Contraceptive App Natural Cycles Blamed for Playing Role in 37 Unwanted Pregnancies

An app that promises to offer “an effective method of natural contraception” has been accused of causing nearly 40 unwanted pregnancies.

Natural Cycles, which analyzes a woman’s individual menstrual cycle to inform her when she’s “fertile” and not, caused 37 women to become pregnant, ultimately forcing them to visit hospitals for abortions, Swedish publication SVT is reporting. The claims, which were earlier reported on by The Verge, were made to the Swedish regulator Medical Product Agency (MPA).

The Natural Cycles company was founded by a couple who wanted a safer way form of contraception that doesn’t rely on hormones. The app requires women to take their temperature each day and input the reading into the app. On the assumption that women can only become pregnant on “up to six days in one cycle,” among others, the app gives a reading to tell them whether they’re fertile that day or not. Natural Cycles says on its site that women may “have sex without protection” on the days they’re described as “not fertile.”

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“Natural Cycles is backed by a unique algorithm that takes your temperature and many other factors like sperm survival, temperature fluctuations and cycle irregularities into account,” the company says on its site. “It not only detects ovulation, fertility and the different stages of your cycle, it also calculates accurate predictions for upcoming cycles.”

The European Union in August made Natural Cycles the first app certified as a form of contraception. On its website, Natural Cycles said a study found a “perfect use failure rate” 1%. When women don’t use it exactly as prescribed, the failure rate jumps to 7%.

It’s unclear from the Swedish report whether Natural Cycles is indeed to blame for the unwanted pregnancies. However, in a statement to Fortune, a company spokesman said that it’s launching an internal investigation into the matter and acknowledged that at 93% effectiveness, it’s possible Natural Cycles could cause some unwanted pregnancies.

“As our user base increases, so will the amount of unintended pregnancies coming from Natural Cycles app users, which is an inevitable reality,” the spokesman said. He added, however, that Natural Cycles is “clinically proven” and should ultimately “decrease the unwanted pregnancy rates” around the world.

Feast Your Eyes on TAG Heuer’s $197,000 Smartwatch

When the gold Apple Watch Edition launched in 2015 at a high-end price of $17,000, it raised eyebrows. But that’s nothing compared to a diamond-plated TAG Heuer handset that was recently announced.

TAG Heuer on Monday announced the new Connected Modular smartwatch, featuring a white gold band and nearly two dozen carats of diamonds. It costs 190,000 Swiss Francs, or about $197,000. TAG Heuer said in a statement that the device is the most expensive smartwatch ever released.

In a listing on its website, TAG Heuer said that the smartwatch comes with a round 1.4-inch screen that doubles as a touch display for tapping around the device’s Android Wear operating system. It also works with Apple’s iPhones, allowing users to see notifications, access app information, and more. It comes with 4GB of storage and has a near-field communication (NFC) chip so users can place it near a point-of-sale terminal and make mobile purchases.

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TAG Heuer is one of many traditional watchmakers trying its luck in a smartwatch market dominated by Apple and Google. Many of those traditional watchmakers are designing products that come with traditional watch designs but support apps, notifications, and other features users might want in a smartwatch. Still, Apple Watch has proven most popular in the fledgling market.

Whether anyone will actually want a nearly $200,000 smartwatch remains to be seen. While Apple hasn’t ever released Apple Watch sales data, the company’s decision in 2016 to discontinue its gold Apple Watch Edition suggested there was little demand for such an expensive smartwatch. And with a price tag that’s more than 10 times greater than that Apple Watch Edition, TAG Heuer’s smartwatch might have some trouble finding buyers.

Computer AI Can Now Read Better Than You Do

Alibaba has developed an artificial intelligence model that scored better than humans in a Stanford University reading and comprehension test.

Alibaba Group Holding (baba) put its deep neural network model through its paces last week, asking the AI to provide exact answers to more than 100,000 questions comprising a quiz that’s considered one of the world’s most authoritative machine-reading gauges. The model developed by Alibaba’s Institute of Data Science of Technologies scored 82.44, edging past the 82.304 that rival humans achieved.

Alibaba said it’s the first time a machine has out-done a real person in such a contest. Microsoft achieved a similar feat, scoring 82.650 on the same test, but those results were finalized a day after Alibaba’s, the company said.

Read: Alphabet’s DeepMind Is Using Games to Discover If Artificial Intelligence Can Break Free and Kill Us All

The Chinese e-commerce titan has joined the likes of Tencent Holdings (tctzf) and Baidu (bidu) in a race to develop AI that can enrich social media feeds, target ads and services or even aid in autonomous driving. Beijing has endorsed the technology in a national-level plan that calls for the country to become the industry leader 2030.

