Facebook's Data Scandal: There's Your Sign

If you’ve been looking to open or add to a position on the highly valued stock of Facebook (FB) at a not-too-heavy price point, your opportunity might have just arrived in a limousine – red carpet and all. But the window could be closing fast, and anyone who wants to ride Facebook’s success for the long term might need to move quickly to take advantage of what is a loaded political issue but could be resolved relatively quickly.

First of all, the stock is going to bounce back and grow even stronger. A bold assertion, perhaps, but one that can easily be validated by referring to the company’s fundamentals alone. In addition, there’s enough evidence as well as research to show that U.S. securities markets tend to exhibit knee-jerk reactions to sensational news. Remember the knee-jerk slump when the 2016 U.S. presidential election results came out? Yet, often such a negative market reaction can happen regardless of whether or not the market is actually aware of all the facts. I believe that’s what’s been happening with Facebook and the Cambridge Analytica scandal over the past few days.

Second, as swift as the negative reaction might be, there’s also evidence to suggest that sentiment will swing back in favor of fundamentals and prior valuations as soon as the news “blows over”, as it were. It happened during the elections as well. Things were down on November 8, but the very next day, The Wall Street Journal’s headline read: “Wall Street Welcomed Trump with a bang.”

In Facebook’s case the matter might be a little more complicated than an election shocker. The user data scandal could lead to a probe by the FTC even as Facebook distanced itself by kicking Cambridge Analytica and its parent company off its platform and announced that the researcher who provided the data violated the platform’s terms and conditions of use.

All the entities involved, including Facebook, have now denied that the user data was used as part of Cambridge Analytica’s campaign work for President Trump.

Nonetheless, the stock lost almost 7% on Monday and another 2.6% on Tuesday after dipping more than 6% early on Tuesday. It appears that the storm has blown over for now, but further news could still negatively impact the stock.

And that’s your opening if you want to load up on FB, but you might need to move quickly. A brief look at the company’s fundamentals should tell you that the market reaction is an aberration – albeit an understandable one – and that things will be back to normal before you know it.

Facebook by the Numbers

For the fourth quarter 2017 Facebook posted strong YoY and sequential growth across nearly every metric possible, including Daily Active Users, Monthly Active Users, Total Revenue, Revenue User by Geography, Advertising Revenue by User Geography, Average Revenue per User, Operating Income, Operating Margin… you get the idea.

The revenue jump from $8.8 billion in Q4-16 to nearly $13 billion in Q4-17 is a 47% growth rate. What company with a half-trillion-dollar valuation grows like that? Well, it’s not half a trillion right now because the dip wiped out about 10% of market cap, but that’s not likely to last.

I’ve written several articles on SA where I’ve highlighted Facebook’s growth opportunities for the future, and why the growth slowdown the company has been warning investors about is not likely to happen soon. Besides, considering the synergistic momentum that Instagram has brought to the table of late, we’re looking at strong growth in the medium term – at least, until growth in developed markets exhibits the aforementioned slowdown.


FB PE Ratio (Forward) data by YCharts

As of this writing FB is trading at around $167, for a TTM PE of 31 and forward PE of 23. Those levels haven’t been seen in a while, and not likely to be seen for a while, either.

Regardless of whether or not a possible FTC investigation yields anything, the stock is going to keep marching upward for the foreseeable future. If there’s another hiccup along the road, just pick up more FB. The price is already starting to creep back up as of Tuesday’s market close so whatever you decide, do it now.

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.

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AT&T Faces Murderer's Row

Murderer’s Row

Photo Credit

Murderers’ Row was the nickname given to the first six hitters in the 1927 Yankees team lineup for their formidable batting averages.

What happened?

Opening arguments begin tomorrow in the AT&T (T)/Time Warner (TWX) antitrust trial. Reports show that the DOJ intends to call an all-star line-up of AT&T’s rival firms to testify, starting with Cox Communications’ Suzanne Fenwick.

According to the New York Post, Fenwick works in Cox’s content acquisition team and the company is concerned about “potential access to exclusive content” by a giant AT&T/Time Warner combination.

Furthermore, the Post states the DOJ will call AT&T Entertainment Chief Content Officer Dan York and question him regarding alleged moves made while running DirecTV content to discourage rivals from signing carriage deals with a Los Angeles Dodgers channel. Sources tell the Post the government’s star witness will be controversial.

According to Judge Richard Leon, companies expected to testify include: Comcast-NBCUniversal (CMCSA), Charter Communications (CHTR), CenturyLink (CTL), YouTube (GOOG) (GOOGL), Cable One (CABO) and Sony (SNE).

The stocks of AT&T and Time Warner seem unaffected by the news.

Source: finviz.com

Source: finviz.com

The news in no way, shape, or form shook my conviction regarding my AT&T holdings. In fact, I would be a buyer of any dip at this juncture. Here is why.

AT&T Positives

I have been in the market for nearly 25 years. Managing my portfolio through two major bubbles and corrections has taught me one thing. AT&T can weather any storm better than most. What’s more, the company’s dividend payouts have remained consistent and sure. Further, the payouts are backed by solid and predictable cash flows.

