Facebook’s Troubles Underscore Blockchains’ Opportunity

Status updates. Likes. Photo uploads. Friend requests. DMs. Tags. Clicks. Views.

Every action you perform on Facebook—and its sister services like Instagram and WhatsApp—surrenders data to the business’ well-oiled surveillance machinery. Maintaining a presence on the social network means granting the company the right to steward—and sell—your personal information to advertisers. It’s been said a zillion times, but it bears reiterating: If you’re not paying, you’re the product.

Why should Facebook rake in tens of billions of dollars a year on the backs of its 2 billion-plus user base? It’s the people’s data, after all. Shouldn’t they—I mean, we—benefit from it?

In the inaugural episode of Balancing The Ledger, Fortune’s new show covering all things fintech-, crypto-, and blockchain-related, Fortune digital editor Andrew Nusca discusses the potential for distributed, blockchain-based social networks to displace Facebook, alongside senior writers Robert Hackett and Jen Wieczner. After the recent Cambridge Analytica controversy, which involved a political consultancy misappropriating and misusing people’s data in an attempt to influence the 2016 presidential election, Facebook has come under intense fire. A fomenting #deletefacebook campaign has attracted the likes of billionaire Elon Musk and, poignantly, Brian Acton, an entrepreneur who made billions on his sale of WhatsApp to Facebook in 2014, among others.

“Right now there’s a groundswell of people who want something else,” Nusca said.

“If you could only keep control of your data with blockchain technology, then this is a way so you wouldn’t have to give it over to companies like Facebook,” said Wieczner, noting that centralized entities are exactly what blockchains were invented to get around. Using such tools might mean people would “not have to entrust [data] to these companies who have proven time and time again that they cannot be trusted with your data.”

To be sure, blockchain-based alternatives are a ways away from toppling Facebook, one of the world’s most valuable corporations. Some of the most popular distributed ledger platforms, like Bitcoin and Ethereum, still have numerous issues to figure out—not least among them how to scale. But these technologies are under active development, and could, perhaps, become standard in time to come.

For now, if you delete or deactivate Facebook, you’ll likely have to deal with being a little out of the loop among friends and family. “It’s kind of a difficult thing here to get a bunch of users on board with a new technology,” as Hackett noted. But if blockchain-based projects can latch onto network effects, similar to the ones that turbo-boosted Facebook’s growth, without coming apart at the seams, then they just might provide the basis for the next paradigm in social networking.

For more on the latest finance and tech news—plus interviews with special guests and industry experts—tune into ‘Balancing The Ledger’ every Friday at 11 a.m. ET. You can also follow The Ledger on Twitter and sign up for our upcoming newsletter here.

Even as Bitcoin Languishes, Telegram Raises $1.7 Billion Ahead of Largest ICO Ever

Even while the fervor for cryptocurrency poster child Bitcoin cools, investors are still piling onto what’s expected to be the largest initial coin offering (ICO) yet—that of messaging app Telegram.

The five-year-old company, which has attracted users by touting its encrypted-messaging service, raised $850 million from 94 accredited investors in a Securities and Exchange Commission filing late Thursday. That doubles a previous raise first disclosed in mid-February, adding up to a total of $1.7 billion raised by the firm incorporated in the British Virgin Islands.

And the fundraising might not stop there.

“The issuers may pursue one or more subsequent offerings,” the Thursday filing read.

The interest in Telegram, though, comes at a time when the price of Bitcoin is plummeting to new lows for 2018. Once as high as $20,000 in December, the cryptocurrency fell 6% to $6,600 on Friday.

Telegram did not respond to requests for comment from Fortune.

The firm is thought to be using the proceeds from the private funding rounds to build a blockchain network, the Telegram Open Network (TON). The network would allow Telegram’s 200 million users to pay for services on that blockchain, using the cryptocurrency Gram.

The fundraising comes at a time when the SEC has grown increasingly wary of ICOs. The Wall Street Journal reported in late February that the SEC had issued dozens of subpoenas to cryptocurrency-related firms.

The SEC declined to comment.

Jaguar's New F-Pace SUV Is Fast, Sporty, and Expensive

Like any good Hollywood blockbuster, Jaguar’s F-Pace was made with sequels in mind. So it’s no surprise that now, two years after the company started delivering its first SUV to customers, Jaguar has rolled out the F-Pace SVR, an extra-fancy, extra-powerful version of a vehicle that was pretty fancy and powerful to begin with.

“When we were creating the core F-Pace vehicle, we always had in the back of our minds what changes we would want to make to deliver an SVR version,” says Wayne Burgess, who leads the team that designs all of Jaguar’s production vehicles.

The big change with this car—unveiled this week at the New York International Auto Show—is under the hood, where Jag swapped in a supercharged, 5-liter V8 with 550 horsepower. That’s enough to hit a top speed of 176 mph and go from 0 to 60 mph in 4.1 seconds. It’s a significant upgrade from the original, which produces 247 horsepower from a four-cylinder engine, or 340 hp from a V6. But ask the man who designed the thing, and he’ll point you to all sorts of other changes.

“New front bumper, new bonnet vents, new front fenders, new rockers, new wheels, new brakes, new rear bumper, new exhaust system, and a new rear spoiler,” Burgess says.

Changes like vents in the hood and bigger, 22-inch tires make for a sportier looking car, but Burgess says most are there for a practical reason: When you give a car the ability to get near 200 mph, you want to make sure it stays stable. More rubber on the road helps with that. The tire change also accounts for the wider wheel arch claddings, sticking out a bit from the side of the car to properly cover the wheels, as the regulators require.

The vents come from a lesson the company learned while designing the SVR version of Jaguar’s F-Type coupe. “The amount of air being rammed into the engine bay at 150 plus was creating under-bonnet pressure,” Burgess says. Closer to 200 mph, it was enough to lift the front end of the car—bad news for stability and aerodynamics. “You’ve got to manage the airflow out of the engine bay.”

Other features that seemed helpful in Jaguar’s computer simulations for the F-Pace SVR didn’t quite work as expected: As Jaguar played with prototypes of the SVR, engineers discovered the air ducts near the front wheels and at the rear of the car were actually disrupting airflow, so those got filled up (the ones in the back now house extra brake lights). But hey, they still look cool.

Inside, the biggest change from the original F-Pace fits into the driver’s right hand (or left, on Jag’s side of the pond). Burgess’ team dumped the standard rotary shifter, the half-inch tall disc that you twist to move between drive, park, reverse, and so on. The SVR gets a “trigger” shifter, which drivers move backward and forward, so they can easily shift gears when they don’t feel like letting the automatic transmission do its thing. (Paddle shifters cater to those who prefer keeping both hands on the wheel.)

And, like so many sequels that are bigger, brasher, and louder than the original, the F-Pace SVR costs more money than the first F-Pace, which started at $42,065. If you’re looking to enjoy this picture, get ready to drop $79,990 at the box office.

