool Jumpers,” landed an IFC show before they became fixtures on hit podcasts and within high-profile writers’ rooms. And on Sunday night, the Academy Award for Best Original Screenplay went to Get Out’s Jordan Peele—one of the most celebrated sketch stars of the last decade (even if some fans still confuse him with football ace Equine Ducklings). “The people who cut their teeth on sketch are starting to tell bigger stories,” says Campbell. “They want to make movies, or things that emotionally affect people, because we’re all looking for a larger catharsis right now.

And in the next few years, there’s always the chance that some these sketch-vets will return to the form that made them famous—or that a new generation will take their place. After all, comedy is cyclical: In the early ‘00s, when there were only a handful of sketch shows on TV, the internet made room for a new form of short-form comedy, one that was raggedy and strange, but that eventually worked its way back into the mainstream. It’s a good bet that that some new strand of humor is taking shape now, simply waiting for the right moment (and platform) to announce itself. “I think we’re probably at that point now, where we’ll start seeing something pop up, whether it’s a new voice or a new interesting thing,” says Fernie. “Comedy likes living underground.”

Comedy is Serious Business

Mattel Gets Hammered In Spain

Spain is a country of extremes. The Kingdom of Spain is the second-largest country in the EU – with an area of 505,955 square kilometres, the population of 46,383,259 is the sixth-largest in Europe. It is also a relatively poor country – its per capita GDP of US$26,528 ranks as #14 after such heavies as Germany at $41,936, the U.K, at $39,899, France at $36,854 and Italy at $30,527.

The country has major problems. Unemployment for the below-25-year-olds stands at 37% and the average annual salary of young people who enter the labor market is today 33 percent lower than in 2008.

Spain has Europe’s biggest wealth gap – the combined fortunes of Spain’s top three richest people are equivalent to the wealth of the poorest 30 percent of the country. 10.2 million live below the poverty line, equivalent to a poverty rate of 22.3 percent. This makes Spain the fourth country in the European Union [after Greece, Bulgaria and Lithuania] with the highest levels of inequality. Spain’s Gini coefficient, the most widely used measure for income inequality, ranks among the highest in Europe with Gini indices at 0.34 – 0 being the best and 1 being the worst.

However, Spain’s biggest problem is Catalonia. Catalonia’s independence referendum on October 1, 2017, plunged Spain into its biggest political crisis for a generation. The north-east region’s history of self-rule and trying to split from Spain goes back nearly a thousand years. The few times it has declared independence it never went very far and in the 17th century it ended up losing its northern regions to France as a result. Spain has been successful in suspending Catalonia self-rule for long periods but in the end the will for autonomy and independence has always emerged stronger.

Catalonia’s population is 7.5 million or about 16% of Spain’s total. Barcelona is its largest city and the urban region of Barcelona accounts for nearly 50% of Catalonia’s population. The majority of the Catalonian population speaks Catalan which is closer to French and Italian than to Spanish or Portuguese.

It is unlikely that Catalonia’s desire for independence will go very far this time either. Its economy is extremely dependent on the rest of Spain followed by the other EU countries. I understand that if Catalonia succeeds in eventually getting its own country, this country will not be welcome in the EU. Both Spain and France will in all probability veto any form of association if only to demonstrate to the Basques and the Corsicans that independence has a very steep cost. Nevertheless, the wish by a large percentage of the Catalonian population to have their own country is unlikely to go away and will in all probability continue to provide a cause of unrest in the Spanish body politic.

Having said all this, the economic outlook for Spain is pretty good. The strong growth momentum in the second half of 2017 has resulted in a higher growth carry over into 2018 than anticipated and an upward revision to growth this year, to 2.6%. Growth is expected to ease to an annual rate of 2.1% in 2019. Although the consequences for growth of recent events in Catalonia have remained contained, future developments could still have an impact, the size of which cannot be anticipated at this stage.

On balance, Spain is a relatively difficult country to do business in and compares in many respects to France:

This is how Spain compares to the other countries already surveyed:

This is how the Spanish Toy Market breaks out:

Source: Klosters Retailer Panel

As far as the $300 million online toy sales are concerned, Amazon (NASDAQ:AMZN) has about 75% market share, El Corte Ingles 5%, Groupon (NASDAQ:GRPN) 5% and all the others the remaining 15%.

Market growth was very strong in 2017, estimated at 7%. The first half of the first quarter 2018 has also shown continued momentum at about the same rate.

Given the importance of the traditional toy market leaders – Lego, Hasbro (NASDAQ:HAS) and Mattel (NASDAQ:MAT) – it behooves us to look more closely at them. One of my Spanish contacts, a very well-established distributor, who had been kind enough to provide the data indicated above, had the following to say:

Hasbro has made considerable progress in the last four years, going from a third position and a market share of 9.2% in 2013 to the top position and a 10.2% market share in 2017. This was achieved on the strength of two major efforts – establishing itself as a major player in the Fashion Doll category and maintaining its leading position in the Action Figure field. This is how the top five brands of both categories looked like in February 2018.







Fashion Dolls

TRU Spain

Dis Princess HAS

Barbie MAT

Descendants HAS

Enchantimals MAT


Amazon Spain


Enchantimals MAT

Barbie MAT

Descendants HAS

Dis Princess HAS

Action Figures

TRU Spain

Ben + Holly Bizak

GRU Mondo

POP Funko

Guardians HAS

Figurines Playmobil

Amazon Spain

POP Funko

Avengers HAS

Paw Patrol Spin Master

Guardians HAS

Figurines Playmobil

Source: Klosters Retailer Panel

Hasbro has been established in Spain since 1990 and manages all business operations including marketing, sales and supply chain management. Hasbro’s strength in Spain is a function of its management culture there which encourages local initiatives and very much takes its own marketing decisions – a fact which is particularly appreciated by its key retailers.

Mattel, on the other hand, took a beating. The company had the top position and a market share of 12% in 2013 and is now down to #3 and a market share of 7.7%. As we have seen in the chart above, Mattel loses out to Hasbro in its core business, Fashion Dolls, and is nowhere in the Action Figure field. In this the company’s performance echoes what we have seen in our analyses of the U.K. and the French toy markets in earlier articles. In fact, Spain is one of the very few markets where Barbie is not in the top position, but has been overtaken by Disney Princess.