So-called natural language processing mimics human comprehension of words and sentences. Based on more than 500 Wikipedia articles, Stanford’s set of questions are designed to tease out whether machine-learning models can process large amounts of information before supplying precise answers to queries.

Read: Elon Musk Says Tesla Is Developing Artificial Intelligence: ‘Will Be the Best in the World’

“That means objective questions such as ‘what causes rain’ can now be answered with high accuracy by machines,” Luo Si, chief scientist for natural language processing at the Alibaba institute, said in a statement. “The technology underneath can be gradually applied to numerous applications such as customer service, museum tutorials and online responses to medical inquiries from patients, decreasing the need for human input in an unprecedented way.”

Trump's 'Shithole Countries' Comment Tops This Week's Internet News

Last week Facebook decided that maybe it should make some changes to the information people see on the platform; also, a lot of people got very interested in the pay discrepancies between Mark Wahlberg and Michelle Williams. But, beyond that, it was also a week where everyone learned that a school kid could play the Cantina Band song from Star Wars with a pencil.

Yes, it was yet another strange, wonderful week on the internet. But what else happened? Here we go.

President Trump’s Unsavory Comments

What Happened: President Trump reportedly referred to Haiti, El Salvador, and some African nations as “shithole countries.” The internet responded in kind.

What Really Happened: There is absolutely no denying that Trump has had an impressively full week, declaring himself a stable genius, denying the possibility that he might be deposed as part of the Russia investigation, and avoiding Kendrick Lamar. But it was his comments reported Thursday that will likely have the longest-lasting impact.

Oh.

Some were concerned about journalistic standards…

…but many more were concerned about presidential standards, instead.

Naturally, media reports came fast, furious, and horrified. As the fallout from the comments continued, perhaps the most surprising reaction was the fact that the White House didn’t even try to deny it initially.

And they weren’t the only ones failing to denounce Trump’s crude language.

Still, at least one prominent conservative was willing to correct Trump.

As some of the countries mentioned started asking for comment on the comments, Trump said this:

Well, that’s what he said publicly, at least…

The Takeaway: Twitter?

Breitbart Says Goodbye to Bannon

What Happened: Apparently, when shadow presidents fall, it happens quickly and they even lose their satellite radio shows. Sorry, Steve Bannon.

What Really Happened: As those reading Michael Wolff’s Fire and Fury book know, there is one figure that looms arguably even larger throughout the entire thing than Trump himself: self-proclaimed genius (hey, another one!) Steve Bannon. Turns out, the ego-stroking he might have gotten from the book was likely a farewell gift, considering how the rest of his week went.

Yes, Bannon has lost the Breitbart job he swiftly returned to after leaving the White House back in August, despite releasing a full-throated walk-back of his comments in the Wolff book. So, what happened?

That’d do it. Sure enough, Breitbart was tweeting about his departure.

But it wasn’t just Breitbart that dumped him, it turned out.

(Bannon lost his Sirius show because it was a Breitbart-related venture, for those wondering; it wasn’t a coincidence, just cause and effect.) As would only be expected, news of his departure was everywhere in the media, but how did the rest of the internet respond?

It wasn’t only glee at Bannon’s misfortune, of course; some were also wondering just who could replace him at the outlet. Or maybe that should be, “what.”

The Takeaway: If only there was some kind of lesson to be learned from the swift rise and fall of Steve Bannon. Maybe it’s this?

The Leak of the Week

What Happened: In a political environment consumed with the concept of leaking, a surprise release of previously secret testimony to Congress took the internet by storm.

What Really Happened: Despite what certain POTUSes might have you believe, the investigations into potential collusion between the Trump campaign and Russia are ongoing, although at least one—the one being carried out by the Senate Judiciary Committee—is running aground thanks to internal strife between Republicans and Democrats on the committee. At the start of the week, one of the topics causing the most upset was the testimony of Fusion GPS co-founder Glenn Simpson over the origins of the company’s infamous “Russian dossier.”

Simpson testified in a closed session in August, but faced new calls from Republican committee chairman Chuck Grassley last week to testify again, publicly. Simpson and co-founder Peter Fritsch, in an op-ed that appeared in the New York Times, argued that Congress should simply release the transcript of his earlier testimony. Things seemed at an impasse… and then they didn’t. What changed?

People were surprised at how hardcore the move was…

…especially after Senator Feinstein responded to questions about why she did it.

This kind of thing is, well, unusual to say the least, so of course it was everywhere almost immediately. The 312 page document was, unsurprisingly, very enlightening.

