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An Alaska Airlines exec speaks out about a secret weapon the company has against American, Delta, and United (ALK)

9 hours 50 min ago

  • Alaska Airlines is only major US carriers to have a frequent flyer program which still offers mile-for-mile redeemable miles without spending component.
  • The airline sees its frequent flyer program as a valuable weapon against rivals such as American, Delta, and United.
  • Alaska hopes to use the program's generous reward offers as a way to convert prospective customers into loyal repeat customers. 

In recent years, airlines across the industry have worked to optimize their frequent flyer programs to balance rewards for those who fly the most and those who spend the most money.

In most cases, tweaks to the system have added mechanisms to account for dollars spent with the airline in addition to the total mileage flown. 

For most passengers, the changes have resulted in less generous frequent flyer programs. 

The only major US airline to buck this trend is Alaska Airlines which has not factored spending into ints frequent flyer mileage formula. Instead, you earn however many miles you fly on Alaska. 

"The fact that we do mile-for-mile and we have our companion fare (the program is) so generous," Alaska Airlines managing director of marketing and advertising, Natalie Bowman told Business Insider.

(Alaska's companion fare allows holders of the airline's credit cards to purchase one round-trip ticket every year to anywhere in its route network for $121.)

This year, both US News and noted travel blog The Points Guy named Alaska's program the best in the US. 

As a result, the frequent flier program has become a valuable weapon against larger full-service carriers such as American, United, and Delta.

"Alaska Airlines has to go above and beyond its rivals because it doesn't have the network diversity of rivals," Raymond James & Associates senior vice president of equity research, Savi Syth, told Business Insider.

In addition, Syth noted that Alaska's decision to not feature a revenue component is due to the fact that it caters to a slightly different clientele than its rivals which are focused on high-spending business traveling "road warriors." 

With the acquisition of Virgin America, Alaska Airlines has firmly cemented its intention to become the carrier of choice for the West Coast of the United States. 

However, Alaska's larger rivals won't back down so easily.

Delta invaded Alaska Air's home turf in 2014 when it added Seattle-Tacoma International Airport to its network of hubs. 

Alaska secondary hubs in Los Angeles and San Francisco are just as competitive. United is a major player at SFO while all three major legacy carriers have hubs at LAX.

For that reason, the airline's mileage program has become a key part of Alaska's business strategy in California.

"The travel mindset in California is that you take weekend trips on a regular basis," Bowman said. "It's not such a big deal to fly from LA to San Francisco a couple of times a quarter."

"So what we've tried to do is show just how a few of those trips can earn you free travel on Alaska must faster than with any other airline," Bowman added. 

Alaska's goal is to use the generous rewards program to turn prospective customers into loyal repeat customers.

SEE ALSO: Alaska Airlines exec reveals how it’s going to add basic economy without repeating the mistakes of Delta, American, and United

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A Bugatti Veyron, a Gulfstream private jet, and a $330,000 diamond ring: Feds charge 3 men for alleged $364 million Ponzi scheme to fund lavish lifestyle

9 hours 52 min ago

  • Federal prosecutors have charged three men in connection with an alleged $364 million Ponzi scheme that could have more than 400 victims nationwide. 
  • The men were indicted on charges of conspiracy, wire fraud, identity theft, and money laundering.
  • The indictment alleges that the three men took $73 million of investors’ funds "to purchase and renovate high end homes in Maryland, Texas, Nevada, and Florida, purchase luxury automobiles, jewelry, boats, and a share in a jet plane, gamble $25 million at casinos, and support a lavish lifestyle."

A federal grand jury has indicted three men on charges related to an alleged $364 million ponzi scheme.

The three alleged fraudsters — Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski — promised to pay investors significant profits from the purchase and resale of consumer debt portfolios, but in fact, they "touted their purported investment expertise to siphon millions of dollars from unsuspecting investors," according to the SEC's complaint

A press release from the Department of Justice US Attorney’s Office in the District of Maryland said: 

"The indictment alleges that Merrill, Ledford, and Jezierski personally enriched themselves and concealed their diversion of $73 million of investors’ funds to purchase and renovate high end homes in Maryland, Texas, Nevada, and Florida, purchase luxury automobiles, jewelry, boats, and a share in a jet plane, gamble $25 million at casinos, and support a lavish lifestyle.

The men were charged with conspiracy, wire fraud, identity theft, and money laundering, according to the Department of Justice. The victims included small business owners, restauranteurs, bankers, talent agents, professional athletes, and financial advisors. 

"We allege that the defendants engaged in a brazen fraud, deceiving investors to perpetuate their wrongdoing and line their pockets with ill-gotten gains," said Kelly L. Gibson, Associate Regional Director of the SEC's Philadelphia Regional Office. "Investors should be warned that low-risk, high-return investments that never lose should be a red flag."

According to the SEC, Ledford misappropriated at least $40 million. That includes the transfer of at least $17 million to personal bank accounts, and the purchase of: "a $368,000 Ferrari, a $330,000 seven-carat diamond ring, and a $168,000 23-carat diamond bracelet, while transferring $13 million to casinos."

Merrill misappropriated at least $45 million, according to the SEC. The SEC said: 

"He transferred over $7 million to his personal bank accounts, spent $10.2 million on at least 25 high-end automobiles (including a 2008 Bugatti Veyron, a 2014 Pagani Huayra Diablo, a 2014 Ferrari F12 Berlinetta, a 2017 Rolls Royce Dawn, and multiple other models made by Ferrari and Lamborghini), $5.5 million toward the purchase of a house in Naples, Florida, over $2 million for home renovations, $500,000 for an interest in a Gulfstream 200 private jet, a $100,000 club membership in Naples, $350,000 on a boat, and transferring approximately $1 million to casinos.

Attorneys for the three men were not listed in court documents.

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A top SEC official just unloaded on the 'puzzling practices' of the major stock exchanges — here are the 4 ways he’s planning to reform them

10 hours 6 min ago

  • Stock exchanges have been for-profit entities for more than a decade, and it's a situation critics say has created many conflicts of interest.
  • In a speech on Wednesday, SEC commissioner Robert J. Jackson, Jr. unloaded on the exchanges, highlighting four "puzzling practices" that he thinks are unfair to the average investor.
  • Jackson outlines four reforms he's taking steps to enact, with the ultimate goal of creating a fairer trading marketplace for everyday investors.

Stock exchanges are just as interested in turning a profit as the investors who transact on their platforms. It's a reality that most traders have simply accepted and incorporated into their daily routine.

But Robert J. Jackson, Jr. is trying to do something to challenge that status quo.

Appointed by President Donald Trump earlier this year to fill a Democratic seat at the Securities and Exchange Commission (SEC), Jackson is making it his express mission to highlight the conflicts that arise when exchanges are for-profit entities. And — perhaps more importantly — he's offering solutions.