Mattel has been established in Spain since 1983 and controls itself all activities related to marketing, selling and supply chain management. Unlike Hasbro where the decision making weight is in Spain, Mattel’s marketing initiatives are heavily influenced by the views obtaining at its European and U.S. headquarters. Also, recent changes at the very top of Mattel have introduced a high degree of uncertainty in the perceptions held by country managements and Spain is no exception to this.

Lego improved its market share in Spain by going from 4.5% in 2013 to 6.9% in 2017. The company totally dominates the Construction Toy category with a market share of 87%. Lego has been established in Spain since 1974 and it, too, controls all its activities soup to nuts. Lego Spain is one of the more successful countries in Lego’s world and has defied the issues that have beset the company in its most recent years.

Final Takeaway

Spain is not an easy market to do business in and an even more difficult market to enter from scratch. The top five toy companies have a hammerlock on the key toy categories as is shown in the case of Lego which has nearly 90% of the construction toy space. That is the reason why virtually all second-tier companies – MGA, Spin Master, etc. – have elected to go the distributor route. For any newcomer, this may well be the most sensible way to go.

To see how a distributor arrangement might look like I spoke to one well-established and very credible toy distributor there. This is how he described a possible collaboration with a toy manufacturer seeking to get a foot into the Spanish door:

We will look at any new potential partner provided that the company’s products are not in direct conflict with what we already carry. We are in particular interested in Arts and Craft products and Outdoor toys but will consider others as well. We will handle the entire sales process through our own employees who provide nationwide coverage at all major toy retailers. The products of the new partner would be included in our toy catalogue which we advertise very heavily on TV – an effort that represents 90% of our advertising budget. We determine our pricing in line with market conditions. Most importantly, we promote and back all products from companies we represent as exclusive distributor as if they were our own.

In summary, Spain is a difficult market for new entrants but one that is substantial and growing. The good news is that there are a number of extremely capable distributors who have a track record of successfully working with small to medium-sized toy manufacturers, provided that they are willing to let their Spanish partners get on with it without undue interference from afar.

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.

YY's (YY) CEO David Xueling Li on Q4 2017 Results – Earnings Call Transcript

YY Inc. (NASDAQ:YY) Q4 2017 Earnings Conference Call March 5, 2018 8:00 PM ET


Matthew Zhao – IR Director

David Xueling Li – Chairman and Acting CEO

Bing Jin – Chief Financial Officer

Ting Li – Chief Operating Officer


Daniel Chen – J.P. Morgan

Binnie Wong – Merrill Lynch

Natalie Wu – CICC

Shi Jialong – Nomura

Eileen Deng – Deutsche Bank

Jerry Liu – UBS

Hillman Chan – Citigroup

Karen Chan – Jefferies

Thomas Chong – Credit Suisse

Wendy Huang – Macquarie


Ladies and gentlemen, thank you for standing by. And welcome to YY Inc. Fourth Quarter and Fiscal Year 2017 Earnings Call. At this time, all participants are in a listen-only mode. Today’s call include a question-and-answer session. [Operator Instructions]

I must advise you that this conference is being recorded today, Tuesday, 6th of March 2018. I’d now like to hand the conference over to your speaker host today, Mr. Matthew Zhao, IR Director of YY. Thank you, sir. Please go ahead.

Matthew Zhao

Thank you, Operator. Good morning, and good evening, everyone. Welcome to YY’s fourth quarter and fiscal year 2017 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman, Acting CEO of YY; Mr. Bing Jin, CFO of YY; and Ms. Ting Li, COO of YY.

For today’s agenda, the management team will provide us with a review of the quarter. Following their prepared remarks, we will conduct a Q&A session. The fourth quarter and full year 2017 financial results and the webcast of this conference call are available at A replay of the call will be available on the website in a few hours.

Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in renminbi.

I will now turn the call over to Mr. David Xueling Li, our Chairman and Acting CEO. Please go ahead, sir.

Bing Jin

Thank you, Matthew. Hello, everyone. Welcome to our fourth quarter and full year 2017 earnings conference call. This is Bing Jin, the CFO of YY. I will now speak on behalf of our Chairman and Acting CEO, David Xueling Li.

We’re delighted to conclude 2017 with robust growth momentum. The innovative model of YY Live 7.0 continues to attract new users to our live streaming platform and generate strong operating results.

Consequently, we achieved better than expected financial result in the fourth quarter of 2017. Our total net revenues increased by 46% year-over-year to RMB3.63 billion, exceeding both our guidance and street consensus.

Now let me provide more updates on both YY Live and Huya business, as well as our recent new explorations. Firstly for YY Live, we continue to cultivate new growth engine from product innovation and content enrichment. Our initial foray into AI embedded casual games such as Happy Basketball in the third quarter of 2017 was a smash hit.

To build upon this success, we launched several new Ai casual games such as emoji Tetris in the fourth quarter of 2017. As a result, YY Live continue to attract a younger generation of users and the levels of interaction and engagement between our users have further improved.

We held the YY 2017 Annual Awards in the fourth quarter. In addition to that, we also hosted the first ever YY Carnival in Guangzhou. During that event 38,000 fans joined over 300 hosts from 23 live streaming categories on site for the celebration. And another 8 million viewers turning to watch the live broadcast online.

Meanwhile, we continue to explore more opportunity in the field of casual games to fulfill user demand in their fragmented time throughout daily lives. In the fourth quarter of 2017, we launched our casual game collection platform called Happy Go by introducing over 40 casual small games into this product so far. We continue to attract younger generations to our platform.

Now I would like to give you update on Huya. Recently Huya submitted a confidential filing with the U.S. Securities and Exchange Committee for a possible initial public offering in the U.S. This announcement is being made pursuant to and in accordance with Rule 135 under the U.S. Securities Act of 1933, as amended.

Huya IPO is an important milestone in our long-term strategy. Huya is focus on game live streaming while YY Live on entertainment live streaming. Together we are able to cover the entire spectrum of and become dominant play in the live streaming industry in China. Now Huya has reached a stage near its development where it needs to obtain its own group of investors to fund its long-term growth.

In a public company we also strengthen Huya’s plan recognition and help it for its more strategic partnerships, which in turn should enable both YY and Huya to further grow our combined licensing ecosystem.

Looking forward, we will continue to explore innovative ways to attract more uses, enhance user engagement, enrich live streaming content and improve the traffic to monetization conversion. We believe that we have the right strategy in place to solidify our leading position in China’s live streaming social media industry.