This was, in other words, a really, really big deal. Although what kind of a big deal apparently depended on which side of the ideological spectrum you were on.

Expect this one to run and run.

The Takeaway: Actually, wait, we never checked in on how Trump responded to this news. Mr. President?

She Is Spartacus

What Happened: When it looked as if a news story was going to out the creator of a secret list of crappy men, the internet took it upon itself to handle the situation first.

What Really Happened: Perhaps you heard of the “Shitty Media Men” list before last week; it was a Google spreadsheet shared and edited anonymously that listed more than 70 men who were accused of being, to some degree, abusive towards women, whether it was creepy DMs or physical and sexual abuse. Since its creation in October of last year, it’s been the topic of much speculation and discussion, not least of all because no one actually knew where and how the list got started. And then, last week, that all changed.

It all started with a thread from n+1 editor Dayne Tortorici.

There’s much more in that thread, but those are the most salient points. Tortorici’s comments prompted a response from journalist Nicole Cliffe, and follow-ups from other journalists and editors.

It turned out that the writer of the piece, Katie Roiphe, was willing to comment that she was not about name anyone involved in the list.

Maybe the creator(s) of the list wouldn’t be named, and there was no need to worry about doxing! Well, OK, that was unlikely (for reasons we’ll soon get to). But then, something wonderful happened.

Indeed, so many women came forward to claim responsibility that a hashtag was created, #IWroteTheList, to share collective responsibility:

And then, the real author stepped forward.

Donegan’s piece for The Cut had an immediate impact.

The Takeaway: Nicole Cliffe, want to wrap this one up?

The (Flagging) Power of CES

What Happened: Someone at CES 2018 took the idea of “lights out” a little too literally.

What Really Happened: What would be the most unfortunate thing to happen at a trade show where electricity is kind of important?

Yes, the 2018 Consumer Electronics Show was hit by a twohour power outage last week. Before the cause was known—apparently, it was just rain—some people had some… special theories about what was happening.

Others were just philosophical about it all.

Some were even wondering who “won” the blackout. To be fair, a couple of brands definitely tried their best to claim the crown.

Ultimately, though, the answer to who won is fairly obvious, surely.

Some people at the show really seemed to enjoy the darkness, even if they didn’t make off with any free gifts. Hell, some went to so far as to hope it wasn’t a one-off.

The Takeaway: Of course, it’s worth keeping some sense of perspective about things…

Why Apple Could Soon Save More Than $4 Billion in Taxes

Along the spectrum of good and bad weeks for Apple, this past one was middling, at best.

The week kicked off with some debate over just how much Apple is doing to safeguard kids who are spending too much time on their iPhones and not enough time communicating with others. It then turned to reports that Apple will be handing over control of its iCloud data center operations in China to a local company there to comply with Chinese law.

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But behind the scenes as CES—touted to be the world’s largest tech trade show—was in full swing with major tech announcements from all of Apple’s competitors, the company still featured prominently in the news cycle. Apple optioned rights on a new TV drama this week and a little tax quirk could net the tech giant a $4 billion cash windfall.

Here’s a look back at Apple’s week and the good and bad that came with it:

This is Fortune’s latest weekly roundup of the biggest Apple news. Here’s last week’s roundup.

  1. Apple responded to shareholders last week that called on the company to do its part in combating kids’ smartphone addictions. In a statement, Apple said that its products, including the iPhone and iPad, all come with a variety of controls to curb a child’s use of its devices. But the company also promised more controls in future software updates.
  2. Apple might not have been at CES, but its products were featured prominently. Appliance-maker Whirlpool announced at the show that more than 20 of its products, including washers, dryers, and ranges, will get Apple Watch support soon. The feature means users will be able to adjust their range temperatures and see the status on a load of laundry all from Apple’s smartwatch.
  3. The iPhone maker confirmed this week that all Chinese iCloud user data will be handed over to a local company starting on Feb. 28. The move is a response by Apple to Chinese regulatory authorities that are clamping down on foreign companies housing Chinese user data overseas. Some critics see China’s move as another way for the government to spy on its users. Apple, however, has said that user data will be encrypted.
  4. Apple has reportedly green-lit a new “epic” drama series set in a futuristic world called See. The series will likely have eight episodes in its first season and will be directed by Francis Lawrence, the well-known director of films The Hunger Games: Catching Fire and Mockingjay Parts 1 & 2. There’s no word yet on when the show might air on Apple’s streaming services.
  5. A quirk in the tax bill passed at the end of 2017 allows companies that don’t have fiscal years starting on January 1 to reduce through the end of their fiscal years the amount of foreign cash they accumulate. The less companies stockpile overseas between now and the end of their fiscal years, the less they’ll have to pay in tax on offshore cash. Stephen Shay, a tax professor at Harvard Law School, estimated that Apple could save more than $4 billion in taxes by taking advantage of the loophole.
  6. Follow last week’s speculation that he was leaving the company, Apple Music chief and music industry veteran Jimmy Iovine said this week that he’s staying on at Apple. In an interview with Variety, Iovine said that he’s “loyal to the guys at Apple.”