More New Cars

Facebook's Election Safeguards Are Still a Work in Progress

Nearly three years after a Russian propaganda group infiltrated Facebook and other tech platforms in hopes of seeding chaos in the 2016 US election, Facebook has more fully detailed its plan to protect elections around the world.

In a call with reporters Thursday, Facebook executives elaborated on their use of human moderators, third-party fact checkers, and automation to catch fake accounts, foreign interference, fake news, and to increase transparency in political ads. The company has made some concrete strides, and has promised to double its safety and security team to 20,000 people this year. And yet, as midterm races heat up in states across America, and elections overseas come and go, many of these well-meaning tools remain a work in progress.

“None of us can turn back the clock, but we are all responsible for making sure the same kind of attack on our democracy does not happen again,” Guy Rosen, Facebook’s vice president of product management said on the call. “And we are taking our role in that effort very, very seriously.”

Facebook provided some new details about previously announced strategies to counter election meddling. The company announced, for instance, that its long promised advertisement transparency tool, which will allow people to see the ads that any given Facebook page has purchased, will be available globally this summer. In addition to that public portal, Facebook will require anyone seeking to place political ads in the United States to first provide a copy of their government-issued ID and a mailing address. Facebook will then mail the would-be advertiser a special access code at that address, and require the advertiser to disclose what candidate or organization they’re advertising on behalf of. Once the ads are live, they’ll include a “paid for by” label, similar to the disclosures on televised political ads.

While this process may prevent people from purchasing phony ads that are explicitly about an election, however, it doesn’t apply to issue-based ads. That leaves open a huge loophole for bad actors, including the Russian propagandists whose ads often focused on stoking tensions around issues like police brutality or immigration, rather than promoting candidates. This process is also currently exclusive to the United States.

“We recognize this is a place to start and will work with outside experts to make it better,” Rob Leathern, Facebook’s product management director said on the call. “We also look forward to bringing unprecedented advertising transparency to other countries and other political races.”

The executives also detailed their approach to spotting fake accounts and false news before their influence spreads. One strategy involves partnering with third-party organizations that can vet suspicious news stories. Facebook has already announced a partnership with the Associated Press in the United States. When stories are flagged as potentially false, either by Facebook users or the company’s own technology, they’re sent to the fact-checkers. When the story is deemed to be false, Facebook lowers its likelihood of appearing in people’s News Feeds; Facebook product manager Tessa Lyons says a “false” rating reduces a story’s News Feed distribution by 80 percent.

Critically, this process applies to photos and videos, not just text. The company has also begun notifying people who have shared the stories that the contents are suspect. Those who continue to see the story in their feeds will also see related articles that fact check the piece. Facebook currently has these fact-checking partnerships in six countries, with plans to expand.

This is a long way from Facebook executives’ past claims that they should not be the “arbiters of truth,” a common refrain among tech giants. But as international regulators bear down on Facebook to acknowledge its past mistakes and prevent them in the future, the company is reluctantly taking more responsibility for monitoring the information on its platform—if only to ward off government intervention.

There’s some evidence it’s working. Facebook is now on the lookout for foreign meddling in elections around the world, in part by automatically looking at the country of origin creating a given Facebook page, and analyzing whether that page is spreading “inauthentic civic content.” Those pages get manually reviewed by Facebook’s security team. The strategy has already proven effective; Facebook discovered during last year’s special election in Alabama that Macedonian hoaxers were setting up pages to disseminate fake news, a practice that country became known for during the 2016 election.

“We’ve since used this in many places around the world, such as in the Italian election, and we’ll deploy it moving forward for elections around the globe, including the US midterms,” said Samidh Chakrabarti, a Facebook product manager.

These approaches are promising, but far from comprehensive. They also don’t address the simultaneous scandal engulfing Facebook right now: The company has historically done little to prevent its users’ data from falling into the wrong hands. That valuable information can be used to target people in ways that Facebook has no control over.

Perhaps the most worrisome part of Facebook’s plan to defend democracy, though, is that it has yet to be battle tested. If it fails, we may not know until it’s too late.

Facebook 2018

eCommerce Has Changed The Way We Shop. Here's 3 Reasons Why Your Online Business Isn't Growing

With the world at our fingertips, many of us may take for granted how easy it is to buy and receive on demand. Online shopping has left an indelible footprint on society that goes far beyond the ability to buy an item at midnight while in our pajamas. Here are three of the biggest effects eCommerce has had on consumer lives and how businesses operate. If you’re selling product online (and not taking this into account) – growth may be harder for you.

You’re Not Social Or Digital First

There have been significant changes in how companies reach customers. The brand-consumer interaction is no longer solely through mass media. Digital marketing campaigns have the ability to target people where they spend the most time – online. We can no longer read email, check social media, play online games, use apps or even catch up on the news without being exposed to ads that are tailored to our specific interests and buying habits.  

Shopping itself also has become a different social interaction. Rather than a single conversation in a store, people share their opinions with multitudes of friends and followers via social media and online review sites. This immediate access to other customers’ experience can be beneficial if your brand is receiving particularly good service or your advocates enjoy your brand’s products.

Online retail has also created a new shopping event – the unboxing. People watch videos of someone – often a complete stranger – open a package and express their joy or disappointment. These vloggers and web personalities are influencers, and depending on their popularity and reach, can become valued marketing partners for a brand who wishes to reach a specific audience.  

You’re Not Leveraging New Digital Economy Opportunities

With the power of the Internet, smaller businesses now have the ability to reach consumers on a national and even global scale. At the same time – they also have the ability to reach highly-niches audiences.  This ability to leverage digital to reach a large group of a particular niche audience is one of the powers of online business.

With e-retailers becoming more prominent, ancillary businesses that specialize in key functions, such as fulfillment, logistics, and warehousing, have grown to create their own sub-industry. The rise of fulfillment centers has contributed to the 355,000 jobs created in the eCommerce sector since 2007. This now the time to find where you fit in in this eCommerce game. If you aren’t adapting to the host of new industries and sub-industries created – you may be missing out on ways to grow new revenue streams and create your unique legacy in the field.

You’re Not Leveraging Data To  Personalize The Customer Experience

With convenience playing a defining role in how shoppers make a decision, companies can now connect with consumers via purchase and browsing history, interests and even location. Using this data, brands can target product suggestions and promotional deals, for a greater customer experience and increased sales.

A personal customer experience extends to allowing consumers to shop and interact however they prefer via an omnichannel experience. With the combination of online, physical and mobile channels, today’s shoppers are free to mix and match outlets based on their needs, such as buy online and pick up or return in store.

These are but three ways eCommerce has changed the way people shop and how businesses operate. As online buying continues to grow, your business should be constantly thinking of ways to stay aware of the trends and ahead of the curve.   

For more information on how to grow your eCommerce business, download our EMERGE EBOOK here.