That concludes the remarks of our Chairman and Acting CEO, David Xueling Li. Now as the CFO, I would like to discuss our financial results.

We are very pleased to sustain our growth momentum in the fourth quarter of 2017. Our total net revenues for fourth quarter increased by 46% year-over-year to RMB3.63 billion, exceeding the high-end of our previous guidance range. Notably, revenues from live streaming which are accounted for 92.9% of our total net revenues grew by 51.9% year-over-year to RMB3.37 billion.

Consistent with our strategic focus on the both mobile platform, mobile consisted 53.4% of our live streaming revenues in the fourth quarter of 2017. Mobile live streaming MOUs grew by 36.6% year-over-year to RMB76.5 million from RMB56 million in the prior year period. Live streaming paying users reached 6.5 million, up 25% from 5.2 million in the prior year period. Mobile paying users consisted 79.5% of our total live streaming paying users in the fourth quarter of 2017.

Our cost of revenues for fourth quarter increased by 40.8% year-over-year to RMB2.2 billion, which was in line with our topline growth. The increase of cost of revenues will primarily attributable to our 49.6% year-over-year increase in the revenue sharing fees and content costs to RMB1.83 billion.

Our gross profit increased by 54.7% year-over-year to RMB1.43 billion and our gross margin expanded to 39.4% in the fourth quarter of 2017 from 37.2% in the prior year period.

Our operating expenses increased by 31.8% year-over-year to RMB652.9 million during the fourth quarter of 2017, which was a slower pace than that our revenues.

Sales and marketing expenses were RMB148.8 million in the fourth quarter of 2017, up 33.4% year-over-year. As a percentage of total net revenues, sales and marketing expenses in the fourth quarter of 2017 was 4.1%, down from 4.5% in the prior year period. In addition, our R&D and G&A expenses as a percentage of total net revenues were 7.2% and 6%, respectively, in the fourth quarter as compared to 6.4% and 8.3%, respectively, in the prior year period.

Our GAAP operating income increased by 32.2% year-over-year to RMB821.5 million in the fourth quarter of 2017. GAAP operating margin was 22.7% in the fourth quarter of 2017, as compared to 25% in the period year period, primarily due to an increase in newly issued share-Based compensation in the fourth quarter of 2017.

Our non-GAAP operating income which exclude share-based compensation expenses increased by 59% year-over-year to RMB1.03 billion in the fourth quarter of 2017. Non-GAAP operating margin increased to 28.4% in the quarter from 26.1% in the prior year period.

Our GAAP net income attributable to YY increased by 29.4% to RMB740.4 million in the fourth quarter of 2017. Net margin in the fourth quarter of 2017 was 20.4% compared to 23% in the prior year period. Primarily due to the increases in the new issued share based compensation in the fourth quarter of 2017.

Non-GAAP net income attributable to YY increased by 58.5% to RMB948.9 million in the fourth quarter of 2017. Non-GAAP net margin in the fourth quarter of 2017 expanded to 26.2% from 24.1% in the prior year period.

Diluted net income per ADS in the fourth quarter of 2017 increased by 18.4% to RMB11.53 from RMB9.74 in the prior year period. Non-GAAP diluted net income per ADS increased by 45.2% to RMB14.77 from RMB10.17 in the prior year period.

Now turning to the results of full year 2017. Our total net revenues increased by 41.3% year-over-year to RMB11.59 billion, driven by a 51.9% year-over-year increase in live streaming revenues.

Our GAAP net income attributable to YY for the full year 2017 increased by 63.6% to RMB2.49 and our non-GAAP net income attributable to YY for the full 2017 increased by 63.6% to RMB2.75 billion.

Diluted net income per ADS for the full year 2017 increased by 56.6% to RMB41.33 from RMB26.4 in the prior year period and non-GAAP diluted net income per ADS for the full year 2017 increased by 57.2% to RMB45.56 from RMB28.98 in the prior year period.

Looking forward to the first quarter of 2018, we expect our total net revenues to be between RMB3 billion and RMB3.15 billion, representing a year-over-year growth of 32.3% to 39%. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change.

Finally, please be noted, as Huya has filed a draft registration statement on Form F-1 on a confidential basis to the U.S. SEC for a possible initial public offering under the view of the proposed IPO there will be no questions expected relating to Huya in this call.

That concludes our prepared remarks. Operator, we will now open the call to questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Your first question comes from the line of Daniel Chen from J.P. Morgan. Please ask your question.

Daniel Chen

Morning, management. Thank you for taking my question and congratulations on the strong quarter. I have two questions. My first question is regarding our gross margin. Our gross margin has been pretty strong on sequential basis and given that the competition in the both talent show live broadcasting and game broadcasting are both increasing recently. How should we look at the revenue sharing ratio and the gross margin in 2018?

The second question is on our new product Happy Go, can management share some color on the some of the user site, for example, modernization status. What’s our user acquisition strategy and the user retention? Thank you. [Foreign Language]

Bing Jin

Okay. Mainly I will address the first question and then Ting Li can address the second question. So in terms of the grow margin, I can only give you general trend. Again, we cannot provide guidance or forecast on this call. With regard to entertainment live streaming, as I mentioned to you many investors quarters abandoned supply in China for top quality music and dance or other category kind of entertainment live streaming host. So we don’t think there will be a lot of pressure in terms of acquisition of those hosts.

On the game live streaming, I think, Huya strategy right now is to focus on growing the user base, investing in good quality content and also retain and attract high quality game hosts. And as we mentioned in the previous calls that Huya one of Huya strength is in terms of the cultivation of the mid level host, which I think Huya continues to do well. So I think in terms of the gross margin pressure on Huya side is also manageable in general.

Ting Li

[Foreign Language]

Matthew Zhao

Let me do the translation. So in terms of Happy Go is recently we launched the product which is focus on the casual games connections. Compared with the single social games, for example, like Happy Werewolf Kill. The Happy Go actually in terms of the users stickiness, as well as user activation we saw that comparably much better of the results. So that is what we can disclose now. Thank you. Next question please, Operator.

Daniel Chen

Thank you.


Thank you. [Operator Instructions] Next question comes from the line of Binnie Wong from Merrill Lynch. Please ask your questions.

Binnie Wong

[Foreign Language] So I will just translate questions above in the English. So first question is that in terms of the topline growth, I noticed that 1Q outlook seem to have a slight decelerations from our revenue growth into 4Q and given that last comparable quarter, if not particular of a high pace then just wonder what are the reasons in terms of when the management guide the 1Q outlook? What are the assumptions management had in mind?