One more thing…A MacBook Air that never connected to the Internet and was kept in a safe was home to the Star Wars: The Last Jedi script, the film’s director Rian Johnson said this week. Johnson said his producer was worried he’s leave his MacBook Air at a coffee shop for anyone to steal.

With Stunning Honesty, McDonald's Just Admitted Who Really Eats Big Macs

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

Some companies don’t want to admit who really uses their products.

They put image on one side and, on the other side, the board of directors quietly rub their hands with glee when they see the profits roll in from the sorts of people they’d never feature in ads.

McDonald’s, though, has decided to take a completely different route.

In order to celebrate its 50th anniversary, it wants the world to know that people who eat Big Macs are not the sort of trendy people who desperately want disgraceful things like, oh, fresh meat.

No, Big Mac eaters are people who say no all the time. 

They’re people who think mullets are gorgeous. 

How do I know?

Because the company’s Belgian arm just released an ad that says precisely this.

[embedded content]

Isn’t that refreshing?

Yes, they’re the people who snort at iPhones because they still adore their flip phones. 

Among which clan is Warren Buffett

If you’re moved by this concept, I’ve included the full 60 seconds of it below. Complete with Belgian French voiceover.

This includes longer scenes of the man in the jacuzzi wearing his Speedos.

Now, of course McDonald’s is bending with the times and introducing all sorts of new things that will disturb its conservative Big Mac eaters to the point of apoplexy. 

It must surely be hard for them to contemplate something as base and unnatural as the McVegan Burger

In 50 years time, though, the diehards will still be sporting a mullet and still be eating a Big Mac.

They will likely, of course, have bought it from a machine, but let’s not hold that against them.

I feel sure of one thing, though. These utterly faithful, joyously contrary Big Maccers have never bought a Sriracha Big Mac.

Just imagine the sacrilege.

[embedded content]

South Korea plans to ban cryptocurrency trading, rattles market

SEOUL (Reuters) – The South Korean government on Thursday said it plans to ban cryptocurrency trading, sending bitcoin prices plummeting and throwing the virtual coin market into turmoil as the nation’s police and tax authorities raided local exchanges on alleged tax evasion.

The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policymaker around the world struggled to regulate an asset whose value has skyrocketed over the last year.

Justice minister Park Sang-ki said the government is preparing a bill to ban trading of the virtual currency on domestic exchanges.

“There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” said Park at a press conference, according to the ministry’s press office.

A press official said the proposed ban on cryptocurrency trading was announced after “enough discussion” with other government agencies including the nation’s finance ministry and financial regulators.

Once a bill is drafted, legislation for an outright ban of virtual coin trading will require a majority vote of the total 297 members of the National Assembly, a process that could take months or even years.

The government’s tough stance triggered a selloff of the cyrptocurrency on both local and offshore exchanges.

The local price of bitcoin plunged as much as 21 percent in midday trade to 18.3 million won ($17,064.53) after the minister’s comments. It still trades at around a 30 percent premium compared to other countries.

Bitcoin was down more than 10 percent on the Luxembourg-based Bitstamp at $13,199, after earlier dropping as low as $13,120, its weakest since Jan. 2.

South Korea’s cryptocurrency-related shares were also hammered. Vidente and Omnitel, which are stakeholders of Bithumb, skidded by the daily trading limit of 30 percent each.

Park Nok-sun, a cryptocurrency analyst at NH Investment & Securities, said the herd behaviour in South Korea’s virtual coin market has raised concerns.

Indeed, bitcoin’s 1,500 percent surge last year has stoked huge demand for cryptocurency in South Korea, drawing college students to housewives and sparking worries of a gambling addiction.

“Virtual coins trade at a hefty premium in South Korea, and that is herd behaviour showing how strong demand is here,” Park said. “Some officials are pushing for stronger and stronger regulations because they only see more (investors) jumping in, not out.”

RAIDS

There are more than a dozen cryptocurrency exchanges in South Korea, according to Korea Blockchain Industry Association.

The proliferation of the virtual currency and the accompanying trading frenzy have raised eyebrows among regulators globally, though many central banks have refrained from supervising cryptocurrencies themselves.

The news on South Korea’s proposed ban came as authorities tightened their grip on some of the cryptocurrency exchanges.