Netflix Adds Former Obama National Security Advisor and U.N. Ambassador Susan Rice to Board

Netflix’s board now includes Susan Rice, the former United Nations ambassador and National Security Advisor under President Barack Obama.

The appointment, announced on Wednesday, Netflix, gives the video streaming giant a high-profile former government official at a time of increased regulatory scrutiny of some of the nation’s biggest technology companies. Facebook (fb) and Google (goog), for example, face increasing concerns about their influence and handling of consumer data.

While Netflix (nflx) has not been one of the tech giants politicians have singled out in recent months over privacy or antitrust issues, it is generally considered to be among an elite group that includes Facebook, Amazon (amzn), and Google. Shares in the companies have recently reached all-time highs, although they have retreated in recent days.

Rice’s tenure as a U.N. ambassador could also come in handy as Netflix continues to push heavily into international markets.

“We are delighted to welcome Ambassador Rice to the Netflix board,” Netflix CEO Reed Hastings said in a statement. “For decades, she has tackled difficult, complex global issues with intelligence, integrity and insight and we look forward to benefiting from her experience and wisdom.”

Other members of Netflix’s board include Microsoft president and chief legal officer Brad Smith, executive chairman of Zillow Group Richard Barton, and former co-chair of Disney Media Anne Sweeney.

Last year, President Donald Trump insinuated without citing evidence that Rice may have illegally attempted to learn the identities of Trump associates for political purposes, The New York Times reported. In an interview with MSNBC, Rice called the president’s accusations “absolutely false.”

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Netflix’s shares fell about 3.7% in midday trading on Wednesday to $290 as part of a broader sell off of tech stocks.

Waymo Expands Its Robo-Fleet with Electric Jaguar SUVs

The self-driving car industry is in the final miles of a grueling marathon to bring autonomous technology to market. Uber needs autonomous tech to offer ride-hailing services sans human drivers. GM bought Cruise and put autonomous Chevy Bolts on the roads of San Francisco in an effort to remain relevant when people stop buying private cars. If Tesla can cross the line first, it could disrupt the other guys and even offer its own ride-sharing service.

And ahead of them all is Waymo. After nearly a decade of R&D, the company that started life as Google’s self-driving car project has shifted its focus from tech to operations—from development to deployment. The Alphabet subsidiary says it will launch its first commercial, driverless service later this year, in Arizona. It already has the permit. All of which makes it the irritatingly fresh-looking guy, in a dayglow tank-top, taking big bouncing strides at the front of the running pack.

Today, Waymo announced it’s partnering with Jaguar Land Rover to build autonomous versions of the electric I-Pace SUV. “It’s going to be the world’s first premium, electric, fully self-driving car,” says John Krafcik, CEO of Waymo. That sounds like a claim Elon Musk would love to be able to make about Tesla.

Waymo plans to buy 20,000 of the vehicles over the next couple years, do extensive testing and validation, and then fully integration them into its passenger-carrying fleet by 2020. The company says the new cars will be able to offer a million trips per day. It’s a huge expansion for Waymo, which has around 600 vehicles on the roads now, and an existing partnership with Chrysler for “thousands” more minivans.

Waymo is launching its debut service in Arizona, thanks to relaxed legislation and good weather. But Uber’s recent crash in Tempe—one of its cars killed a pedestrian pushing a bike across the street—raises questions about the ethics and wisdom of testing on public roads. Earlier today, Governor Doug Ducey indefinitely barred Uber’s robo-cars from testing in the state.

“We have confidence in our system,” says Krafcik. “We continue to work very closely with regulators, but there should be no question about the care we take, and the redundancy we have.” He cites the five million autonomous miles his firm has driven in 25 cities, plus five billion miles in simulations, when defending the decision to let his vehicles loose on public streets.

This is the sixth vehicle that Waymo has outfitted with sensors, from the Prius, to the most recent Chrysler Pacifica, and it’s getting pretty slick with the styling. The autonomous I-Pace prototype the company unveiled on stage ahead of the New York Auto Show doesn’t ruin the hunky lines of Jaguar’s SUV too much. Waymo and Jaguar have condensed the lidar laser scanners, radar, and cameras, needed to perceive the world around the car, into a streamlined roof box with a black bulge on the top, which looks like the spinning light on a 1970s cop car. The only other giveaways are lumpy sensors over the front wheels, and some less-than-subtle badging.

Jaguar, for its part, gets a large chunk of guaranteed sales and a chance to look like it’s at the forefront of this emerging technology. The company is involved with separate self-driving trials with the UK Autodrive Project, a three year test of connected and autonomous cars.

The British company launched the I-Pace earlier this year. It’s fully electric, with a 95kWh battery, and a range of 240 miles. It can sprint to 60 mph in just 4.5 seconds, and makes a compelling alternative to Tesla’s Model X. (Just don’t expect the robot to floor the accelerator.) The range is enough for any average commuter, but for a self-driving vehicle aiming to offer up to 50 rides a day, it may be a limiting factor. The hardware required to enable robo-driving is also power intensive—all the extra sensors and the chips in the supercomputers on board suck down electrons.

On the other hand, Jaguar advertises an 80 percent top-up in 40 minutes. “One thing that attracted us to the I-Pace is the quick recharge time,” says Kafcik. “We can get through the peak duty cycle of a rush hour, and then do a quick top-off charge to get us through the rest of the day.”

Learning how to manage a fleet of electric vehicles, or who to partner with, is another valuable insight Waymo will gain, and it’s one that other players will need to learn if countries like the UK, India, Norway, and China, go through with plans to ban the sales of internal combustion engines. As well as just needing outlets, self-driving cars will have to be capable of hooking up to power with no human help. That could be achieved with wireless charger (just park over a particular spot, like throwing your phone on a charging pad), or more creepy looking concepts like Tesla’s robotic snake cable charger.

As for the passengers, a ride in a Jag might be fun at first. But dramatic as it currently sounds, a ride in a vehicle with no human in control quickly becomes mundane. People in the back get over the novelty of an empty drivers’ seat quickly and resume normal passenger behavior, like looking at their phones, or napping, even as they cruise down the highway to the future.

Driving on My Own

  • Self-driving cars are coming. Here’s WIRED’s complete guide to the tech

  • Most of the big players are using humans to train and supervise their autonomous cars. But there’s a grim irony in that; humans are terrible drivers

  • Instead of blindly welcoming self-driving cars to their streets, city leaders could prevent tragedies like the Uber fatality from happening again.

This iTunes Store Error Message Suddenly Started Plaguing Apple iOS Users Worldwide

Apple has reported outages for the iTunes Store, the App Store and other systems after customers reported receiving error messages.

Several Apple customers and iOS users tweeted at Apple Support on Tuesday to find out why they were repeatedly receiving messages saying “The iTunes Store is unable to process purchases at this time” — especially when no one was attempting to buy any applications. Users reported getting the pop-up message while trying to open apps on their iPhones.