And then the second question is just in terms of the growth in the total paying users. Net addition this quarter is again slightly slower than what we see in Q3 and given that we have quite a few new features and product innovations in 4Q. Just wondering that what are the reasons and how should we look at the strategy in 2018 as to company’s priority in terms of growing the traffic in paying users, what are the some of the strategies in mind and what are the focus we have in 2018 as we start the year?

And then, lastly is that, if we look at the overall competition environment with the possibility that there are more and more competitors going into live broadcasting and all these big internet giants are also chasing for good quality content. How we see that that would affect our sharing ratio, do we have to make it more attractive to ensure good quality content stay on our platform and down the road how do you think that would impact our margins. Understand that we are not getting exact number on 2018 margin guidance but any quality comment by management would be very helpful? Thank you so much here. Thank you.

Bing Jin

Yeah. Binnie, yeah, let me address those questions. So the first question is regarding the revenue guidance for the first quarter seems that slowing down a little bit. I would point it out that this year the Chinese Spring Festival comes late is around the mid-February and then the recovered period post the Chinese New Year is bit shorter. That’s why I think in general this quarter is low season for our business and that’s why we provide the current guidance as it estimated.

Second question is regarding the paying users. The main reason I think last quarter is because it’s a low season for Huya. Huya’s typical high season is the holiday season meaning the third quarter and first quarter, but in general the fourth quarter is the Huya’s paying user scale is relatively low compared with the others.

And then you asked about the 2018 kind of trend. Obviously, our key focus is still on the users. Once we get the users we find different ways to converting them into paying users. So MAU, DAU always come first before the paying user.

So that’s regarding your second question. The third question is about the competition. Actually the competition in live streaming is always there and we have gone through a several cycles. I think the reason they are trying some big players coming into this live streaming actually is good for us, because it allows more people’s interest and help converting more ordinary people into streaming viewers. So I think in general that that’s good for the industry and that’s only good for the big players by the way due to recognition concerns. But it will be tougher and tougher for smaller players.

In terms of comment, we are focusing on UGC. We are not a PGC platform. As UGC is created because like the community feeling and while it has already build a very strong community where ordinary people across China want to share and entertain themselves by watching the high quality user generate content. So I think as long as we have the users and interesting way of engaging people that community feeling will always be there and always continue to attract users to create good quality content and then we don’t need to spend a lot of money in terms of investing those content. So that’s why I think in terms of revenue sharing with the host it wouldn’t change a lot, because we believe in our ecosystem.

Binnie Wong

Okay. I also have a quick follow up…

Bing Jin

And the management a lot of the — yeah, sure, go ahead.

Binnie Wong

Okay. Please, after you.

Bing Jin

Yeah. I was just going to say that a lot of new players coming into this live streaming market, as I said, awareness war and then we are already at a very mature stage for YY in terms of the live streaming, where probably live streaming is 3.0. Some other player they come, they need to build up the activity in terms of our regional experience and that takes time. Go ahead.

Binnie Wong

Okay. Sorry, just one quick follow-up here, so you think that the competition now and also our expectations in 2018 our sharing ratio given the competition environment is not going to be impacted we can just maintain the current sharing ratio and in turn how do you see margin trend in 2018?

Bing Jin

Yeah. Margin trend, as I said, for YY Live will generally be stable, as I said, that we wouldn’t change this revenue sharing. But we are — it’s really difficult to say at this stage because on the game licensing industry is relatively competitive and then there are relatively few supplier for top quality game host. So I think it will take some time for Huya to maintain the leading position for top quality game host.

Binnie Wong

Got it. Thank you so much.

Bing Jin



[Operator Instructions] Thank you. Your next question comes from the line of Natalie Wu from CICC. Please ask the question.

Natalie Wu

[Foreign Language] I will translate myself in English. My question is regarding the sales and marketing expenses, you have the very low control debt market expenses this quarter, which — how should we think about the number going forward. What kind of the strategy you will mainly adopt to promote your product this year? And also on the guidance, anything related with [inaudible] (26:22) incident something like that and also what current top performance contribution to YY Live at current stage? Thank you.

Bing Jin

Hi. Natalie, thank you for questions. Let me try to address those. So first question is regarding sales and marketing expense in the fourth quarter, I think that we had a good control. I think main reason is we focus on [inaudible] (26:43) in our Carnival event in the fourth quarter, which is regular in the fourth quarter. So in terms of the sales marketing for other product, we don’t spend that much, that’s the fourth quarter review.

In terms of the 2018 forecast, I think, that’s difficult to say at this stage. As I mentioned many times before, it depends on our product launch, pace across our platform and then we might need to spend a good amount of sales and marketing to support that product. So it’s hard to give specific guidance at this point.

For the second question, why the first quarter guidance a bit low, I think, the main reason is still for the Spring Festival, as I explained. For KU and the other incident, I wouldn’t say that those who have impact on our ecosystem, because KU just one of our host. We have many, many host across the platform and they continue to flourish on our platform. So I don’t think KU’s incident has any impact on our platform.

And the third point is regarding the top 10% host revenue contribution. We didn’t disclose that number before and we didn’t disclose right now. But I will say in general we track the number regularly that percentage contribution is going down gradually. Even though it’s not a big drop because the problem is too dominated by those top host, but as long we see a gradually coming down trend it is helping for the ecosystem.

Natalie Wu

Great. That is helpful. Thank you.


[Operator Instructions] Your next question comes from the line of Shi Jialong from Nomura. Please ask the question.

Shi Jialong

[Foreign Language] So I have three quick questions. My first question is about the China regulation. So in addition to the recent regulation across major online live broadcasting platform based on the company talks with relevant watchdogs, should we expect any further tightening regulations toward live broadcasting or the general online entertainment industries.

My second question is about the competition as in addition to the existing competitors we saw some new entrants into this live broadcasting space, many of the new entrants such as [ph] Kwaish, Bini Bini (31:23) and Huoshan are leveraging their user base of the short video service to penetrate the game or entertainment live broadcasting service. So I just wonder if this short video plays could become a challenge or a disrupter to the existing live broadcasting landscape?

My last question is about YY’s previous investments in Tantan, when YY made that investment in Tantan one year ago. It seemed to be straightedge instead of financial investments. So we understand YY has made huge profits from these investments following the sale of the stake to Momo and [inaudible] (32:03). I just wonder what has prompted YY to sell out the stake in Tantan? Thank you.