The nation’s largest cryptocurrency exchanges like Coinone and Bithumb were raided by police and tax agencies this week for alleged tax evasion. The raids follow moves by the finance ministry to identify ways to tax the market that has become as big as the nation’s small-cap Kosdaq index in terms of daily trading volume.

Some investors appeared to have taken preemptive action.

”I have already cashed most of mine (virtual coins) as I was aware that something was coming up in a couple of days,” said Eoh Kyung-hoon, a 23-year old investor.

Bitcoin sank on Monday after website CoinMarketCap removed prices from South Korean exchanges, because coins were trading at a premium of about 30 percent in Asia’s fourth largest economy. That created confusion and triggered a broad selloff among investors.

An official at Coinone told Reuters that a few officials from the National Tax Service raided the company’s office this week.

“Local police also have been investigating our company since last year, they think what we do is gambling,” the official, who spoke on condition of anonymity, said and added that Coinone was cooperating with the investigation.

Bithumb, the second largest virtual currency operator in South Korea, was also raided by the tax authorities on Wednesday.

“We were asked by the tax officials to disclose paperwork and things yesterday,” an official at Bithumb said, requesting anonymity due to the sensitivity of the issue.

The nation’s tax office and police declined to confirm whether they raided the local exchanges.

South Korean financial authorities had previously said they are inspecting six local banks that offer virtual currency accounts to institutions, amid concerns the increasing use of such assets could lead to a surge in crime.

($1 = 1,069.9600 won)

Reporting by Dahee Kim & Cynthia Kim; Editing by Shri Navaratnam

Exiting Your Startup: The Grand Finale

Your company has finally achieved success.

You’re finally looking to cash out on the effort you invested.

Deservingly so, but you’re not done yet. The most critical stage is near-;the exit.

Founders can’t simply hand over the reins in exchange for a handsome payday. It’s more complicated, as exiting is a strategic decision-;one that founders must be aware of early on.

We have invested in over one hundred successful startups, and founded our own açai-infused vodka company, VEEV. We learned lessons the hard way, and we want to make it easier for you.

Here’s a fact that most founders overlook. You need a reason for potential buyers to actually want to buy your company.

What about taking your company public via an initial public offering (IPO)? The reality is that IPOs comprise a small percentage of total exits, so we’ll focus on more common acquisitions.

Consider how your company will be positioned for an attractive acquisition. There are many areas of your business to focus on to ensure a successful exit. Mastering any three of the following areas will greatly work in your favor:

  1. Your distribution model

  2. Your access to a particular demographic

  3. Your brand’s strength

What about revenue?

Revenue is important, but potential acquirers rarely buy a company for the added revenue. Odds are that the incremental revenue barely moves the needle for your acquirer.

While revenue-;especially revenue growth rate-;is important, the three aforementioned areas carry more weight. Let’s discuss them in further detail.

Create a nimble distribution model that an acquirer couldn’t replicate.

PetSmart’s acquisition of Chewy for $3.5B in the spring of 2017 is a great example of a purchase based on a distribution model. PetSmart, the brick and mortar retailer of pet supplies, needed Chewy, an e-commerce provider of pet supplies, for its direct-to-consumer channel.

In the end, PetSmart gains critical online access while Chewy receives the expertise and resources necessary to refine and expand its business.

A win for both parties.

Additionally, corporations realize the need to gain access to new demographics-; especially Millennials.

Consider RXBAR, the maker of simple ingredient, protein bars. Founded in 2014, the company has experienced meteoric growth, due in no small part to its support from Millennials who are attracted to RXBAR for its simplicity in both labeling and ingredients. Food manufacturer Kellogg’s-;eager to enter the space-;announced in October 2017 its intention of acquiring RXBAR.

RXBAR plans to remain an independent company within Kellogg’s all the while expanding its product, and Kellogg’s can effectively leverage the access to RXBAR’s target demographics.

Again, a win for both parties.

Finally, it’s impossible to overstate the importance of your brand image. Corporations are seeking ways to capitalize on emotion-based purchasing.

We’ve previously mentioned the increasing role that emotion is having on consumer purchasing behavior and significance of brand image here. However, it is worth reiterating the point again.

Why?

Because corporations-;not just consumers-;are looking for products with a strong brand that evokes a particular emotion. Oftentimes, this is not their area of expertise. Corporate competitive advantages traditionally lie in the form of a cost advantage.

Now, they’re looking to acquire companies with an emotional advantage.