Jackson addressed these issues on Wednesday at an event co-sponsored by the George Mason University Law & Economics Center and the Healthy Markets Association, an investor-oriented nonprofit.

Near the beginning of his speech, Jackson highlighted a not-so-distant past where exchanges were collectively owned nonprofits. He laments a shift that took place about a decade ago, which saw them transform into profit-hungry businesses.

"Their profit motive gives exchanges every reason to structure stock markets in a way that maximizes their rents," said Jackson. "And every time exchanges raise prices, that money comes out of investors' pockets. American investors are paying for it, one microsecond a time."

Jackson went on to list four "puzzling practices that look nothing like the competitive marketplaces investors deserve." They are as follows:

1) The two-tiered system for stock-price information

Jackson notes that there are two data feeds for stock information: the fast private feeds that exchanges sell, and the slower one that's available to the public.

He finds that exchanges have underinvested in the public feed, simply because it's not helping to pad their bottom line like the private one.

"It’s like letting Barnes & Noble run our public libraries," said Jackson. "Nobody should be surprised to find that our libraries don’t have enough books."

2) Legal limits on liability when investors are harmed

Jackson argues that the exchanges often try to posture themselves as regulators, rather than for-profit operators. And that, in turn, helps them wiggle out of legal liability.

In his mind, enforcement agencies like the SEC are still too easy on the exchanges.

"Treating for-profit exchanges with not-for-profit kid gloves has allowed stock exchanges to operate, in many respects, above the law," said Jackson. "Holding firms responsible for their actions is one way to make sure that corporations are careful when they expose people to risk."

3) The structure of stock exchanges and the price of connectivity

Jackson notes that 12 of the 13 US stock exchanges are owned by just three companies. He argues that this consolidation is done with one ultimate goal in mind: to have greater control over pricing.

"One reason our exchanges do this is so they can charge investors to connect to each exchange," he said. "That, of course, raises the concern that exchanges will charge investors too much to connect, secure in the knowledge that our rules, not market dynamics or the quality of their product, help them keep prices high."

4) Payments exchanges make to brokers

Jackson says the rules that have been established to ensure the best execution of trades are actually vulnerable to conflicts of interest that harm investors in the end.

"When a broker places an order on behalf of a customer, we expect the broker to send the order to the exchange that is likely to get the best price for their customers," said Jackson. "But to nobody’s surprise, research shows that brokers very often send their orders to the exchange that gives the broker the biggest rebate."

Mike Williams, executive director of the Equity Markets Association, issued the following statement as a response to Jackson's speech:

"US exchanges are the most heavily regulated, transparent and trusted participants in our national equity trading infrastructure, and today provide more valuable, efficient and resilient trading and data services, at the lowest relative cost to investors, than at any time in history."

Jackson's proposed reforms

The arguments outlined above may seem daunting, but Jackson has some ideas of how to right the ship. He notes that he has some support from within the SEC, which should aid him in his quest to reform the exchanges. His proposed reforms include:

1) A pilot study to test the effects of rebates

In the spring, the SEC unanimously approved a pilot study to assess how rebates impact market conditions. Jackson notes that the initiative, against which exchanges have "fought mightily," will provide valuable insight around how markets behave without rebates.

"I think the time has come for the SEC and investors to know the facts about rebates and other incentives," he said.

2) Enhanced transparency

Jackson proposes exchanges start disclosing revenue figures in more straightforward fashion. He says that raising investor awareness on the subject will be a crucial step.

It "would go a long way in giving investors a clearer view regarding the costs they pay to invest in America’s public companies," he said.

3) Roundtable discussions with other high-ranking officials

Jackson says he's planning to work closely with Brett Redfearn, who's served as the SEC's Director of the Division of Trading and Markets since October 2017. He says these types of roundtable discussions will help keep the actions of exchanges in check.

"It is time for the Commission to have a market-wide conversation about how exchanges make their rules and prices," he said.

4) A review of exchange immunity and limits on liability

This is an extension of puzzling practice no. 2, listed above. Jackson thinks it's unfair that exchanges are essentially able to write their own rules, then be exempt from legal liability.

"The exchanges cannot have it both ways — both claiming that business considerations limit the degree to which they can regulate public companies while making broad claims to regulatory immunity," said Jackson.

SEE ALSO: The inside story of how an old-school Scottish firm became an early investor in many of Silicon Valley's most prized unicorns, and made a killing in the process

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A Drug Enforcement Agency plane collided with a Tesla Model X as it crash-landed on a Texas street

10 hours 12 min ago

  • A Drug Enforcement Agency plane crash-landed in the Sugar Land, Texas, area on Wednesday, injuring one of the three special agents on board.
  • The group had been conducting a flight training exercise, DEA Houston Division special agent Wendell Campbell told Business Insider on Wednesday night. The injured agent was taken to a hospital and later released.
  • The single-engine Cessna plane collided with several vehicles as it went down on Voss Road near Highway 6. Video footage from the local NBC affiliate KPRC-TV showed one of those damaged vehicles is a white Tesla Model X.
  • Tesla CEO Elon Musk reacted to the incident on Twitter: "Wow, glad they're ok!"

A Drug Enforcement Agency plane made an emergency landing in the Sugar Land, Texas, area on Wednesday, injuring one of the three special agents on board.

The group had been conducting a flight training exercise, DEA Houston Division special agent Wendell Campbell told Business Insider on the phone Wednesday night.

"The plane had some mechanical difficulties and they had to do an emergency landing," Campbell said, adding that the injured agent was taken to a hospital and later released.

The single-engine Cessna plane collided with several vehicles as it went down on Voss Road near Highway 6. Video footage from the local NBC affiliate KPRC-TV showed one of those damaged vehicles is a white Tesla Model X.

Tesla CEO Elon Musk reacted to the incident on Twitter: "Wow, glad they're ok!"

The malfunctioning plane downed some power lines, but no one on the ground was injured, KPRC-TV reported.

Fort Bend County Texas sheriff Troy Nehls told the Houston Chronicle: "Imagine you're just driving down Voss Road in Fort Bend County and all the sudden an aircraft strikes your vehicle. That would be enough to put me in cardiac arrest."

"We are very fortunate that this was not much more catastrophic than what it was," Nehls said.

Watch the aftermath of the incident via KPRC-TV below:

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NOW WATCH: Beware one huge mistake investors often make when the economy is at a crossroads, says Charles Schwab’s investment chief

The future of blockchain solutions and technologies

10 hours 25 min ago

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

Nearly every global bank is experimenting with blockchain technology as they try to unleash the cost savings and operational efficiencies it promises to deliver. 

Banks are exploring the technology in a number of ways, including through partnerships with fintechs, membership in global consortia, and via the building of their own in-house solutions. 

In this report, Business Insider Intelligence outlines why and in what ways banks are exploring blockchain technology, provides details on three major banks' blockchain efforts based on in-depth interviews, and highlights other notable blockchain-based experiments underway by global banks. It also discusses the likely trends that will emerge in the technology over the next several years, and the factors that will be critical to the success of banks implementing blockchain-based solutions.