Bing Jin

Thank you, Jialong. I’ll address the first question and the third question, and Ting Li can comment on the second question on competition. For the first question regarding regulation, we do think that the Chinese government will continue to strengthen the content monitoring and the overall regulation on this industry.

But I think, as I mentioned before, it is good for the big players. Reason being that, first of all, we have years of experience operating the ecosystem so we have the highest standard in terms of the quality screening in terms of the operation of the overall ecosystem. So I think it will benefit the big players.

I also want to make additional note on KU because people are very interested in that. As explained, KU incident was regarding one of the small incident in back in 2015. And along the years we have done many things to improve the overall quality of KU’s content or platform. And then, I think, the mainstream culture of YY is to cultivate and bring more hosts to shine their talent on a platform in a very positive way. So we will always cooperate with the government and set up industry trend and pattern and the best quality practice for other players in this live streaming social media industry.

So that’s the first question. Regarding Tantan, the third question. We did made a minority investment last year. In fact, reason being that we want to test and see whether this is the area that we’re exploring more and after some time of experiment we haven’t decided whether this is the area where we put all of our cash in, and so that’s why we sold to stake to Momo. We make a decent return.

That means that we still have very good investment strategy and going forward we’ll continue to explore other areas where they can provide additional traffic to our ecosystem, because very strong — we are very strong in terms of monetization conversion. So as long as we get younger traffic, new traffic we find different ways to convert them and Tantan is just one exploration. Yeah.

Ting Li

[Foreign Language]

Matthew Zhao

Okay. Let me do the translation. So in terms of the short video development, we — actually we already noted there has several the large kind of the emerging from these kind of industries, so that actually demonstrates the video — era of the video has been coming and they also extrude encouragement for ourselves.

In terms of the development of the short form videos, we know notice for the short form video content is more like FMCGs, which is useful for the short-term of the consumptions. But in terms of the live streaming content that is more immersed kind of more of a company related of kind of content. So that’s what we think in terms of the consumption of that usage.

Going forward definitely it will be converts from those kind of cell phone video fast — FMCG types of the consumption into the immersive consumption which is coming from the live broadcasting in the long run.

So for our practice, the success of other cell phone video platforms, we are still very confident of obtaining of and retaining the subscribers from those kind of — from the live streaming of the services going forward.


Thank you. [Operator Instructions] Your next question comes from the line of Eileen Deng from Deutsche Bank. Please go ahead.

Eileen Deng

[Foreign Language] My first question is regarding YY Live’s core business, wondering what’s the next powerful monetization feature expect to show that and with the rough timeline and except the Happy Contest launched last year, is there any other new features last year studied, we see meaningful revenue contribution yet?

And my second question is the algorithm change, when I checked the progress of this upgrade and any meaningful contribution to our business metrics yet? Thank you.

Bing Jin

Eileen, thanks. Maybe I’ll let Ting Li to take the questions.

Ting Li

Okay. Eileen. [Foreign Language]

Matthew Zhao

Okay. Let me do the translation for the first question. So in terms of the new sales through generated of the revenues, I will see the Happy Contest is just a good starting in the year of 2017. So Happy Contest is basic on the two hosts of the competition within the live stream scenario. So going forward we will use probably more opportunities in terms of the multi people or the multi host of the competition and of the live streaming scenario. So that actually can help to significantly improve the efficiency, as well as interactive to — within of the live show rooms, as well as to increase the revenues.

So, in summary, the Happy Contest is just a start. So the Happy — which is a basic services. So going forward what means — I mean the DAU, the contest it can be very — various in terms of the tab, as well as the content. So meanwhile we you have to follow the format of the — of those kind of the revenue generating results and meanwhile we also will to focus on the content enrichment, which is related to the Happy Contest tab of the services. So that’s what our key focus going forward.

Ting Li

[Foreign Language]

Matthew Zhao

The second question in terms of the iRhythm operating in the past few quarters. So the key focus for the iRhythm updating is in terms of improving the consumption rate. In terms of both of the user time spend, as well as the stickiness of the users.

So another part for the iRhythm upgrading is related to the revenue increase in the first quarter, as well as diversification of the revenue sales, which has been fully exempted in our — demonstrate from our annual guidance in the year of 2017. So we noticed because we have choose iRhythm personal phase those kind of recommendations to the different users.

We noticed for both of the deals, but the participation for the both of the deals, as well as users has been — as well as the host has been significantly increased in the past year. So that also demonstrated to our effort in terms of algorithm update in the past quarter. Thank you.


Thank you. Your next question comes from the line of Jerry Liu from UBS. Please ask your question.

Jerry Liu

[Foreign Language] I’ll do the translation. So the first question is around the M&A and the investment strategy. We talked earlier about Tantan, but outside of that, do we see other opportunities in adjacent categories, as David Li mentioned Education before. Is that the focus this year or next year or are there some other categories?

And second is the — in terms of the regions that we want to focus on. Is it still mainly within China or would we increase focus on areas like Southeast Asia?

And then, second question is around MAU and paying users. Could we get the YY Live mix of these metrics? Thank you.

Bing Jin

Thanks, Jerry. Let me first take those two questions. So, first question, regarding investment strategy in terms of the target and the region. I think, first, for region wise, we are looking at both China and globally. For global market, Southeast Asia market definitely is an attractive market. We are also looking at other areas as well including U.S.

In terms of the associated categories and target, I think, I mentioned that before is, upstream, midstream and downstream. For upstream, we’re looking at platforms such as Tantan or other social network or instant messaging kind of community which have organic traffic, so that we can direct some of those traffic to our platform or we can embed our licensing within their platform to help better monetization. So that’s on the upstream. It’s about traffic acquisition.

On the midstream is about content. So we continue to look at good quality content across China, across the world for good games, good quality content that can engage users and have them spend more time.

For the downstream is about monetization, further enhanced monetization. So we’re looking at different kinds of technologies for AI, artificial intelligence across China and globally. So those are the key area of focus.

For Education we will continue to look at that. But as I mentioned before in the initial stage, so it wouldn’t be a material impact to our financials.

For the second question on MAU and payer user breakdown between YY and Huya. Jerry, I’m sorry I cannot disclose that, because as I mentioned in the script that due to Huya’s sensitivity around its proposed IPOs, we could not disclose the relevant data regarding Huya. So hope you can understand.