PepsiCo’s acquisition of the sparkling probiotic drink maker KeVita is a prime example. A slogan of KeVita’s, “Revitalize from the Inside,” represents the pathos that PepsiCo was looking to capture. In a time where consumers are turning away from traditional soft drinks, PepsiCo found a perfect opportunity in the health-conscious KeVita.

The acquisition places Kevita on a larger stage, giving it increased access to new distribution channels and resources. PepsiCo now has the means to leverage KeVita’s image to ideally position itself in a time of changing consumer behavior.

Yet again, a win for both parties.

Determine early on what makes your company a threat to potential acquirers. If they need you more than you need them, you’re in a good position.

You know what to focus on.

Now you need to balance the operations of your company with the intricacies of an exit.

Now let’s address the less concrete aspects of selling your business and how to best-position yourself. Two pieces of advice come to mind:

  1. Base your exit on operational milestones, not a timeline

  2. Keep potential acquirers in the loop

A fundamental misunderstanding that many founders have is basing exits off a timeline, and not an operational milestone.

This principle can be applied in a greater context, especially when it comes to fundraising. All too often, founders seek a certain amount of capital to grant them X months or years of runway. Rather, they should seek this capital to reach a particular milestone, such as achieving a particular customer acquisition cost or breaching a given revenue threshold.

The same issue occurs with exits.

Founders are too focused on exiting in Y years, and not based off a given milestone. A major reason we sold VEEV was because we realistically could not keep growing the business. We had reached an intermediate size, and realized that we didn’t have the distribution capacity or necessary connections to expand VEEV internationally and further grow.

This telltale milestone was far more helpful than any time-based method in determining the right time to sell. Additionally, milestone-based exits are also more flexible than their time-based counterparts. They account for unpredictable macroeconomic factors that can either expedite or slow your timeline.

With that said, build relationships with potential acquirers well-before you reach your desired exit milestones. You should keep them in the loop from an early date.

It’s known that you should contact investors well before your intent to raise the next round of fundraising. The same logic applies to exits.

There a few reasons for this.

The first is simply the importance of getting your foot in the door and establishing relationships with corporate partners early on. The second-;and equally as important-;reason is that they can help you reach or tailor your operational milestones.

Essentially, your potential acquirers can outline the kind of milestone that would spark their interest in a deal.

However, be straightforward if challenges arise that may hinder the completion of a milestone. Acquirers should be willing to work with you. They will not be willing if you paint a rosy picture, only to have them later discover issues in the due diligence process.

That should go without saying, but we have seen it adversely affect many deals.

A final note is to realize that this process takes time. We may have mentioned the importance of stressing milestones over time, but it’s important to realize that a corporation moves slower than a startup. You should be in discussion with companies at least a year before any intention to sell, and know that exit deals usually take at least six months.

In the end, it’s no secret. Exiting is difficult.

Applying this advice will differentiate yourself from the competition and increase the odds of gaining the attention of an acquirer.

The earlier you start the process, the better your odds of success.

From experience, we realize that the timing is never perfect and an ideal match is rare. With that said, it’s important to always keep the exit in the back of your mind, and explore the many ways that you can capture the value of the business you created.

Now, get to work!

And if you need help to guide you along the way, find resources from people who have been there and done that. 

What's Behind This 24% Yield?

We last wrote about the popular InfraCap MLP ETF, (AMZA), in October ’17. At that point, it was trading at $8.51. We stuck a toe in the water, bought some units, collected a $.52 payout, and, as of 1/5/18 am, it was at $8.51.

Normally, you might think, “OK, it’s a breakeven on the price, no cap gain, but I’m ~ $.52 ahead from the distribution – if I sell, I’ll walk away with a 6% profit, and just owe 15%-20% on the qualified distribution”.

Not so fast pardner – there’s a problem with your calculation. If you bought those shares in a taxable account, about 80% of your $.52 distribution would have been return of capital, and would have decreased your cost basis by ~$.42.

So, your taxable short term capital gain would = $.42, plus the normal 15%-20% tax on the qualified distribution.

This problem wouldn’t have arisen, if you had bought AMZA in a tax deferred account, such as an IRA. AMZA also gets rid of K-1’s, and possible UBTI tax issues for IRA holders.

Sounds great right? But, there’s another problem, which SA contributor Trapping Value did a good job of explaining in his recent article about AMZA.

It’s about AMZA’s dividend coverage, or lack of it. The following info is from AMZA’s most recent financial statement, for year ending 10/31/17. It shows that their dividend coverage was only 60% for the last 2 fiscal years:

Here’s a quarterly breakdown, which shows the coverage increasing slightly, but only up to 62% in the most recent fiscal quarter:

(Source: Virtus site)

As the statements show, the fund made ~54% of its income on distributions from its underlying holdings, with the remaining income from writing and selling options. Looking at the funds underlying LP buys/shorts and its options sales and purchases shows a rather complex operation, to say the least, but one item stood out to us – its large position in the United States Oil ETF, (USO), and in the United States Natural Gas ETF, (UNG).