Here are some of the key takeaways from the report:

  • Most banks are exploring the use of blockchain technology in order to streamline processes and cut costs. However, they are also looking to leverage additional advantages, including increased competitiveness with fintechs, and the ability to use the technology to create new business models. 
  • Banks are starting to narrow their focus, and are increasingly honing in on tangible use cases for blockchain technology that solve real problems faced by their businesses. 
  • Regulators are taking an increased interest in blockchain technology, and they're working alongside major banks to develop regulatory frameworks. 
  • Blockchain-based solutions will start to emerge in different areas of financial services. The most successful solutions will solve specific problems for banks and attract a large enough network to create widespread benefits. 

 In full, the report:

  • Outlines banks' experiments with blockchain technology. 
  • Details blockchain projects at three major banks — UBS, Credit Suisse, and Banco Santander — based on in-depth interviews. 
  • Discusses the likely trends that will emerge in the technology over the next several years.
  • Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.
Subscribe to an All-Access membership to Business Insider Intelligence and gain immediate access to: This report and more than 250 other expertly researched reports Access to all future reports and daily newsletters Forecasts of new and emerging technologies in your industry And more! Learn More

Purchase & download the full report from our research store

 

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Fintech could be bigger than ATMs, PayPal, and Bitcoin combined

Wed, 09/19/2018 - 10:02pm

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

Fintech broke onto the scene as a disruptive force following the 2008 crisis, but the industry's influence on the broader financial services system is changing. 

The fintech industry no longer stands clearly apart from financial services proper, and is increasingly growing embedded in mainstream finance. We’re now seeing the initial stages of this transformation.

For instance, funding is growing more internationally distributed, and startups are making necessary adjustments to prove sustainability and secure a seat at the table. Most fintech segments in the ascendant a year ago have continued to rise and grow more valuable to the broader financial system. Meanwhile, several fintech categories have had to make adjustments to stay on top. New subsegments are also appearing on the scene — such as digital identity verification fintechs — as new opportunities for innovation are discovered. 

Significantly, incumbents are responding more proactively to the rising influence of fintech by making updates to their consumer-facing channels, back-end systems, and overall business operations. Most are realizing that the best way to adapt is to work alongside the fintechs that are transforming the financial services environment, either by partnering with them or acquiring the startups entirely. As fintech's power grows, incumbents will have no choice but to change in order to stay relevant and competitive. All around, fintech is becoming embedded in mainstream finance.

Business Insider Intelligence, Business Insider's premium research service, has written the definitive Fintech Ecosystem report that looks at the shifts in the broader environment that fintechs operate in, including funding patterns and regulatory trends; examines the adaptations that some of fintech's biggest subsegments have had to make to secure a foothold in the financial services system; and discusses how the continued rise of the fintech industry is pressuring incumbents to make fundamental changes to their business models and roles. It ends by assessing what a global economy increasingly influenced by innovative fintechs will look like.

Here are some key takeaways from the report:

  • The fintech industry is far more than a group of digitally native, consumer-centric startups, although they are, in many ways, becoming the new face of financial services. It's increasingly clear that fintech no longer stands apart from financial services proper, and is morphing into an integral part of the financial system. 
  • To secure their position in the mainstream economy, some of the main fintech subsegments have had to adjust their business models. These include neobanks, robo-advisors, and alt lenders. Other fintech categories, meanwhile, have instead found that current conditions are well suited to their original models, and are seeing largely smooth sailing, like regtechs, insurtechs, and payments fintechs. Innovation and dynamism is still alive in fintech too, with new categories still emerging.
  • The rising influence of fintechs is having a dramatic effect on incumbents, from banks to insurers to wealth managers, pushing them to respond proactively to stay relevant. Incumbents are reacting to changes wrought by fintechs on three key fronts: the front end, the back end, and in their core business operations. As such, incumbents and fintechs are converging on a digital middle ground.
  • As this happens, the fintech industry is on the cusp of becoming an integral component of the broader financial services ecosystem. But it will likely first have to go through a complete credit cycle, and survive an economic downturn like the one that set the stage for its arrival in 2008, for this to happen.

In full, the report:

  • Looks at how the environment in which the fintech industry operates is changing, and what that means for the digitization of financial services.
  • Gives an overview of the main subsegments within the global fintech industry, and discusses which categories have had to adapt to survive, which have reaped benefits from their original game plans, and which new segments have come to the fore in the past twelve months.
  • Outlines the adaptations that incumbent financial institutions have begun making to adjust to an economy that's inevitably shifting to digital, and in which tech-savvy fintechs are increasingly setting the standards.
  • Discusses what the future of financial services will look like as fintech embeds itself into the financial mainstream.
Subscribe to an All-Access membership to Business Insider Intelligence and gain immediate access to: This report and more than 250 other expertly researched reports Access to all future reports and daily newsletters Forecasts of new and emerging technologies in your industry And more! Learn More

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How automated investment products are disrupting and enhancing the wealth management industry

Wed, 09/19/2018 - 9:02pm

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

Startups with robo-advisor products are failing to live up to their initial promise.

As solutions proliferate and consumer adoption remains slower than expected, many firms are re-examining and updating their strategies to survive. 

In a new report, Business Insider Intelligence scopes the current market for robo-advisors, providing an updated forecast through 2022. In addition, we explain the different types of robo-advisors emerging, detail how startups and incumbents are working to ensure the success of their products, and outline what will happen to the market over the next 12 months.

Here are some of the key takeaways from the report:

  • Business Insider Intelligence forecasts that robo-advisors — investment products that include any element of automation — will manage around $1 trillion by 2020, and around $4.6 trillion by 2022. 
  • Startups offering robo-advisors are struggling to acquire AUM due to overcrowding in the global robo-advisory market and lower than expected customer uptake. 
  • Incumbents are rolling out their own robo-advisor products, a trend we expect to pick up in the period to 2022. 
  • North America remains the leading robo-advisory market, but we expect Asia to catch up and outpace the region in terms of AUM managed by robo-advisors in the period to 2022. 
  • There will be a winnowing of the startup robo-advisory market as only a few firms remain stand-alone, while incumbents looking to launch their own products will profit from purchasing the technology of startups that have fallen by the wayside, at low cost. 

 In full, the report:

  • Provides a forecast for the volume of assets robo-advisors will manage by 2022.
  • Outlines the current robo-advisory landscape.
  • Explains how startups with robo-advisor products are evolving their business strategies. 
  • Provides an outlook for the future of the robo-advising industry. 
Get The Robo-Advisor Report

 

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Financial institutions are applying distributed ledger technologies to new use cases for ground-up business transformation

Wed, 09/19/2018 - 7:34pm

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

Of the many technologies reshaping the world economy, distributed ledger technologies (DLTs) are among the most hyped. DLTs are most often associated with cryptocurrencies like Bitcoin, but such coverage sidelines the broader use cases of DLTs, even though they stand to make a far bigger impact on the broader the financial services (FS) industry.