Apple’s System Status page reports outages for Apple TV, the iBooks Store, the iTunes Store, iTune U, the App Store and the Volume Purchase Program. Each outage report says the ongoing issues started affecting some users at 3:04 p.m. Those affected will be unable to access the platforms and make purchases until the problems are resolved. Apple did not immediately respond to a request for comment.

Apple Support said on Twitter that it will update the System Status page with any new information.

Update: Apple’s System Status page reports that the issues were resolved at 4:49 p.m.

Tesla: The Moment Of Truth Is Approaching

Source: Electrek.com

Tesla’s Moment Of Truth Is Approaching

Tesla (TSLA) is an extraordinarily innovative company that has achieved amazing results in several sectors in a relatively short time frame. Let’s face it, if it weren’t for Tesla, EVs would still be limited to the likes of the Leaf and the Prius. The company also has achieved some remarkable feats in power generation and energy storage. Tesla is a company that looks to the future and shows us that things could be done smarter, more efficiently, and better than the current status quo can offer. But despite Tesla’s drive to continuously move forward and push the envelope on what’s possible, the company remains plagued by numerous problems.

It is easy to write these off as mere transient issues that will easily be offset and eclipsed by the company’s amazing products and stunning growth. However, Tesla is a publicly traded company with a fiduciary duty to its shareholders. Therefore, any significant issues facing the company that could cause the share price to decline significantly should be carefully examined, especially for anyone thinking of investing in the stock.

I have been bullish on Tesla for a long time, have been long its stock for most of the time throughout the last five years, and I continue to think that Tesla will be worth significantly more five years from now. But in the short term, there are some clear concerns that could cause some volatility to transpire in Tesla’s shares.

The stock is trading right around crucial technical support at roughly $300. The most recent decline comes on the back of a scathing Goldman Sachs’ downgrade. Moreover, the stock is technically in bear market territory as Tesla is off by well over 20% from recent highs. There’s an increasing number of fundamental elements weighing on Tesla’s share price, and the all-important Model 3 production appears to be hitting numerous speed bumps. In addition to all these developments, the company will announce delivery numbers for Q1 in the first week of April.

Source: StockCharts.com

So, will $300 hold, will the stock rebound and move higher from here, or are Tesla shares headed for a breakdown instead? And what about longer term? Is there any hope for the company at all, and why in the world is Tesla worth $50 billion?

Model 3 Rampup

The Model 3 Rampup is likely one of the most important production efforts ever. It is certainly the most crucial manufacturing process in Tesla’s history as a company. A true EV, affordable, capable, and stylish, the likes of which have never been seen before. However, the rollout process has been anything but smooth, plagued by various problems and numerous delays.

Going by the company’s own original estimates, Tesla should be cranking out Model 3s at around 10,000 units per week by now. Even the drastically revised estimates call for about 2,500 units by now. What’s Tesla producing right now? While the true number remains a mystery, going by Bloomberg’s Model 3 tracker, the company is averaging around 750 Model 3 vehicles per week right now. This is drastically lower than even some of the most bearish estimates and suggests the company is on track to produce just 8,000 Model 3s this quarter.

Source: Bloomberg.com

Tesla was originally shooting for 500,000 Model 3s this year, but even with a constructive rampup from here, the company will likely only produce about 100,000. This is a huge difference, revenue-wise, performance-wise, confidence-wise, etc. But perhaps, most important is the increased pressure subpar production efforts of the Model 3 are inflicting on Tesla’s already fragile bottom line.

Tesla has managed to record just one profitable quarter in its near 10-year history as a publicly traded company. Moreover, the latest quarterly results have been showing massive losses, especially since the Model 3s troubled production process began. How much in losses? Well, nearly $1.3 billion in the last two quarters alone. What will the losses look like in Q1? Same ballpark, minus $500 million or worse. Why are the losses so great? Because the Model 3 production process is intended to be highly automated, efficient, and profitable, with an intermediate-term gross margin rate of 25%.

Unfortunately, so far, the production process has proven to be anything but highly efficient and profitable. And the longer Tesla continues to struggle with various “bottlenecks,” automation issues, and other problems associated with the Model 3 assembly, it will continue to burn through cash at an alarming pace. What’s Tesla’s gross margin on the Model 3 right now? Once again, the exact number remains a mystery, but judging by the company’s recent performance and estimates, gross margin on the Model 3 is close to zero, low single digits, or possibly even negative in a worst-case scenario.

When will Model 3 production improve to where the company is producing a profit, or is at least close to producing a profit on the vehicle? This too remains a mystery, but it must happen relatively soon if Tesla is to remain a viable business enterprise. My optimistic view is that the company will have most of the Model 3 issues figured out by the end of this year and will have a Model 3 gross margin close to 20% by early 2019.

Model S/X Sales

Another issue to consider is the apparent slowdown in Model S/X sales this quarter. Tesla said that it aims to deliver roughly 100,000 Model S/X vehicles this year, about the same as last year. The company also claimed that while demand remained strong for these vehicles, production capacity was constrained due to increased resources being diverted to the Model 3 vehicle.

Source: Forbes.com

According to EVObsession.com, Tesla sold about 8,400 Model S and Model X vehicles in the U.S. in the first two months of this year. This is lower than last year’s figure of 8,800 Model S/X vehicles for the same time frame. Since about 60% of Tesla Model S/X sales come from the U.S., we can assume the company sold around 15,000 Model S/X vehicles in total in the first two months. By adding around 50% to account for March sales, this would give us approximately 22,500 Model S/X units for Q1. This is lower than last year’s 25,000 units and will make it very difficult for Tesla to achieve its target of 100,000 Model S/X vehicles this year.

Goldman Downgrade

This brings us to the recent Goldman Sachs downgrade. Tesla analysts at Goldman led by David Tamberrino recently reiterated their sell rating on Tesla with a $205 price target. The analysts expect Model 3 issues to drag out and call for just 7,000 Model 3 vehicles in Q1. Moreover, analysts predict lower Model S/X sales, a yoy decline of around 12%. Average consensus estimates are much rosier and call for nearly 14,000 Model 3s in Q1 and extremely robust sales of over 25,000 Model S/X sales in Q1.

The stock has gotten hammered since the note. Tesla is down eight out of nine trading days, with the price slumping by roughly 15% in this period alone. Furthermore, some investors could begin to lose a certain degree of confidence in the company, which could result in a further decline for Tesla’s share price. How much of a decline? Let’s look at the chart to get a better idea of where we are at and where we could be headed in Tesla’s stock.

Technical View

TSLA is currently sitting at major support of $290-300. This is a crucial level, as the stock has bounced off this level several times, and has not breached this support since penetrating it to the upside about a year ago. The RSI, CCI, and full stochastic suggest that conditions are approaching oversold levels. However, if the stock falls through this crucial support, a significant leg lower is likely to materialize.