As of 10/31/17, AMZA had these positions in USO and UNG:

(Source: Virtus site)

That made us wonder if there was a correlation in price between AMZA and USO and/or UNG. It seems that AMZA and USO correlated fairly closely, especially in mid-2016 to mid -2017. This makes sense, USO is used as a proxy for the price of US oil. If oil prices crash, as they did in 2015, it eventually affects midstream companies, (especially those which have a lower % of fee-based contracts). (AMZA is the light purple line, and USO is the thicker magenta line.)

In October 2017, however, the AMZA/USO correlation fell apart, when USO headed north, and AMZA headed south, after its 10/3/17 ex-dividend date.

This made us curious, so we took a look at AMZA’s short positions. As it turns out, they had a minor short position in USO, as of 4/30/17.

(The right column is the $ value of the position, and the left column is the shorted share count):

(Source: Virtus site)

But sometime between then and 10/31/17, they entered into a much larger short position on USO. The right column is the $ value – their short position went from $5.5M as of 4/30/17, to $43.5M. as of 10/31/17.

(Source: Virtus site)

During this period, USO went from $10.19, on 4/30/17, to $10.93, as of 10/31/17, a ~7% move upward. This wasn’t a huge move, but it may explain part of the decoupling of AMZA and USO until late November 2017, when USO kept moving higher, and AMZA kept dropping. AMZA’s management was also long USO calls, which would’ve helped to mitigate losses on the short positions.

The other factor in this was also post ex-dividend trading – AMZA’s shares often tend to fall after its ex-dividend dates.

Given this trend, it makes you wonder if taxable account short term traders would be better off buying and selling AMZA in between its distribution dates, and avoid the quarterly distributions. That may sound counterintuitive, but those valleys and peaks sure look interesting, in hindsight.

As usual, though, the problem is figuring out when to buy, and not catch a falling knife, as buyers found out in 2015, when oil crashed, AMZA went south with it.

Holdings:

Energy Transfer Partners LP (ETP) still heads up the list – in fact its now over 20% of the fund’s holdings, as of 1/5/18. We covered ETP’s recent rejuvenation in one of our recent articles.

ETP’s GP, Energy Transfer Equity LP (ETE), is also #5 in the top 10 holdings. Management cut the distribution in half in 2017, which improved the distribution coverage.

Also on the list are Williams Partners LP (WPZ), Buckeye Partners LP (BPL), the venerable Enterprise Products Partners LP (EPD), MPLX LP (MPLX), Enbridge Energy Partners LP (EEP), EnLink Midstream LP (ENLK), Andeavor Logistics LP (ANDX), and ONEOK Inc., which replaced EQT Midstream Partners LP (EQT) in the top 10, as of 10/31/17:

As you may have heard, MLP’s are finding favor once again in the market, partially due to a more favorable tax rule – shareholders of pass-through entities, such as Energy MLPs, may now deduct 23% of the attributable income, before being subject to any taxation.

In addition, the new tax bill contains a bonus depreciation provision that allows all companies to immediately write off the full costs of capital improvements, instead of depreciating the new asset over time.

Couple the tax breaks with better oil prices, and you get a more upbeat attitude toward midstream MLP’s, which has played out in the past month. AMZA’s top 10 holdings are up anywhere from 5% to nearly 12% over the past month. Even with this recent resurgence, however, they’re mostly showing negative performance over the past year, excepting WPZ, EPD, and MPLX:

And there’s still a wide disparity between most of these LP’s unit prices and analysts’ average target prices – ETP, for example, is still 24% below its target price of $24.70, even though is has risen 11.7% in the past month:

These top 10 holdings range in yield from 5.35% to 12.05%, with an unweighted average of 7.47%. Their DCF/Distribution coverage factors run from a low of .82x for ETE, up to 1.40x for OKE, with an average of 1.11x:

Valuations:

EEP and ETP have the lowest Price/DCF, at 7.08 and 8.08 respectively. At the other end of the spectrum, ETE has an outlier 18.61 Price/DCF valuation. ETP and MPLX have by far the lowest Price/Book, at .80 and 1.38.

We took a look at various EPS projections for these LP’s. Although EPS isn’t the most meaningful metric for LP’s, (due to non-cash depreciation adn amortization charges knocking down net income), we wanted to get a general sense of growth projections for this group.