In fact, history has shown that AT&T does more than twice as well as the market on the whole during times of turmoil. That is why the Beta is 0.37. T is a solid safe haven play. This is why the risk level is low. The fact of the matter is AT&T held up much better than most during both times the bubble burst. On top of this, the company never cut the dividend even with the tremendous pressure placed upon them when the 2008 and 2000 bubbles burst.

Source: dividend.com

I see the recent sell-off as short-sighted. The stock is a buying opportunity at present. Here is why.

Characteristics Of A Solid Investment

While performing extensive due diligence in search of a new opportunity, I am looking for four major factors. The company or security must have:

  • Solid long-term growth story
  • History of solid cash flow generation, dividend payouts, and a high yield with adequate coverage
  • Opportunity for capital gains as well as increased dividend income based on valuation upside and future growth
  • A positive risk/reward profile

AT&T’s stock covers all these bases very well. Let me explain.

Solid Long-Term Growth Story

AT&T has a very precise vision, albeit an extremely bold one. AT&T is transforming itself from a boring, commoditized telecom company to the world’s premiere Technology, Media, and Telecom (TMT) provider. AT&T’s objective is to capture revenue streams from top to bottom regarding the explosive growth in the TMT sector and increase their margins with the many hidden synergies those writing negative articles on the name not familiar with the business to be unaware of.

I believe many people are vastly underestimating AT&T’s prospects for growth. The fact of the matter is AT&T is and has always been at the forefront of most new communications systems and they still own the last mile in most markets places. I submit the two combined will be highly synergistic and provide an immediate boost to the bottom line.

Nonetheless, don’t expect any big upward moves in the stock price until AT&T puts the Time Warner acquisition behind it and proves they can make money. I believe they will be victorious in their legal battle. If the case does not go their way and the stock sells off on the news, I would buy more. The fact is AT&T’s growth prospects are shooting through the roof right now. The company is a fantastic dividend growth total return opportunity.

Dividend Aristocrat Status

AT&T is a Dividend Aristocrat that has grown its dividend for 33 years straight. A hefty 5.41% yield makes it an ideal investment for dividend growth and income investors alike. The company’s solid track record of paying and increasing its dividend essentially acts as a put against the stock price.

Whenever the dividend has begun to climb above 5.5%, investors have swooped in and bought up shares, which appears to be happening as we speak. Another thing I would like to point out is the payout ratio is more than adequate at 66%.

Valuation Upside

AT&T’ stock currently has a Forward P/E ratio of 10.54, a dividend yield of 5.41%, and an EPS growth rate expected to be nearly 10% over the next five years. When compared to its telecommunications peers as well as the top S&P 500 mega cap stocks, AT&T comes out on top.

AT&T vs. Telecoms

AT&T vs. S&P 500 mega caps

Source: Finviz.com

AT&T is current trading for well below its competitors and its peers. I posit the stock has conservatively 10% upside potential over the next 12 months. This implies a total return potential of greater than 15%. This is a highly satisfactory return for a Low risk stock.

The Bottom Line

I expect AT&T to win their court battle vs. the DOJ. I do not believe the DOJ has a solid case. AT&T no shrinking violet! I believe they will come to an agreement and the deal will go through. Even if AT&T does not come out on top, they are not going anywhere. Smart phones are now a basic utility for most at this time.

AT&T is the 800-pound gorilla of the telecom sector. During times of market volatility, blue chip mega-cap stocks like AT&T tend to hold up better than the rest of the market. The company is involved in a steadily-growing business and has proven by the test of time it has the attributes to weather any storm. AT&T managed to navigate the Great Recession of 2008 and Dot.com bust of 2000 without cutting the dividend. I have complete confidence the dividend is safe.

What’s more, AT&T is investing in its future by creating an entire ecosystem wrapped around the company’s wireless network. The acquisition of Time Warner and recent integration of DirecTV will allow AT&T to not only survive the wireless wars, but thrive in a post-war environment. Furthermore, the current best-in-class yield will buoy the stock.

AT&T’s dividend yield stands at 5.41% and provides many investors with income today. For retired baby boomers, this superior yield of AT&T and the opportunity for capital gains should be reason enough alone to own the stock.

I maintain the stock is a solid buy right now. I’m hoping for a further pullback in the short-term in order to complete my position with shares accretive to my basis. Investors looking to lock in the superior yield should take any opportunity created by a sell-off to start a position. AT&T will overcome the current competitive obstacles.

The competitive environment in the telecom sector has always been fierce. The unlimited price wars won’t last forever. On top of this, 5G should be coming soon which will completely change the competitive landscape once again. And AT&T has a leg up on the competition in this regard.

With a current yield 5.41%, 33 years of dividend growth, and a forward P/E ratio of 10.54 offering the opportunity for valuation upside, now is an optimal time to initiate a position. Those are my thoughts on the subject. I look forward to reading yours. Please use this information as a starting point for your own due diligence.

Disclosure: I am/we are long T.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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