It’s Not All Bad, There’s Some Good News as Well

Autopilot Upgrade

Tesla owners seem to be very pleased with the recent autopilot improvements. The common reaction appears to be that it feels much more natural and is very much akin to a human-like driving experience. Tesla remains at the cutting edge of AI. Therefore, it is not surprising that its self-driving program is yielding increasingly favorable results. Tesla also is one of the top destinations for IT specialists. Therefore, it is likely that the company will continue to be one of the predominant leaders in this space.

Model 3 Sales

There’s so much riding on the Model 3, and the production process could be a double-edged sword, so to say. Meaning that despite the discouraging Bloomberg estimates, they are still estimates. In addition, Tesla shut down Model 3 production for four days recently to make upgrades to the production process. Therefore, despite the overall “low number” of Model 3s produced this quarter, the actual production of the vehicle could be approaching Tesla’s revised target rate of 2,500 vehicles per week.

Source: Gas2.org

Does Tesla Deserve a $50 billion Valuation?

Whether Tesla’s stock is grossly overvalued or not remains a hot topic for debate. It depends on if you believe Tesla will ultimately make significant profits on its vehicles. It is often said that it is absurd that Tesla is valued at more than Ford (F). At first glance, this argument makes sense as Tesla sold about 100,000 vehicles in 2017 while Ford sold 6.6 million. Moreover, Tesla delivered just $11.7 billion in sales while Ford clocked in about $145 billion. Finally, Tesla lost nearly $2 billion while Ford reported a net income of about $7.6 billion.

Let’s look at the situation from a slightly different perspective, though. Ford’s average selling price for a car was just $22,000 in 2017. The company had a gross margin of 10%, and a profit margin of about 5%, indicating the company nets about $1,100 per vehicle.

We know that in the intermediate term, Tesla is shooting for a gross margin of 25% on the Model 3. With an average selling price of about $47,500 per vehicle, Tesla would have a gross profit of about $11,875 per vehicle to Ford’s $2,200. Moreover, if we assume Tesla can earn a net income of about 12.5%, (half of its gross margin per vehicle) Tesla would earn about $6,000 per a Model 3, or more than 5 times what Ford makes per a vehicle. This means Tesla could earn nearly as much as Ford by just selling 1 million Model 3s per year. This is not considering Model S/X sales, energy generation/storage, Tesla Semi, or any other future products.

By looking at the situation from this perspective, and by assuming that Tesla will be able to achieve its margin goals, it becomes very clear that Tesla has the potential to become enormously profitable within the next few years. Whether this actually happens remains to be seen, but this should give people an idea why the market is currently valuing Tesla at $50 billion. It is on the assumption that the company will become profitable and will be able to achieve target margin goals at some point in the next few years. Based on the underlying statistics, ultimately (within the next 3-5 years), Tesla could be valued at much more than $50 billion.

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Disclaimer: This article expresses solely my opinions, is produced for informational purposes only, and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions very carefully.

Disclosure: I am/we are long TSLA.

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.

Cambridge Analytica Wasn’t Quite What It Claimed to Be

Much of the past week’s rage at Facebook appears to hinge on the idea that wrongly obtained user data was used to influence the 2016 U.S. election – specifically, in favor of President Donald Trump. After all, dire warnings about mass data gathering have circulated for at least a decade. The public seemed to take little notice until the technology appeared to send politics haywire by using what a whistleblower described as an “arsenal of weapons” to influence voters.

But a series of reports suggest that, however real Facebook’s abuse of its users’ trust, Cambridge Analytica itself was hardly the master manipulator that it claimed to be. In a New York Times report from more than a year ago, Cambridge Analytica executives admitted that the “psychographics” techniques it promoted, supposedly able to profile voters’ deepest emotions, were not used in the Trump campaign. More recently, a political tech executive told the trade publication AdExchanger that the technology CA actually used was fairly standard, and that “Facebook or about any commercial [data management platform] can do that better even if their employees want you to lose.”

So, while psychographics has proven effective in influencing buying behavior in experiments, it’s still unclear whether or how the approach would work in an election. One political micro-targetting expert interviewed by The Verge questioned whether knowing a voter’s mindset based on Facebook “likes” could really have a dramatic influence amid the “overwhelming wave of data going into people’s head” during a political campaign.

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And when Cambridge Analytica made its most ambitious claims, it sometimes fell on its face. According to a new Mother Jones report, the company told the Ted Cruz campaign that a powerful software tool named Ripon could help it target voters, but that tool didn’t exist. It also told the Ben Carson campaign that it was adept in TV advertising, but turned out to be inept. Carson staffers reportedly thought it was possible the company was a sham. Even Trump wasn’t a lock for the firm, which onetime Trump campaign chair (and now indicted money launderer) Paul Manafort once described, according to Mother Jones, as “just full of shit, right?”

The disconnect between Cambridge Analytica’s image and its abilities has been repeatedly pinned on now-suspended CEO Alexander Nix. One former colleague described Nix to Mother Jones as an opportunist, whose sales pitch often amounted to “’Can I sell this to you and work out the details afterward?’” In 2016, the opportunity Nix saw was in Republican politics, where a dearth of political-tech players left an opening. His tendency to oversell may have also proven his undoing when a documentary crew taped him suggesting his company could deploy entrapment tactics to smear clients’ opponents.

It seems fitting, then, that Facebook has been the focus of anger after the discovery of its flawed data policies. But the fact that Cambridge Analytica was little more than a digital marketing firm with a posh British accent shouldn’t defuse anxiety about the impacts of digital profiling. YouTube has been shown, for instance, to algorithmically push viewers towards extreme content, and online propaganda has been tied to a rise in tribalism. Whether or not that dynamic can be steered to the benefit of a particular candidate, the risk to democracy itself is obvious.

Mark Zuckerberg Asks For Forgiveness With A Full-Page Newspaper Ad

Facebook CEO Mark Zuckerberg issued a public apology in an old-school format Sunday — via a full-page newspaper ad in major U.S. and U.K. papers.

The ad, printed in clear type over Zuckerberg’s signature, begins: “We have a responsibility to protect your information. If we can’t, we don’t deserve it.”

It then refers to “a quiz app built by a university researcher that leaked Facebook data of millions of people in 2014. This was a breach of trust, and I’m sorry we didn’t do more at the time. We’re now taking steps to make sure this doesn’t happen again.”

That’s a rather mealy-mouthed summary of the Cambridge Analytica debacle, in which a ‘quiz app’ was only the tip of the spear wielded by political operatives set on influencing the U.S. election.

Nonetheless, the ad continues. Zuckerberg says that Facebook has “already stopped apps like this from getting so much information. Now we’re limiting the data apps get when you sign in using Facebook.” Zuckerberg also writes that Facebook will investigate, ban, and inform users about other apps that had access to similarly large amounts of data. Facebook will also provide better privacy protection by reminding users what apps they’ve granted access to their data.