DLT's value lies in its ability to centralize record-keeping, while cutting out the need for authorization by an overseeing party, instead allowing a record to be confirmed by multiple parties with access to the database. This means DLTs have the potential to streamline financial institutions' (FIs) operations, boost data security, improve customer relationships, and drastically cut costs. But many FIs have struggled to implement DLTs and reap the rewards, because of organizational obstacles, but also because of issues rooted in the technology itself. There are a few players working to make the technology more usable for FIs, and progress is now being made.

In a new report, Business Insider Intelligence takes a look at what DLTs are and why they hold so much promise for FS, the sectors in which DLTs are gaining the most traction and why, and the efforts underway to remove the obstacles preventing wider DLT adoption in finance. It also examines the few FIs close to unleashing their DLT projects, and how DLTs might transform the nature of FS if adoption truly takes off. 

Here are some of the key takeaways from the report:

  • DLTs are proving attractive to FIs because of their ability to act as a single source of truth, distribute information securely, cut out middlemen, improve transaction times, and cut redundancy and costs.
  • DLTs like blockchain and smart contracts stand to save the FS industry up to $50 billion a year through improved operational efficiencies, reduced human error, and better regulatory compliance. 
  • The technology is being explored actively across FS, with trade finance, insurance, and capital markets proving especially active. Overall adoption is still low because of organizational and technical hurdles, but these are now being eliminated, promising to boost implementation.
  • A few FIs have pulled ahead of the curve and are very close to taking their DLT projects live, if they haven't already. These players can serve as useful case studies for other institutions in getting their DLT solutions live.

In full, the report:

  • Looks at what DLTs are, and why the FS industry is working hard to make use of them. 
  • Gives an overview of the financial segments which are seeing the most DLT activity, and what they stand to gain.
  • Outlines efforts being made to make DLT more approachable and usable for the FS industry.
  • Examines use cases in which FIs have managed to take their pilots live, and what they can teach their peers. 
Subscribe to an All-Access pass to Business Insider Intelligence and gain immediate access to: This report and more than 250 other expertly researched reports Access to all future reports and daily newsletters Forecasts of new and emerging technologies in your industry And more! Learn More

Purchase & download the full report from our research store

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'The market is betting on a bidding war': The fight for Sky might come down to a rare sealed auction

Wed, 09/19/2018 - 6:55pm

  • A sealed one-day auction between Comcast and Fox for Sky might commence Saturday.
  • These types of auctions are extremely rare with only two in the past decade.
  • Analysts predict that Comcast will win in a bidding war for Sky.

The battle for British broadcaster Sky may be in its final days. Comcast and 21st Century Fox, which have competing bids out for Sky, have until Friday to drop out of bidding before a larger clash of the media titans begins.

The bidding process may well end after a single-day auction starting on Saturday, Bloomberg reported, citing sources familiar with the matter.

The British Takeover Panel has a standard auction timeframe of five days, and bidding can be sealed or open. One-day sealed auctions are so rare there have been only two in the past decade, Morningstar analyst Allan Nichols told Business Insider.

"This is very rare in UK M&A," Alex DeGroote, an independent media analyst, told Business Insider. "And a suitably dramatic end to this saga."

A potential bidding war

Once an auction begins there are few potential outcomes, according to analysts.

Neither company could choose to increase their current bids for Sky. Comcast's current offer is £14.75 per share, valuing Sky at £26 billion ($34 billion), while Rupert Murdoch's 21st Century Fox bid is £14 a share.

Or, both companies could bid in an auction. "The market is betting on a bidding war," Nichols said. The shares for Sky have traded much higher than that of either offer, indicating that the market predicts a competitive bidding process that drives the purchase price higher.

Both analysts said they expect Comcast to win in an auction scenario.

"Comcast is overall positioned better to win," DeGroote said. "It has saved its firepower for this Sky auction, it has more balance sheet headroom and it can derive material operating synergies in a combination."

A final outcome is that shareholders could reject any offer on the table. They have until October 6 to do so. If they reject the offers any future offers would have to be on hold for a period of six months. 

The battle for Sky is linked to an earlier fight between Disney and Comcast for some 21st Century Fox assets. In July, Comcast dropped out of that bidding, allowing Disney to win Murdoch's entertainment assets plus the 39% of Sky Fox already owned. If Fox wins out in an auction, it will control Sky. If Comcast wins, it will own the 61% not owned by Fox.

Sky is an attractive asset to both Comcast and Disney as they work to expand their international footprints. The British pay-TV business serves 23 million customers, mostly direct-broadcast-satellite subscribers, in the UK, Ireland, Germany, Austria, Italy, Spain, and Switzerland.

And it has a strong content portfolio with exclusive rights through 2020 to run HBO shows— like Game of Thrones and Westworld — across Europe, and has the majority of Premier League football TV rights and exclusive rights to the German Bundesliga.

SEE ALSO: 'It's a signal Verizon is not seriously interested in major investments': Insiders say Verizon's choice of Guru Gowrappan to run Oath reveals the future of Verizon's ad business

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NOW WATCH: Everything we know about Samsung’s foldable phone

The CEO of one of the most important startups in video gaming explains why the next big thing hasn't yet replaced the smartphone (MSFT, FB, GOOGL)

Wed, 09/19/2018 - 6:36pm

  • There's been lots of hype around virtual- and augmented-reality headsets in recent years — with some going so far as to say that they could replace the smartphone. To date, though, neither set of gadgets has caught on with mainstream consumers.
  • It's easy to understand why, said Unity Technologies CEO John Riccitiello in a recent interview with Business Insider.
  • Not only are such gadgets generally expensive and clunky, they lack compelling games and other experiences, Riccitiello said.
  • What's more, manufacturers have yet to back them with a major marketing push.

If you ask John Riccitiello, CEO of Unity Technologies, it's no great mystery why virtual- and augmented-reality gadgets have thus far been duds with consumers despite all the hype surrounding them.

You only have to contrast them with a successful game console, such as Sony's PlayStation 4, to get a sense of what's wrong.

The PlayStation 4 has a price many consumers can afford, is well-designed and relatively easy to use right out of the box, and offers a slew of compelling games — a combination of features that none of the VR or AR headsets can tout, Ricciteillo, a longtime game industry executive before joining Unity, told Business Insider in a recent interview.

Perhaps just as importantly, Sony launched its game console with a marketing blitz unlike any seen from the AR or VR headset makers. 

Unity's software is used widely across the video gaming industry to build video games that work across console, PC, and smartphone platforms. It's also used to make virtual- and augmented-reality games and experiences, including "Pokémon Go."