Thank you. Next question comes from the line of Hillman Chan from Citigroup. Please ask your question.

Hillman Chan

[Foreign Language] So my first question is to follow-up on the product development strategy. So just now we discussed a lot on the Happy Contest and I just want to have more comments from management on some other inefficiencies on the older user interaction and especially more on the social side and also on the more long-term users and going into 2018 what’s the strategy and also the direction and pace of the product development?

And then my second question is on the short video apps. So we made some attempt last year and how should we think about our priority and also the strategy on this front and going forward.

And lastly, on Bigo, so what’s the scale, growth outlook and profitability of this business? Thank you very much.

Bing Jin

Hillman, thanks. I will now let Ting Li take the first two, I’ll take the question on Bigo.

Ting Li

[Foreign Language]

Matthew Zhao

Okay. So first question we have — actually we have already covered some of the colors before. So the Happy Contest is a basic [Technical Difficulty] and based on that framework, the Happy Contest and we will provide more the different content, as well as different result so that actually can improve the efficiency. Going forward, we will have more the different products is ongoing. So please closely to monitor our updates please.

Ting Li

Okay. [Foreign Language]

Matthew Zhao

In terms of the updates of the short form videos, so the first maybe the short form section end of the YY Live which is — its video views number has been continue to double in the last quarter compared to the previous three quarter.

So for our — the independent products updates, firstly, one of the products called [ph] Budav (51:40), so that one is continuing to improve the user stickiness and improve their functionalities, and meanwhile we also actively to install more new functions and new ways during the spring fall in China.

So why is kind of a AI focused two of those kind of short form video products that’s why actually it has been very welcomed among all of the social media platform, as well as other social networks. So that actually is a good example to demonstrate our continued effort in terms of the short form video development. Thank you.

Bing Jin

And then another question on Bigo. Because YY as the holding company, we only already invested in Bigo. That’s why we couldn’t disclose too much information in terms of the data, scale and profitability for Bigo. But I would say in general Bigo is going well. As I said the global live stream market is still in the early stage. So Bigo is very strong in Southeast Asia market and continue to grow globally.


Thank you. Next is the final question from the line of Karen Chan from Jefferies. Please ask your question.

Karen Chan

[Foreign Language] We saw very strong growth of advertising, although it’s coming off a relatively small base. Just wondering what drives that and how we should think about the overall advertising potential in particular on Huya platform? Thank you.

Bing Jin

Thank you, Karen. As I said before, for Huya we cannot disclose too much information, but I will say in general you’re right, the advertising has great potential particularly on Huya to promote the value for game developers, as well as brands that cater for younger consumers. So I think that part will continue to go up. But I cannot further disclose any additional information.


Thank you. We’ll take the next question from the line of Thomas Chong from Credit Suisse. Please go ahead.

Thomas Chong

[Foreign Language] Thanks management for taking my question. Right now much of people talking about the blockchain training initiatives, which is going to be adopted in different scenarios and I just want to get a sense about how we embrace these opportunities and is there any chance that we can see monetization in the next couple of years? Thanks.

Matthew Zhao

[Foreign Language]

David Xueling Li

[Foreign Language]

Matthew Zhao

Okay. Let me do the translation. Firstly, in terms of blockchain is a new technology, so that is compared with the previous technology is a new way to allocate the profit within all the communities. So that’s why we think it has the potential for the future and so based on those kind of characteristics, as well as decentralized also characteristics of the blockchain. So in the long-term we think the blockchain will be — the more valuable blockchain services will be the blockchain which can provide a sustainable and true and useful of the demands and services, which is to the users. So we’ll continue to look at this part of the area, but we don’t think it has — we can generate revenues in the short run. Thank you.


Thank you. Our last question comes from the line of Wendy Huang from Macquarie. Please go ahead.

Wendy Huang

Thank you for taking my last, last questions. [Foreign Language] First we noticed lots of other live streaming and social networking platforms. They’re pursuing a way to integrate online offline better in the months ahead. So does YY have any thinking behind that?

Second, can you share some YY Live user data in terms of a geographic breakdown and also the usage breakdown?

And lastly, is there any initial thought about the potential investment size and strategy for the Education business? Thank you.

Bing Jin

Okay. Thanks, Wendy. Let me address those questions. So for the first question, we do think that there is lot of opportunities for online/offline combination and YY, as you have witnessed, we have online [inaudible] (58:56), we have offline Carnival, so that’s a perfect example of how we combine online/offline.

We’ll make sure that we further penetrate into massive third tier and fourth tier cities in China. We do think that the mainstream publishing in those third tier and fourth tier cities do have a lot of massive demand for both online/offline entertainment need that haven’t been fulfilled or satisfied. So we continue — we can grab the opportunity for both online and offline in the China market and by the way we have been doing that.

So that’s the first question. The second question for YY Live user demographics, age and cities. In general our YY Live, the core users for YY Live as I mentioned before is people around 30 years old in majorities in third tier and fourth tier cities, we also have people in the first tier and second tier cities, but relatively low income.

But as we said we are cultivating different ways to attract younger generation. So our new product such as Happy Go, such as Happy Basketball, those new features, they attract many younger generation people born after 1990s and people born out even after the 2000. So as we continue to innovate new products we hopefully will expand the user base. So that’s about the user profile.

For the investment into the Education, as I say, it’s still in the initial stage, so hard to give a number in terms of the straight dollar, but we have been doing Education for a while and we have made some investment. So we have accumulated, I will say experience in this area. But again Education is a factor that needs long-term investment and operational expertise. So I think my suggestion is for analysts and investors keep monitoring our progress and we will update whenever necessary.


Thank you. I’ll now like to hand the conference back to the management team for the closing remarks.

Matthew Zhao

Thank you all for joining us today. If you have any further questions you are welcome to contact us anytime. So we are looking forward to speaking with you in the coming quarters. Have a nice day.

Bing Jin

Thank you, everyone.


Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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World Economic Forum leads creation of fintech cybersecurity consortium

NEW YORK (Reuters) – The World Economic Forum has led the creation of an industry consortium focused on improving the cybersecurity of financial technology companies, as collaboration between fintechs and financial institutions grows.