“Thank you for believing in this community,” Zuckerberg concludes. “I promise to do better for you.”

According to Vanity Fair, the ad appeared in British newspapers The Observer, The Sunday Times, Mail on Sunday, Sunday Mirror, Sunday Express, and Sunday Telegraph. In the U.S., it appeared in print editions of The New York Times, The Washington Post, and The Wall Street Journal.

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The ad is the latest in a weeklong series of public apologies by Zuckerberg and other execs. Such apologies, followed by promises to do better, are getting less convincing every time. And the surge in calls to #deletefacebook suggests users seem to be waking up to the fact that Facebook is less a “community” than an ingenious digital glue trap. Investors certainly seem to doubt that Facebook is going to emerge unscathed. And all the humble apologies in the world seem unlikely to save Zuckerberg’s political ambitions.

The irony of Facebook’s CEO taking out a print ad to apologize for the company’s biggest scandal ever also can’t be overlooked. Facebook grew in part by leveraging the work of established publications, then became a major vector for manipulative “fake news.” Now, Zuckerberg seems to be implicitly acknowledging that print remains a valuable format when you really, actually want to be taken seriously.

The Mysterious DNC Hacker Has Been Confirmed as a Russian Intelligence Front

An online persona “Guccifer 2.0,” which claimed credit for hacking the Democratic National Committee ahead of the 2016 election, has been confirmed as a front for Russian military intelligence. The confirmation has significant implications for Special Counsel Robert Mueller’s ongoing investigation into Russian interference in the 2016 U.S. Presidential election.

During the U.S. election, Guccifer 2.0 presented itself online as an independent Romanian hacker. The name was supposedly an homage to Guccifer, an actual Romanian hacker who targeted U.S. politicians and uncovered Hillary Clinton’s private email server. Guccifer 2.0 obtained email archives from the Democratic National Committee, then released them to outlets including WikiLeaks. Those emails appeared to show DNC efforts to thwart Clinton primary challenger Bernie Sanders, likely damaging her support among progressive Democrats.

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But skepticism about Guccifer 2.0’s identity has been widespread, and U.S. intelligence authorities have previously said it was likely a Russian operation. But there has been little hard evidence, because the persona generally went online using a VPN, or Virtual Private Network, to mask the origin of its activities. Now, The Daily Beast reports that investigators have found a single instance in which that VPN was not activated, and have identified Guccifer 2.0 as a front run by a specific but unnamed Russian military intelligence officer within the military intelligence agency known as the GRU.

That’s an important confirmation for one clear reason: Guccifer 2.0 has communicated directly with members of Donald Trump’s inner circle. Roger Stone, one of the most flamboyant of Trump’s allies and a onetime campaign adviser, admitted in March that he had exchanged congratulatory messages with Guccifer 2.0 on Twitter during the election.

Stone’s known communications came after the release of hacked DNC emails, but Stone also made statements suggesting he knew about some parts of the hacked DNC emails before they were made public. According to The Daily Beast, the FBI agents who tracked Guccifer 2.0 have now become part of Mueller’s team.

Exxon Mobil: The Time Has Come

Article Thesis

Exxon Mobil (XOM) is trading at a low valuation despite oil prices being well above the lows formed over the last couple of years. The company offers a juicy dividend yield and the growth outlook for the oil giant is positive.

Investors are poised to see compelling returns going forward, as production growth, rising cash flows, and dividend increases will lead to ample total returns.

Exxon Mobil’s share price has been battered over the last couple of months, despite the fact that the fundamental picture for oil & gas companies remains positive:


XOM data by YCharts

Shares of Exxon Mobil trade at $74 right now, down double digits year to date. WTI and Brent, however, trade at more than twice the price they traded for at the nadir of the oil price decline.

The most recent share price decline was largely driven by the fact that the market wasn’t happy with Exxon Mobil’s growth strategy. The company announced a plan to more than double its earnings and cash flows through 2025. This requires heavy investments into new projects, Exxon Mobil will, therefore, increase its capex spending to $30 billion in the 2020s from $24 billion this year.

These growth investments make it less likely that Exxon Mobil will pursue a meaningful reduction of its share count via buybacks in the near future. The market had hoped for such an announcement, the lack thereof made the share price decline.

Aggressive Growth Plan Is A Win In The Long Run

Exxon Mobil will likely not shrink the share count aggressively going forward, a strategy the company has pursued in the past:


XOM Average Diluted Shares Outstanding (Quarterly) data by YCharts

Since 2000, Exxon Mobil’s share count has dropped by ~40%, this alone has increased each individual share’s portion of the company’s earnings and cash flows by 67%.

In that time frame, Exxon Mobil has diverted a huge amount of its cash flows towards buybacks, but production did not grow very much as capital expenditures were not at a very high level. Exxon Mobil has now chosen to pursue another strategy going forward. The growth investments will take years to impact Exxon Mobil’s cash flow and earnings statements, due to the long time for new projects to ramp up production.

The market with its short-term view didn’t appreciate this strategic shift, despite the fact that long-term oriented investors will benefit a lot if everything works as planned: CEO Woods has stated that production is poised to grow to five million barrels of oil equivalent per day in 2025, which will result in earnings of $31 billion with oil prices remaining at the current level.

In 2017, Exxon Mobil has reported adjusted earnings of $15 billion, thus profits are forecasted to double over the coming seven years. Even if Exxon Mobil does not repurchase any shares during that time period, its EPS would more than double as well. Compared to an approach where Exxon Mobil focuses on buybacks and keeps its profits flat, that looks like a good move: The buyback strategy has made Exxon Mobil’s EPS grow by 67% in 17 years since 2000 (all else equal).

More than doubling the company’s EPS through 2025 thanks to heavy investments into shale projects, refining, and deepwater projects looks like a compelling growth plan. Higher profitability will also lead to rising cash flows for Exxon Mobil:

(source: Exxon Mobil 10-K)

Exxon Mobil produced operating cash flows of $30 billion in 2017, with net profits increasing by $16 billion, the company’s cash generation is poised to hit $46 billion annually by the mid-2020s. Even without asset sales and when we adjust for higher capex spending, Exxon Mobil’s free cash flows are poised to hit $16 billion plus by 2025.

In 2017, Exxon Mobil produced $30 billion of operating cash flows and spent $23 billion on capex, thus producing free cash flows (before asset sales) of just $7 billion. Exxon Mobil is, therefore, on track to more than double its free cash flows over the coming years, despite the fact that the amount of money the company invests will increase significantly.

Exxon Mobil Is An Attractive Income Investment And Its Valuation Has Come Down Significantly

Right now Exxon Mobil’s dividend yield stands at 4.2%:


XOM Dividend Yield (TTM) data by YCharts

Exxon Mobil’s dividend yield hasn’t been this high since Exxon merged with Mobil in 1999.