"What we've had is a sizzle and a whimper and a little bit of smoke, but no one's done a heavy launch," said Riccitiello on the state of AR and VR. "And I think it's because, wisely, they recognize they're not at the form factor and the price to justify it," he says. 

Companies have been working on AR and VR for years with little payoff

Many technology experts consider augmented- and virtual-reality headsets to be among the leading candidates to replace smartphones as consumers' primary computing devices. The technologies both involve displaying computer-generated images. With augmented reality, those images are layered over views of the real world; with virtual reality, users are completely immersed in artificially generated images.

Electronics makers and programmers have been working on both technologies for decades, and the first virtual-reality headset hit the market some 30 years ago. In recent years, a growing number of such gadgets has hit the shelves, including from major companies including Google, Sony, Facebook, and Microsoft. But thus far, neither augmented- nor virtual-reality gadgets has found mainstream appeal.

Cost is a big reason for that, especially on the AR side of things, Riccitiello said. Magic Leap One, perhaps the most hyped AR device to the hit the market so far, costs $2,300, while Microsoft's HoloLens, another major entrant, starts at $3,000.

But even VR headsets can be pricey. Oculus Rift and HTC Vive, the two most notable and advanced virtual-reality gadgets on the market, cost $400 and $500, respectively, and both require users to connect them to a powerful PC.

By contrast, the base model of the PlayStation 4 now costs $300. And users only need to connect it to their TV to start playing it.

"We're going to need to see these things come down in price," Riccitiello said.

The headsets so far have often been clunky or heavy

Another big factor holding the devices back from mass adoption is their design, he said. Game consoles work right out of the box, and they're standalone devices; they don't need to be connected to any other gadget. And they're relatively easy and comfortable to use; typically, you just hold a wireless controller in your hand.

You can't say the same about most of the headsets on the market. Both the Rift and the Vive have to be tethered to PCs, while the Magic Leap One has to be connected to a hockey-puck-sized processing unit clipped to your belt or carried in a pocket. Rift and Vive can feel bulky and unwieldy; so too can HoloLens.

"You need something that works right out of the box," he said. "And it needs to meet a certain ergonomic design. It can't be 20 pounds of helmet on your head."

Another big shortcoming of the headsets thus far is the content that's been available for them, Riccitiello said. There's just not been any games or other applications for them that have been must-haves for most consumers.

"You need great content to sell the hardware, but great makers of content won't make the content until the hardware's installed in a large enough base to justify the investment," he said.

Headset makers to date really haven't backed them with marketing

But the biggest factor may be simply the fact that the makers of the various headsets haven't given the devices the kind of marketing and other support they'd need to have a major launch.

When Sony or Nintendo or Microsoft launches a console, they invest millions, even billions of dollars on things such as luring developers to make games for their new machines and advertising them widely to consumers. Nothing like that has been done in support of the augmented and reality headsets, he said.

Still, Riccitiello's a believer that such gadgets will eventually take off with consumers. Somewhere in the next two to four years, once the hardware makers are able to perfect the technology, get prices down, and build up compelling content, one of them will mount a major consumer push, and the market will take off, he said.

"The thing is, on the consumer side, people are waiting for magic to happen," he said. "Magic doesn't happen. It's engineered."

SEE ALSO: One of the leading companies in the video-game business is gunning to take over the enterprise software industry

SEE ALSO: One of the most important startups in video games just lost its CFO — right after raising $145 million in new funds

SEE ALSO: Apple and Google's app-store businesses are coming under pressure — and the companies could end up losing billions of dollars

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'Shame on the LPs': Insiders say the unravelling of Silicon Valley's hottest VC firm, Social Capital, could have been avoided

Wed, 09/19/2018 - 5:33pm

  • Social Capital's rupture has largely been blamed on the firm's charismatic co-founder, early Facebook executive Chamath Palihapitiya.
  • However, some insiders speculate that the firm's troubles could have been avoided, had its limited partners intervened early on. 
  • They also said that it's unlikely that Social Capital's investors will re-invest if they're given the opportunity in the future.

It's been several months since Social Capital, the high-profile Silicon Valley VC firm, began to unravel. And now, the finger pointing has begun.

The venture firm's abrupt and still unexplained strategic belly flop, at a time when it seemed poised to reach new heights, has become one of Silicon Valley's biggest mysteries.

Hints of discord began in August of last year, when the firm's co-founder, Mamoon Hamid, left for a partner position at Kleiner Perkins Caulfield & Byer. In the year since Hamid's departure, Social Capital has lost seven members, subsequently resulting in the removal of its team profile page from the firm's website. Insiders suggest that there will be still more departures from Social Capital in the upcoming months.

In past conversations with Business Insider, a number of people close to the firm blamed Palihapitiya as the reason for the firm's departures. Palihapitiya, insiders said, was a dynamic leader who was prone to changing the firm's agenda only to seemingly lose interest later on. 

It was only about a year ago when Palihapitiya pitched the idea of transforming Social Capital from a venture capital firm into a data-driven asset management firm that could play in everything from public equities to real estate. Now, the future of the venture fund itself is a question mark.

But who's to blame?

Despite grumbles on the part of Social Capital's investors early on, one person familiar with matters suggested that the numerous departures could have been checked, had Social Capital's limited partners (LPs) effectively voiced their concerns.

"The LPs did nothing," the person said. "They have their voting rights, their ability to call a team in. It comes down to bad board governance, and the governance at Social was poor...Shame on the LPs for not figuring it out and fixing it."

While the power of Social Capital's investors was effectively limited by Fund III's lack of a "no-fault divorce" clause, which would have allowed them to vote to remove its general partners, multiple people maintained that by the time the firm began to unravel, investors were ready to cut their losses. "It all happened over such a quick period of time," one person said. "A lot of funds were close to being deployed and they wondered what is the point of fighting it."

Most insiders agreed that one takeaway remains clear about Palihapitiya's approach to venture capital. It wasn't that he had suddenly lost interest, they said; it was that he was never really interested in the first place. At best, they suggested, he was distracted. 

"You'd question his true intentions...He didn’t want to be a venture capitalist," a source said. "He found it limiting. It put him into too small of a box." Over the years, Palihapitiya's interest has alit on everything from poker championships to basketball teams (he's a co-owner of the Golden State Warriors). One person who has known Palihapitiya for many years suggested that his interest lay more in making financial bets than discovering and funding new technologies. 

'He was not interested in anything venture since day one'

Palihapitiya's involvement in the firm was inconsistent, insiders agreed. These signs were apparent from the firm's very beginnings, they said. One source said that Palihapitiya didn't contribute to the decision making process in investing in two of the firm's hallmark deals, Slack and Carta. "He was never involved," one person said. "He was not interested in anything venture since day one. "

A third person said that Palihapitiya became difficult to reach after February, and speculated that his absence might have been related to rumors of a new romance with Nathalie Dompé, whose family owns a successful Italian pharmaceutical  company. Dompé and Palihapitiya's acquaintance began when her family expressed interest in becoming limited partners of the fund earlier this year, another person said. (Palihapitiya and his wife Brigette Lau, who was also a partner at Social Capital, filed for divorce in February.) Neither Palihapitiya, Dompé, nor a spokesperson for Social Capital returned requests for comment.