FILE PHOTO: A logo of the World Economic Forum (WEF) is seen as people attend the WEF annual meeting in Davos, Switzerland January 24, 2018. REUTERS/Denis Balibouse

The consortium’s founding members include Citigroup Inc (C.N), online lender Kabbage, the Depository Trust & Clearing Corporation, Zurich Insurance Group (ZURN.S) and Hewlett Packard Enterprise (HPE.N), the companies said on Tuesday.

The group will create a framework to assess the security level of fintech companies and data aggregators, whose preparedness against hacks is seen as increasingly important to the stability of the wider financial industry, the companies said.

The financial services sector is among the most vulnerable to cyber crime because of the vast amount of money and valuable data that banks and investment firms process each day.

Over the past few years, banks and other finance firms have been strengthening their ties with young tech-savvy startups which are aiming to revamp the way financial services are created and consumed. The growth in collaboration is occurring either voluntarily, with banks looking to remain competitive, or due to new regulation such as the European Union’s revised Payment Services Directive.

This has heightened the need for fintech companies to implement sturdy cybersecurity measures, said Matthew Blake, head of the Financial and Monetary System Initiative at the WEF.

“Many partnerships are forming between financial technology companies and incumbent institutions,” Blake said in an interview. “Through those linkages there is a potential introduction of risk.”

The need for better cybersecurity assessment mechanisms was identified in a WEF report published on Tuesday as one of the solutions to the security challenges posed by the increased use of digital services in finance.

The report noted that the use of technology innovations such as robotics and biometrics was expanding the amount of customer data at risk.

“While we are excited by the innovation of fintech, it also creates risks that I think need to be identified and worked on to establish standards,” Michael Dodson, president and CEO of DTCC, said in an interview.

The new consortium, which will be managed by the WEF and work with the organization’s new Geneva-based Global Centre of Cybersecurity, will develop a point-based scoring system for fintech firms.

Reporting by Anna Irrera; Editing by Phil Berlowitz

With a Single, Insulting Tweet, Uber's CEO Just Destroyed Months of Hard Work

I’m a fan of Uber CEO Dara Khosrowshahi. In a few months, he’s worked hard to transform Uber’s image from a company known for bad behavior to one that is eager to learn from its mistakes and play nice with others.

But a recent tweet from Khosrowshahi threatens to destroy the image he’s worked so hard to establish. In response to a critical study by MIT’s Center for Energy and Environmental Policy Research (CEEPR), Khosrowshahi mocked the famed research university, tweeting that: “MIT = Mathematically Incompetent Theories (at least as it pertains to ride-sharing).”


The fact is, Khosrowshahi may be correct in his assertion that the study is basically flawed. But the mocking tone of this tweet demonstrates a lack of emotional intelligence. Before I explain why, let’s take a closer look at the context.

The (potential) problem with MIT’s study

It all began when MIT recently published a study that shared some alarming numbers in the ridesharing industry.

The study, entitled The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes, was carried out by the MIT Center for Energy and Environmental Policy Research. The team paired survey data of more than 1,100 drivers working for Uber and Lyft with information regarding the current costs of operating a vehicle (e.g., fuel, insurance, maintenance, and repairs) to help determine driver wages per hour.

Initially, researchers found that:

  • median profit from driving is $3.37/hour before taxes;
  • 74% of drivers earn less than the minimum wage in their state; and, 
  • 30% of drivers are actually losing money once vehicle expenses are included.

Uber was quick to respond to these claims.

Jonathan Hall, the company’s chief economist, published a lengthy and thoughtful criticism of the study on Medium. Hall believes that drivers’ hourly earnings should be listed as much higher. He estimates the problem comes down to the authors’ methodology, which he believes demonstrates inconsistent logic and a possible misinterpretation of the data. According to Hall, this error led to findings that “[differ] markedly from previous academic studies on the topic of driver earnings.”

Actually, Hall makes some good points. In fact, the MIT study’s lead author, Stephen Zoepf, admitted as much in a statement he made to Reuters via email. “I can see how the question on revenue might have been interpreted differently by respondents,” wrote Zoepf. “I’m re-running the analysis this weekend using Uber’s more optimistic assumptions and should have new results and a public response acknowledging the discrepancy by Monday.”

What emotional intelligence has to do with it

I praise Hall’s rebuttal as not only thoughtful, but also respectful. Hall strikes a conciliatory tone when he shares that his team has “reached out to the paper’s authors to share [their] concerns and to suggest ways we might work together to refine their approach.” Hall also acknowledges he has no issue with how the MIT researchers estimate the costs of operating a car; in doing so, he implies there may be problems that need to be addressed.

In contrast, Khosrowshahi’s sarcastic, attacking tweet is not only disrespectful, it shows a lack of ability to benefit from criticism. It brings back memories of “the old Uber,” which was marked by hubris and a “fight-picking” mentality.

To be clear, the researchers only released a brief on the study; the full results haven’t yet been published. But the questions being risen are by no means new. For example, are ridesharing drivers grossly underestimating their profits, failing to factor in costs for additional fuel, maintenance, and repairs for their cars? How will tax and insurance laws need to change to accommodate the ridesharing economy? These are questions that Uber will eventually be forced to answer.

Of course, nobody’s perfect, and Khosrowshahi will continue to make his share of mistakes. But while I continue to applaud his efforts to improve Uber’s culture and image, this tweet reminds us that there is still a long, difficult road ahead.

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

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

Many businesses are being drawn into socio-politics.

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

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

Just ask Delta Air Lines.

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

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

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

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

There’s a board outside that raises the issue. 

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

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

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

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

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

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

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

And not just by how white people reacted.

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

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

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

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

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

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

It was just an experiment. 

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

Old certainties are dissolving. New questions are being asked. 

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

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

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

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

Two 11%+ Yielders To Buy After Earnings Reports (REITs/MLPs)

This research report was jointly produced with High Dividend Opportunities co-author Jussi Askola.

We are currently in a raging bull market, and since November 2016, “growth and momentum stocks” have strongly outperformed “value stocks”. Many high-yield sectors, notably Property REITs, BDCs, and Midstream MLPs, were out of favor and became value sectors.

There is plenty of good news that income investors should take into account:

  1. High Dividend Sectors are Cheap! The good news is that today, several high-yield sectors are trading at their lowest valuations in years and currently offer investors a unique entry point.

  2. Value Stocks outperform growth stocks over the long term: Investors should note that over the long term, “value stocks” tend to outperform “growth stocks”. Based on a study by Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. At the same time, value stocks generated an average return of 17% per year over the same time frame. “Value has outperformed Growth in roughly three out of every five years over this period”.