XOM Dividend Yield (TTM) data by YCharts

The last time Exxon Mobil’s dividend yield was as high as it is right now was in July 1995. The company’s shares have returned 656% since, which equals an annual total return of 9.2%. The S&P 500 index has returned 640% since, thus Exxon Mobil was the better performer despite being a lower risk investment (Exxon Mobil’s beta is 0.92).

The last time Exxon Mobil’s dividend yield has been this high thus was a good time to buy shares of the company, as its returns outpaced those of the broad market whilst being less volatile at the same time.

On top of that, Exxon Mobil will likely increase its dividend once again in the foreseeable future:

(source: nasdaq.com)

Exxon Mobil usually announces its dividend raise in April, thus investors will likely hear about another hike in about five weeks. Due to significantly higher oil prices (compared to one year ago), which means higher profits and cash flows, there is a good chance of a somewhat bigger dividend increase. Exxon Mobil increased its payout by two cents quarterly for two years in a row, as the oil industry is recovering now, the dividend increase could be bigger this time.

Even with another $0.02 raise, Exxon Mobil’s dividend yield would rise to 4.3% though, which is well above twice the broad market’s yield of 1.8%.


XOM Price to Book Value data by YCharts

Exxon Mobil’s price to book multiple of 1.67 isn’t low compared to its peer group, but Exxon Mobil’s valuation has declined a lot over the last three years. Exxon Mobil has gotten 17% cheaper, whilst the other oil majors all got 12-21% more expensive.

From a relative valuation standpoint, Exxon Mobil, thus, looks like the right pick right here, as it has gotten a lot cheaper compared to the peer group.


XOM EV to EBITDA (Forward) data by YCharts

Exxon Mobil trades at a seven times EV to EBITDA multiple, which isn’t an expensive valuation at all, and Exxon Mobil’s price to cash flow multiple of 10.5 is well below the historic median of 12.

Bottom Line

Exxon Mobil is investing heavily into the future and has stopped focusing on buybacks for now. The market misses the immediate gratification of share repurchases and did not like the fact that it will take a while for the investments to play out. For long-term focused investors, this isn’t bad news at all, though, as Exxon Mobil’s investments are poised to increase profits and cash flows immensely.

Shares of Exxon Mobil offer a high dividend yield, and the last time the yield has been this high, Exxon Mobil’s shares were a great investment. Shares of the oil major have also gotten significantly cheaper over the last couple of years, both on an absolute basis as well as relative to the peer group.

Overall, it looks like Exxon Mobil will be a solid investment over the coming years, providing strong income generation and production growth at an inexpensive valuation.

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Disclosure: I am/we are long RDS.A.

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.

Geron's Negative Imetelstat Data Has Been Misinterpreted By Investors

We believe the recent update from Geron (NASDAQ:GERN) was definitely negative. Despite Geron’s claim that the overall survival seen so far in the IMbark trial is very promising, we believe the median overall survival (mOS) for the imetelstat group is not unusual given the baseline health of the IMbark patients. We also believe that Geron provided evidence that imetelstat has no impact on survival by disclosing that there was no difference in median survival detected so far in either dosing arm. The update only served to confirm our view of imetelstat’s likely failure and our expectation that partner Janssen (NYSE:JNJ) will terminate its licensing agreement.

IMbark enrolled a population which benefited survival when compared to historical literature

The big takeaway that investors seemed to have had from Geron’s recent update was that with a median follow up of 19 months at the time of the January 2018 data cut, median overall survival had not been reached in either dosing arm in the IMbark trial. Geron further stated the greater than 19 months of median overall survival looked promising since published clinical and real-world studies estimate that median overall survival after discontinuing JAK inhibition therapy is approximately 14-16 months. Analysts such as from Stifel went further and stated, “As the 19 month follow-up was conducted in January, this suggests a potential ~22-24 month median overall survival in patients taking imetelstat.” Investors ate up the news, driving the shares up over 50% to 52-week highs.

We think investors are overlooking the fact that the patients in the IMbark trial are healthier than the trials to which Geron compared them. The IMbark trial’s inclusion and exclusion criteria explicitly state that only ECOG 0-2 patients can be enrolled and that patients with a peripheral blood blast count of >= 10% are to be excluded. The trial excluded ECOG 3 patients, who are capable of only limited self-care and are confined to a bed or chair for more than 50% of their waking hours. We also know that myelofibrosis (MF) patients with peripheral blood blast count of >=10% have shorter overall survival. Based on stated trial criteria, we have concluded that the IMbark trial did not include very sick patients.

Geron provided additional information on the 4Q 2017 conference call when in response to a question, Geron revealed that IMbark patients “required at least 75,000 platelets” per microliter. This point is crucial because when stratified by platelet count, the historical MF trials show that patients with higher platelet counts live substantially longer than the overall population of patients who discontinue JAK inhibitors.

A well-known trial for MF patients after discontinuation of ruxolitinib (Jakafi) is a recently published paper in the 130 edition of medical journal Blood by researchers at MD Anderson. The researchers state that patients after discontinuation of Jakafi had a “median survival time of 14 months (95% CI, 10-18 months).”

At face value, the IMbark results look very promising versus the MD Anderson results: at least 19 months mOS in IMbark vs. an expected mOS of 14 months. However, the MD Anderson trial was actually a chart review on an essentially all-comers basis and followed patients from the start of Jakafi and after discontinuation. In other words, it included all patients who discontinued Jakafi regardless of health. This can be seen in Table 1 where it shows that the median platelet count in the post-Jakafi population was 91,000/ul with a range of 11,000/ul to 922,000/ul. Because the median platelet count in the paper was so close to the allowed lower bound in the IMbark trial, a substantial portion of the patients followed in the MD Anderson paper would have been ineligible for IMbark. For reference, a normal level of platelets is 150,000-400,000/ul and mild bleeding can occur if platelets drop below 50,000/ul. We can also see that one of the patients in the MD Anderson paper had a platelet count of 11,000/ul, which is considered very low.

We can see later in the Blood article in Figure 2B that patients with platelet counts <100,000/ul did significantly worse in terms of survival. It appears this population had a median survival closer to 10 months. They accounted for 33 of the 56 total patients, more than half of the population, which we believe skewed the overall results negatively. Conversely, for the patients with a platelet count of >100,000/ul, it appears the mOS was closer to 36 months! We believe the IMbark patient population was more similar to the >100,000/ul population in the MD Anderson trial than the <100,000/ul population. Keep in mind that IMbark already excluded patients with ECOG scores greater than 2 and patients who had peripheral blood blasts of >10%.

If IMbark, which as we showed above had a relatively healthy population, enrolled one-third of patients that should have an expected mOS of 10 months and two-thirds of patients that should have an expected mOS of 36 months, then we would expect the blended average to be around 24 months. As a result, we believe that the median OS of 22-23 months that Stifel estimates Geron is observing currently is neither impressive nor unprecedented. In fact, it’s completely expected.