Yes, that 1750% growth figure is ridiculous – (we haven’t been smoking wacky tobacky) – it’s only that high because ENLK is projected to swing from a -$.02 loss to a $.33 gain). At any rate, you can see that there’s a lot of growth expected from these companies in 2018, with an average of over 25% for the group.

Financials:

WPZ has the lowest leverage in the group, at 3.46x for Net Debt/EBITDA, and.72 for Debt/Equity.OKE has the best ROE and ROI, with ANDX, EPD, and BPL also showing strong figures. EPD wins the ROA race, followed by BPL, and ANDX, while ANDX and EEP have the highest Operating Margins.

NAV:

AMZA’s NAV went from $25.00 at inception, down to $10.63, as of 10/31/16, and further declined to $8.37, as of 10/31/17. It was of $8.5125, as of 1/4/17.

(Source: Virtus site)

Summary:

So, what to do? With all of this good news about MLP’s, you’d think that AMZA could get some support from the market in 2018, which should support its NAV. This remains to be seen, and the declining NAV, and poor distribution coverage are big concerns.

We like the concept of the fund – it does solve some problems for IRA holders, giving them very high yield exposure to the MLP universe, without K-1 and UBTI hassles. Normally, we’d be long term holders in this type of investment, in an IRA, where the ROC wouldn’t bite us if we chose to sell. But, we wonder how long the fund will continue to pay $.52/quarter, which continues to decrease its NAV.

If they do cut the distribution at all, how will the market react? There are probably investors with IRA’s who were lucky enough to have bought it for under $7.00 in early ’16 – they may be approaching a breakeven below $4.00, so they could weather a further decline in price.

For now we’ve chickened out, and sold our AMZA shares, and we’ve opted for investing directly in some of the underlying LP’s, such as ETP, which is up 6% in the 2 weeks since we wrote about it.

Alternative Ideas:

Although it doesn’t yield 24%, this covered call trade for ETP is one way to generate a higher yield. It’s on our Covered Calls Table, along with over 30 other trades.

ETP’s March $20.00 call is $1.26 out of the money, with enough headroom for potential price gains, if it gets assigned. The Static Yield is 5.4% over this ~10-week period, or 26.10% annualized. The breakeven is $17.78.

If you want to play it even more conservatively, here’s a March put-selling trade that pays $.85, and gives you a lower breakeven of $17.15. You can see more details in our Cash Secured Puts Table.

A note of clarification – We offer 2 very different investing services – our new Seeking Alpha Marketplace site, Hidden Dividend Stocks Plus, focuses on undercovered/undervalued high yield income vehicles from US and foreign markets.

Our independent legacy site, DoubleDividendStocks.com, offers options selling strategies in tandem with high yield stocks.

All tables furnished by DoubleDividendStocks, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure: I am/we are long ETP, MPLX.

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.

Two Major Shareholders Push Apple to Study Harmful Effects of Smartphone Addiction in Children

Two big shareholders of Apple (aapl) are concerned that the entrancing qualities of the iPhone have fostered a public health crisis that could hurt children—and the company as well.

In a letter to the smartphone maker dated Jan. 6, activist investor Jana Partners LLC and the California State Teachers’ Retirement System urged Apple to create ways for parents to restrict children’s access to their mobile phones. They also want the company to study the effects of heavy usage on mental health.

“There is a growing body of evidence that, for at least some of the most frequent young users, this may be having unintentional negative consequences,” according to the letter from the investors, who combined own about $2 billion in Apple shares. The “growing societal unease” is “at some point is likely to impact even Apple.”

“Addressing this issue now will enhance long-term value for all shareholders,” the letter said.

An Apple spokesman declined to comment on the letter, which was reported earlier by the Wall Street Journal.

Parental Controls

It’s problem most companies would kill to have: Young people liking a product too much. But as smartphones become ubiquitous, government leaders and Silicon Valley alike have wrestled for ways to limit their inherent intrusiveness.

France, for instance, has moved to ban the use of smartphones in its primary and middle schools. Meanwhile, Android co-founder Andy Rubin is seeking to apply artificial intelligence to phones so that they perform relatively routine tasks without needing to be physically handled.

Apple already offers some parental controls, such as the Ask to Buy feature, which requires parental approval to buy goods and services. Restrictions can also be placed on access to some apps, content and data usage.

The activist pressure is the latest in a series of challenges for the tech giant. Last week, Cupertino, California-based Apple said that all of its Mac computers and iOS devices, which include both the iPhones and iPads, faced security vulnerabilities due to flawed chips made by Intel (intc). At the tail end of 2017, the company apologized to customers for software changes that resulted in older versions of its iPhones running slower than newly introduced editions.