What happens next is anyone's guess.

The firm's past troubles could make it difficult to raise a new fund, many suggested. While people close to the firm said that Social Capital is still pouring more money into its existing portfolio companies, some expressed doubt that the firm's existing investors would be backing any future efforts on the behalf of either Social Capital or Palihapitiya.

"There is not a single LP...not a single professional institutional endowment that will return," one person said. 

Contact this reporter via Signal  at +1 (702) 521-0622 using a non-work phone, email at zbernard@businessinsider.com 

SEE ALSO: Chinese entrepreneurs have a completely different definition of winning than other startups, and Google's former China boss says that's a big problem for US tech companies

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Amazon could soon be the third-place online advertiser behind Facebook and Google — but only if it can avoid trouble with regulators and shoppers (GOOG, GOOGL)

Wed, 09/19/2018 - 5:05pm

  • Amazon is expected to become the third largest digital advertiser, behind Facebook and Google, according to eMarketer researchers.
  • But as the company's market share of the ad and retail business continues to expand, the company may run into the same kind of scrutiny that has dogged other large ad platforms, such as Google's. 
  • Some observers already see behavior that makes it difficult for smaller third-party manufacturers that sell through Amazon to compete.
  • The retailer's ad business is growing at a time when regulators in the US and Europe are taking a hard look at the business practices of big retailers and tech giants.

Researchers with eMarketer tell the Wall Street Journal that Amazon could soon become the third largest US digital advertiser, behind Google and Facebook — an impressive benchmark considering ads are a side business for the web's biggest retailer. 

But as the Amazon continues to grow its ad business, it must prove that it can avoid the same regulatory scrutiny that has plagued other powerful ad platforms, such as Google search and Facebook's social network. More specifically to Amazon's core retail business, CEO Jeff Bezos must be careful not to alienate customers with the glut of ads that are now far more prevalent at his web store.  

"There's an interesting debate right now, about whether the ads are customer-centric enough," said Andrea Leigh, vice president of client services at Ideoclick, a Seattle-based ecommerce consultancy, in an interview with Business Insider.

Amazon representatives were not immediately available for comment.

Researchers from eMarketer on Wednesday estimated that Amazon will generate "$4.6B in domestic ad revenue." The research firm said that Amazon's share of the overall market will reach approximately 4.2 percent. That's enough for the retailer to overtake Microsoft and Oath, the Verizon-owned media site, in digital advertising.

The two largest players, Google and Facebook, hold a combined 58 percent of the market with $64 billion, eMarketer says.  Amazon's $5 billion is tiny in comparison, but the retailer's ad business is growing faster than either of the two frontrunners, according to analysts.

Amazon appears ready to cut deeper into Google and Facebook's market share. Before that can happen, however, it has to avoid the same regulatory hurdles that has at times tripped up each of them.

The news of Amazon's ad growth comes as lawmakers in the United States and Europe are looking at whether some of the business practices of big tech companies are anticompetitive. Google has been accused multiple times of tweaking search results to favor ads for its own products and services over rivals.

Last year, the European Union hit Google with a $2.8 billion fine after deciding the company had done exactly this. Google is appealing that ruling.

Certainly, Google has a much larger share of search than Amazon has of retail and market share is always a factor in how regulators decide if a business is anticompetitive. But Amazon's share of the retail market continues to expand More than half of all product searches occur on Amazon, Leigh said.

Amazon is starting to attract the same sort of scrutiny in Europe that has dogged Google. The Wall Street Journal reported on Wednesday that the EU has begun a preliminary probe into how Amazon treats the merchants that sell via its platform. One doesn't have to look too deeply into Amazon's ad business to discover some eyebrow-raising behavior, say observers. 

Keying in a search term for any product on Amazon and the top part of the search-results page is typically stuffed with ads. The ads belong to companies that  bid on and purchase the right to advertise in this all-important area of Amazon site's. 

During a presentation at the Code Commerce conference on Tuesday, Leigh told attendees that Amazon is sometimes "predatory" in its advertising practices, according to the HubSpot Marketing Blog. She said Amazon will sometimes reserve the  valuable real estate on its search-result pages for its own private-label products, Leigh said on stage, adding that sometimes Amazon will even display the ads on a competing product's detail page.

In an interview Wednesday with Business Insider, Leigh said: "It used to be people would log on to Amazon and a good product with a good price could go viral. Now, it's all pay to play. It's hard for a brand, without some financial means, to compete." 

When asked whether this was legal, Leigh said she was not a lawyer or an expert at antitrust. She did, however, say Amazon's practices appear to be effective.  She said that Facebook and Google and other players in the digital ad business "should be afraid."  

And as for the possibility that shoppers could be turned off by the addition of so many ads at Amazon, Leigh said that this is one of the big questions in the ad business. 

"Amazon bases their ads on how relevant they are to customers," Leigh said. "If ads are really relevant to you, do you mind? I think that the answer is you don't mind."

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Argentina's GDP craters in the 2nd quarter as an economic crisis grips the country

Wed, 09/19/2018 - 4:12pm

  • Argentina's gross domestic product fell 4.2% in the second quarter from a year earlier.
  • Argentina was hit by a severe drought that has weighed on exports.
  • The government is pursuing austerity measures to shore up public financing.

Argentina's economy contracted sharply in the second quarter after a severe drought roiled agricultural production and as the country works with the International Monetary Fund to stem a spiraling crisis.  

Gross domestic product fell 4.2% between April and June from a year earlier, the national statistics agency said in a report, marking its first contraction in more than a year. One of the worst droughts in years helped drive a steep decline in exports from the country, a top seller of soy and corn in the world market. 

"The economy will contract further in upcoming months amid tightening monetary and fiscal conditions, though the expected rebound in agricultural output will prevent a deeper contraction," the ratings agency Moody's said in a statement.

President Mauricio Macri asked the International Monetary Fund last month to speed up payments that are part of a historic bailout deal reached in June. The IMF has so far extended $15 billion to the country and was expected to disburse an additional $3 billion in September. 

Also on Wednesday, the Economy Ministry said Argentina's primary fiscal deficit stood at $572.1 million in August, down about 58% from the same month last year. 

Argentina has been pursuing sweeping austerity measures in efforts to shore up public finances. President Mauricio Macri and Finance Minister Nicolas Dujovne rolled out a series of economic reforms earlier this month, including stiff spending cuts and export tax increases. 

The central bank raised its benchmark interest rate to 60% in August after the peso, which has shed about half of its value this year and is the worst-performing currency of 2018, continued to sell off. 