IMbark high-dose arm is not outperforming the low-dose arm which was determined to be ineffective

Furthermore, Geron disclosed that neither arm of the IMbark had reached median OS. The IMbark trial had two arms, a low-dose 4.7mg/kg arm and a high-dose 9.4mg/kg arm. In September 2016, Geron announced that enrollment in the 4.7mg/kg dosing arm would be discontinued because the dose was determined to be ineffective and did not “warrant further investigation.”

In addition, because the low-dose arm was essentially shut down, Janssen amended the trial protocol so that the 4.7mg/kg arm patients were allowed to crossover to the 9.4mg/kg arm at the investigator’s discretion. However, Geron stated on the recent fourth quarter 2017 earnings call that “there were a meaningful number of patients who remained on 4.7 mg/kg.” Therefore, we believe the 4.7mg/kg is a good proxy for a placebo or control arm.

Since Geron and Janssen determined the 4.7mg/kg arm was ineffective, then we should expect the 9.4mg/kg arm to outperform on a survival basis, but we haven’t seen that yet, as indicated in their press release which stated: “the median overall survival has not been reached in either dosing arm.” Since the 4.7mg/kg arm was enrolled on average earlier than the 9.4mg/kg arm, a best case would be equivalent survival rates between the arms.

This indicates to us that imetelstat has not had a positive impact on survival. This lack of survival efficacy matches the lack of efficacy in traditional endpoints associated with MF like spleen volume, which Geron and Janssen announced in April 2017, and we believe it corroborates our view that imetelstat is not effective in MF.

Janssen is no fool

Lastly, we point out that Janssen has essentially delayed its decision on imetelstat multiple times. A decision was originally expected in 2016 and then in 2017. If imetelstat truly offered a 4-6 month or greater survival benefit, we believe Janssen would have opted into imetelstat by now. Instead, Janssen stopped enrollment in September 2016 and has been waiting until the last moment to make a decision. To us, this seems like more of a Hail Mary than a strong indicator of efficacy.

We are short Geron

We are short Geron with a price target of $0.51. We believe imetelstat will be returned by Janssen and value it at $0.

Disclosure: I am/we are short GERN.

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.

The Night $1 Million in Crypto Began Raining From the Sky

HONG KONG—The crowd, most of them wearing masks, squinted up at the raft of multicolored balloons floating near the ceiling, trying to make out the silhouettes of the coins suspended inside each one. And then, against the backdrop of Hong Kong’s neon-rainbow skyline, they raised their hands as the countdown began: “10, 9, 8…FREEDOM!” they screamed, amid a shower of confetti. Suddenly, the loud popping of a fireworks show filled the room as the balloons exploded, and the crypto tokens they contained fell into eager hands.

The spectacle Tuesday evening, held at the inaugural Token 2049 conference, released tens of thousands of dollars’ worth of free digital money. But it was just the first of 25 events in which a Utah-based secure messaging startup called Mainframe will give away about $1 million of its cryptocurrency—by literally making it rain crypto coins upon the heads of enthusiasts.

It’s also an example of the creative lengths to which blockchain companies are going in order to stay in-bounds of a threatened crackdown by the U.S. Securities or Exchange Commission on initial coin offerings, or ICOs. The SEC has said ICOs—in which companies sell digital tokens in order to raise startup capital—could constitute an illegal sale of securities. But Mainframe and others have found a way to dodge that dreaded label: Just give the crypto away for free.

Enter the so-called “airdrop,” in which companies bestow a sprinkling of their crypto coins upon select supporters via the Internet. Now, Mainframe is pioneering a version of that concept in the real-life, physical world.

“We are taking it literally,” Mick Hagen, Mainframe’s CEO and founder, told Fortune just moments before the tokens splashed down like it was Times Square on New Year’s Eve. “We thought, what if we do a real airdrop?”

It’s believed to be the first time anyone has introduced a brand new cryptocurrency via physical distribution (though in actuality, Mainframe’s tokens were to be exchanged for codes, which could then be redeemed online for virtual “MFT” coins). Mainframe initially sold its tokens in a private pre-sale exclusively for accredited investors (several of whom witnessed the airdrop), raising 27,000 of Ethereum cryptocurrency that’s currently worth some $15 million.

The capital will fund Mainframe’s development of a messaging service that is not only encrypted, but masks the trajectory of messages using “dark routing,” in order to be “censorship-resistant and surveillance-resistant.” Such technology, the company argues, will better preserve users’ freedom.

But while Mainframe had originally considered holding an ICO, it felt it unwise “given the regulatory environment.” SEC chairman Jay Clayton said in November that he had “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security,” and testified in a Senate hearing last month that he believed ICOs were in violation of the law. In a separate hearing on ICOs in Congress last week, Mike Lempres, chief legal and risk officer for cryptocurrency exchange Coinbase, said the company does not trade ICO tokens because it “cannot take the risk of inadvertently trading an asset that is later found to be a security.”

It’s unclear if Mainframe’s literal “air drop” would pass legal muster in the United States, or if regulators in other countries will agree the gimmick does not violate securities laws.

Whereas the SEC has mostly been concerned with protecting investors from financial harm, Mainframe also wanted to make sure its token recipients would be safe from physical injury. “There were a lot of different logistics to work through. We don’t want anyone to get hurt,” added Hagen, who describes himself as a Princeton drop-out and Mormon on his Twitter profile. After all, the tokens, roughly the same size and weight as poker chips (and valued at 0.1 Ether, or about $56 apiece), could be dangerous if dropped from high.

So Mainframe opted to insulate the tokens with inflatables. “When the balloons fall it shouldn’t hurt because of the balloon,” Hagen said. “We want people to walk away thinking, this was a fun airdrop.”

The display conjured visuals of the economic idea, advocated by former Federal Reserve chairman Ben Bernanke, of “helicopter money.” A metaphorical term for how a central bank could stimulate the economy by creating money from thin air, Bernanke wasn’t literally suggesting dropping it from a helicopter.

Mainframe, however, did consider that possibility. “We were thinking drones, but if [the token] hits somebody’s head, it might hurt,” Hagen said.

For those who missed the first-ever live airdrop, Mainframe will bring the show to four more cities in the next two weeks—Shanghai, Beijing, Seoul, and Tokyo—with more to follow. The company is calling this method of distribution “proof of being,” a play on Bitcoin’s method of verifying transactions, known as proof of work.

There are also two other ways to scoop up the free tokens if you can’t attend in person: “Proof of freedom,” which Hagen said could be some form of expression about Mainframe such as an essay, video or blog; and “proof of heart,” which the company is not yet willing to explain in detail.

But Hagen is envisioning it as an antidote to the “get rich quick” mindset that has pervaded the crypto world, a way to ensure Mainframe token holders aren’t just in it for the money. After all, the airdrops strictly limit attendees to leaving with just a single token. “We wanted to have methods to make sure we have true believers in technology, and true believers in Mainframe,” Hagen said.