  3. Downside Risk is Limited: In a world where equity markets keep trading at “all-time highs” and looking “expensive”, value dividend stocks, such as REITs, MLPs, and BDCs, still trade at very cheap valuations. Therefore, in case of any market turbulence or market correction, the downside potential should be very limited.

Currently, the high yield space is offering some unique buying opportunities. At “High Dividend Opportunities“, we focus on stocks trading at low valuations, or in other words “value stocks”. Today, we highlight two cheap stocks that investors should consider after they reported their 4th quarter earnings – with yields above 11%.

ETP Earnings Report: A Stellar Quarter – Yield 11.8%

Energy Transfer Partners (NYSE:ETP), a stock we recently covered on Seeking Alpha, reported its 4th quarter earnings, swinging to huge profits.

  • Revenue came in at $8.61 billion, up 32% year over year.
  • Adjusted EBITDA totaled $1.94 billion for the 4th quarter, up more than 30%.
  • Distributable cash flow increased by $240 million to $1.2 billion, or 25% higher compared to the same quarter a year ago.
  • The dividend coverage ratio soared to 130% for the quarter and 120% for the year.

In addition, the company raised nearly $2 billion in two transactions that significantly increased parent liquidity. These two transactions included the sale of Sunoco LP common units for $540 million and the sale of the compression business to USA Compression Partners LP (NYSE:USAC) for $1.7 billion (of which $1.3 billion was in cash and the rest in equity). In the meantime, these shares will demonstrate to the market that ETP, as the new partner, is aligned with the limited partner interests of USA Compression Partners LP.

Investors can look forward to more good news this year. Many capital projects have come on-line. That once-ambitious schedule of growth will now result in a lot of cash flow. The acquisition of the general partnership of USA Compression Partners by ETP’s parent company Energy Transfer Equity (NYSE:ETE) opens another avenue of growth. There is great chance that more good earning news is on the way this next fiscal year. ETP’s credit line with the banks now has about $4 billion unused. This could provide an excellent way to acquire more assets and grow in the future.


Source: Q4 ETP Presentation

In order to conduct an accurate valuation (using full-year numbers), it is best to back out any “distribution incentive rights” (including relinquishment) and any general partner interest from the “distributable cash flows” (“DCF”). DCF for the 12 months was at $3,494 million; less IDR relinquishment and GP interest of $672 million, we get $2,822 million in DCF.

At the most recent price of $19.21 per share, we get a valuation of 8.0 times DCF, which is a real bargain considering that ETP is one of the largest and fastest-growing midstream MLPs.

The outlook of the midstream sector seems to be solid, with many midstream MLPs having reported solid quarters, including Enterprise Products Partners (NYSE:EPD) and Buckeye Partners (BPL). This can be attributed to record crude oil and natural gas production in the United States.

The future looks bright for the midstream sector. At the current cheap price and yield of 11.8%, ETP is one of our favorite midstream MLPs to own for the year 2018.


WPG Earnings Report: Operational Resilience vs. Strategic Challenges – Yield 14.6%

Washington Prime Group (NYSE:WPG), a Retail Property REIT, reported its 4th-quarter and full-year 2017 results, and while the market keeps focusing on strategic challenges, we are encouraged to see continued resilience in operational figures.

To give a little bit of context here, we need to keep in mind that we are discussing about a firm that is trading at 4.0x its cash flow, which is extremely cheap in today’s market place. In this sense, the expectations of the market are very negative and the sentiment very low. WPG, just like CBL, is a class B mall owner, and as such, it is widely expected to eventually become obsolete due to the growth of e-commerce.

The perception is that no one goes to class B malls anymore; and yet, the NOI went down by just 1%, the average sales per square foot remains at close to all-time-highs, and the leasing performance suggests strong demand for space by retailers.

A 1% drop in NOI is really nothing for a firm selling at such a ridiculously low valuation, and shows once again that class B malls remain relevant even in today’s highly digitalized marketplace. What the market seems to ignore is that unlike CBL, WPG owns on average higher-quality properties. In fact, Tier One and Open Air properties accounted for as much as 81.2% of the NOI in 2017, and these properties even showed a 0.9% increase in NOI for the year! It is the remaining 18.8% which are causing the temporary dilution in FFO, but clearly, the large majority of the portfolio has great value which is highly sustainable.

This was the main news to us: Operationally, the great majority of the properties are performing just fine. Therefore, the reason why the FFO is dropping year over year is not due to problems at the property level, but rather, strategic decisions such as dispositions and continued deleveraging.

As the CEO notes:

“Very simply, the $0.12 of annual dilution was attributable to our unsecured notes offering, the second joint venture with O’Connor Capital Partners and the disposition of six noncore assets. As the result was an overall reduction in indebtedness of approximately $400 million, it’s silly to question the prudency of such actions.”

Put in other words, the company is improving its portfolio and balance sheet quality to lower its risk profile at the expense of some short-term dilution in FFO figures. Short term-oriented investors may not like it, but this is the best approach to maximize and sustain long-term value. Eventually, as WPG ends its disposition and deleveraging plan, the FFO will stabilize and the market will realize the progress made and reward the firm with a higher FFO multiple. Given that it stands currently at 4.0 times FFO (using 12-month adjusted FFO of $1.63), even a small bump would result in material upside.

Other relevant highlights

  • WPG is making a new acquisition, which was rather unexpected! It suggests that we are approaching the end of the deleveraging plan. Moreover, the property appears to be an attractive investment as a dominant hybrid format retail venue situated in Missoula, Montana. The asset features a Lucky’s Market and a nine-screen dine-in AMC Theater – both newly built – and yields about 10%.
  • The dividend is maintained and remains well-covered.
  • Redevelopments continue, with 36 projects underway ranging between $1 million and $60 million with an average estimated yield of 10%.
  • Property NOI is expected to continue show resilience in 2018.

Bottom Line

Overall, we are happy with the news and glad that the market seems to, for once, agree with us – rewarding WPG with a huge bump after earnings. This is the story of short-term dilution versus long-term potential reward to patient investors. Just like in the case of CBL, we remain optimistic long-term holders and are happy to keep cashing a yield of 14.6% while we wait for upside to materialize.

If you enjoyed this article and wish to receive updates on our latest research, click “Follow” next to my name at the top of this article.

Disclosure: I am/we are long ETP, WPG, CBL, EPD, BPL.

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.