SEE ALSO: China's Premier hits back at Trump's attacks on currency manipulation, vowing to keep the yuan 'basically stable'

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Stocks finish mostly higher after upbeat economic data

Wed, 09/19/2018 - 4:07pm

Stocks were mostly higher Wednesday as markets turned attention away from trade-war fears and toward upbeat economic data. The dollar slipped, and Treasury yields jumped. 

Here's the scoreboard:

Dow Jones industrial average26,406.57 +159.61 (+0.61%)

S&P 500: 2,909.75 +5.44 (+0.19%)

Nasdaq Composite7,950.87 −5.24 (-0.07%)

  1. As threats to exclude Canada loom, NAFTA progress remains elusive. Meeting for the first time in weeks, US Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland were expected to discuss sticking points like dairy-market access and how trade disputes should be settled. President Donald Trump recently said the US could move forward with Mexico only if Canada doesn't make concessions. 
  2. An uptick in US apartment construction last month more than offset weakness in single-family home building. The Commerce Department said housing starts rose 9.2% in August, fueled by growth in multifamily homes. Building permits, which signal future construction, dropped sharply to a 15-month low.
  3. The US current-account deficit narrowed more than expected in the second quarter. The trade gap fell to $101.46 billion between April and June, the Commerce Department said, down 17% from $121.71 billion for the first three months of 2018. The decline came amid a surge in exports, which may have been helped by foreign customers rushing orders as global trade tensions escalate. 
  4. Canadian pot producer Tilray whipped around. CEO Brendan Kennedy had talked up growth prospects in an interview with CNBC, a day after the company said it had received approval from the Drug Enforcement Administration to export medical marijuana to the US. Shares gained as much as 93%, hitting a high of $300 apiece before settling at $214.06.

And a look at the upcoming economic calendar:

  • Canada releases data on consumer prices and retail sales. 
  • The Swiss National Bank announces the London interbank overnight rate.
  • Retail sales numbers are out in the UK. 

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Canadian cannabis producer Tilray had a wild day after its CEO appeared on Cramer's 'Mad Money' (TLRY)

Wed, 09/19/2018 - 3:47pm

  • Tilray CEO Brendan Kennedy appeared on CNBC's "Mad Money" on Tuesday evening.
  • He told Jim Cramer that alcohol and drug companies should be looking at the cannabis space and that Canada was just the tip of the iceberg when it came to full legalization of the drug.
  • Tilray shares touched a high of $300 apiece on Wednesday, up more than 93%, before giving up almost all their gains. Shares settled up 38.12%, at $214.06.
  • Watch Tilray trade in real time here.

The Canadian cannabis producer Tilray soared Wednesday morning after CEO Brendan Kennedy laid out his company's growth prospects on CNBC's "Mad Money."

Shares touched a high of $300 apiece — up more than 93%. But things quickly unraveled late in the session, with the stock falling to $168.33 — up just 8.61% — with less than 30 minutes left in the trading day. Trading was halted for volatility at least five times before shares settled at $214.06, up 38.12%.

Kennedy told show host Jim Cramer on Tuesday evening that Canada was just the tip of the iceberg for full legalization when it came to marijuana.

"I think you'll see the third country within 12 months of October, and that's where the real opportunity is," he said. "It's not about Canada — it's about all the countries that follow."

And Kennedy suggested the entire alcohol industry needed to get involved in the marijuana space. "It's a great hedge for them," Kennedy told Cramer. "Whether you're an alcohol or an investor in an alcohol company, this is a global opportunity."

But that's not all. He also said pharmaceutical companies needed to get in the game, noting that Tilray had already formed a strategic alliance with Novartis.

"Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you're an investor in a pharmaceutical company or you're a pharmaceutical company, you have to hedge the offset from cannabis substitution," he said.

Big share gains like the one seen early Wednesday have been somewhat common for cannabis producers.

For instance, Tilray shares surged 28.95% on Tuesday on word that the company was the first to receive permission to export legal weed to the US; it plans to supply a clinical trial at the University of California at San Diego.

And on Monday, Aurora Cannabis soared more than 15% after a Bloomberg report suggested the cannabis producer was in talks with Coca-Cola to develop beverages infused with the nonpsychoactive compound CBD.

The cannabis frenzy started in the middle of August, when Canopy Growth received a $4 billion investment from Constellation Brands, the beverage company behind Corona beer and Svedka vodka.

At Wednesday's peak, Tilray shares had gained more than 1,000% since the company went public in mid-July.

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Jack Ma said Trump's trade war with China will wreck Alibaba's plans to help create 1 million US jobs (BABA)

Wed, 09/19/2018 - 2:51pm

  • Alibaba chairman Jack Ma said that the US-China trade war will wreck the company's pledge to help create 1 million US jobs.
  • The comment, made in an interview with Chinese media outlet Xinhua, comes two days after Trump announced a fresh set of tariffs on $200 billion worth of Chinese goods.
  • Ma also said that trade should be used as a tool for peace rather than a weapon.

Jack Ma, the recently departed chairman of Chinese retail giant Alibaba, said Wednesday that President Donald Trump's trade war with China will scuttle the company's pledge to bring 1 million jobs to the US.

In an interview with Chinese outlet Xinhua, Ma said recent back-and-forth tariffs between the US and China made the pledge — which was heavily touted by Trump in the early days of the transition period — unworkable.

"The promise was made on the premise of friendly US-China partnership and rational trade relations," Ma said. "That premise no longer exists today, so our promise cannot be fulfilled."

Ma has previously been critical of the protectionist moves from the Trump administration and said Wednesday that trade should not be used as a weapon, but rather as a way to bring peace between countries.

The Alibaba executive's comments come the day after the trade war escalated further. On Monday, Trump announced a 10% tariff on another $200 billion worth of Chinese goods. On Tuesday, Beijing came back with tariffs on another $60 billion worth of US goods.

Given the relative lack of talks between the two sides, the likelihood of the trade war subsiding anytime soon is slim.

Alibaba's original promise was predicated on the idea that by giving US small businesses more access to the Chinese market through Alibaba, the platform could help job growth in America. Many analysts were skeptical, but Trump touted it as a sign that his economic policies would help the US.

Given China's counter-tariffs and the push for Chinese firms to find alternative, non-US sources for goods, the already optimistic pledge would be even more unlikely in the current environment.

Ma, the cofounder of Alibaba, announced in early September that he would step down from his role as chairman at the end of the year to focus on philanthropy.

SEE ALSO: 'All pain, no gain': Trump latest round of tariffs is already getting blasted by lawmakers and business groups

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India's richest man's plan to revolutionize its telecom industry with cheap data seems to be working (RIL)

Wed, 09/19/2018 - 2:48pm

Exactly two years ago, India's richest man, Mukesh Ambani, planned to revolutionize India's telecom sector with cheap data. His plan seems to be working.

After disrupting India's telecom market with cheap mobile data and calling services, Reliance Jio has been steadily gaining market share. The company offers 50 rupees ($0.70) per gigabyte and monthly plans as low as  149 rupees ($2).

Reliance Jio, part of Ambani's Reliance Industries, added 1.79 million subscribers in July, 10 times more than all rivals combined, according to the latest data released by the Telecom Regulatory Authority of India on Wednesday. Competitors Bharti Airtel and Vodafone Idea Cellular added 0.3 million subscribers and 0.6 million subscribers, respectively. 

According to a report by Jefferies, Reliance Jio has more than doubled its market share over the past 16 months. As of July, it controlled 19.6% of India's 1.17 billion telephone subscribers, up from 9.3% in March 2017.

"If the recent trend continues, by the end of March 2019 it would have a subscriber base of 300 million from the current 225 million," Jefferies analyst Somshankar Sinha said. 

And while Jefferies is impressed with its telecom business, it has a price target for Reliance Industries of 880 rupees — a downside of 27.2% from current levels. That's due to Reliance Industries having different businesses across various sectors, including energy, textiles, natural resources, and retail, which will cause capital expenditures to grow.

Reliance Industries shares are up 31.45% this year.

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Trump's latest tariffs are about to hit you where it really hurts

Wed, 09/19/2018 - 2:39pm

  • President Donald Trump's newest round of tariffs on $200 billion worth of Chinese goods adds a new element to the trade war.
  • For the first time, consumer goods are going to be directly hit by the new 10% duty, likely causing an immediate increase in prices for US shoppers.
  • The increase in inflation from the new trade war attack "will be meaningful," economists say.

President Donald Trump's latest round of tariffs added a new dimension to the trade war with China: US consumers are going to get hit directly.

The previous round of tariffs imposed by the president on $50 billion worth of Chinese goods focused almost exclusively on industrial goods and intermediate parts on final goods that are then sold to consumers.

This led to an indirect hit to consumers. As businesses faced higher costs for input goods, the companies were forced to either cut back in other areas — such as laying off workers — or pass along the price increase to consumers.

While the effect on consumers has trickled down previously, the latest round of tariffs on $200 billion worth of Chinese goods constitutes a direct hit.

Many of the 5,745 items on the newest tariff list are consumer goods or things that Americans buy every day: fruit juice, furniture, air conditioners, and more.

The consumer goods affected represents a dramatic increase form the previous round of tariffs, according to a breakdown of a previous version of the list of goods affected. (Many of those items made it to the final list.) Chad Bown, Euijin Jung, and Zhiyao Lu of the Peterson Institute for International Economics say the reason for the shift is simple: The were only so many goods left to hit.

"Consumer goods made up only 1% of the products of the first $50 billion of imports from China subject to his announced tariffs. The rest affected intermediate inputs and capital equipment," the economists wrote. "The explanation for this shift lies in the fact that there are fewer and fewer such supply chain elements left to target. Consumer products are much of the imports from China that were left."

The sellers could choose to eat those new duties and see their margins decline. But based on price changes for goods hit with tariffs in previous rounds, it is likely that at least some of the cost increase will be handed to consumers.

Many members of the Trump administration have argued that the increases will be minor and most Americans won't notice.

""Well, you can do the numbers this way if you have a 10% tariff on another $200 billion, that's $20 billion a year. That's a tiny, tiny, tiny fraction of 1% total inflation in the US, because it's spread over thousands and thousands of products," Commerce Secretary Wilbur Ross said Tuesday. "Nobody's going to actually notice it at the end of the day."

But many economists disagree, since businesses that sell the same goods but don't source the product from China may see an opportunity to grow their profits by matching the price increase. Ultimately, this will lead to price increases for consumers and a boost to inflation, economists say.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, argued in a note to clients on Tuesday that while the real danger lies in the tariffs' increase from 10% to 25% at the start of 2019, the initial hit will be significant, too.

"The inflation hit is harder to quantify, but it will be meaningful," Shepherdson wrote. "Most items of clothing and furniture are exempt from the tariffs but many food items are included. We don't know for sure how quickly importers will raise wholesale prices of the affected items, or how quickly manufacturers of substitutes for Chinese products will lift their prices."

Based on Shepherdson's rough math, the new tariffs could add another 0.5 percentage points to the current consumer price index — which, based on the latest CPI release, would boost the inflation gauge to 3.2% year-over-year. Such an increase would not go unnoticed by policymakers or American families.

"That's enough to matter, both to the Federal Reserve and to the public, who will notice when prices in Walmart start to jump," Shepherdson said.

SEE ALSO: Trump just announced tariffs on another $200 billion worth of Chinese goods. Here are all the products that will get hit.

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The card rewards strategies issuers can use to win top-of-wallet status while maximizing returns

Wed, 09/19/2018 - 2:33pm

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

The average US consumer holds about three nonretail credit cards with a balance over $6,000, according to Experian. As confidence rises, spending is hitting prerecession levels. For banks, that should be a good thing, since credit cards are profitable. But the push to attract a particularly interested and engaged customer base through sign-up bonuses and lucrative rewards offerings has led banks into a rat race, with surging expenses and rising delinquencies that are hurting returns.

To make credit cards as valuable as they could be, and to bring returns back up, issuers need to direct their efforts not just toward becoming one of consumers’ three cards, but also toward becoming their favorite card. Rewards are more important than ever — three of the top four primary card determinants cited by respondents to a Business Insider Intelligence survey were rewards-related — so abandoning them isn’t effective.

Instead, issuers need to be more resourceful with their rewards offerings, focusing on areas that encourage habit formation, promote high-volume spending, and help to offset some of the rewards costs while building engagement and loyalty.

In this report, Business Insider Intelligence sizes the US consumer credit card market, explains why return on assets (ROA) is on the decline, highlights the importance of rewards in attracting customers, and lays out three next-generation rewards strategies that are popular among certain demographics, which issuers can implement to return their card business to profitability. To drive this analysis, we conducted a survey centered on users’ card preferences to over 700 US members of our proprietary panel in May 2018.

Here are some key takeaways from the report: 

  • Competition driven by consumer card appetite in the US is hurting issuer returns. Consumer confidence and regulatory policy that favors credit cards should be a boon to issuers. But the competition has surged expenses to unattainable levels and increased delinquencies, which are causing returns to trend down.
  • Consumers still value rewards above all when it comes to cards. Two-thirds of respondents to our survey cited rewards-related offerings as the leading driver of primary card status, but they can be pricey for issuers.
  • Using resources strategically and offering rewards types that encourage high-volume spending and drive engagement through habit formation, like flexible offerings, rewards for e-commerce, and local bonuses, could be the path to success in the future.

In full, the report:

  • Identifies the factors that are causing high credit appetite to hurt issuer returns.
  • Explains the value of top-of-wallet status, and evaluates the factors that drive it based on proprietary consumer data.
  • Defines three popular next-generation rewards options that issuers can use to drive up spending and engagement without breaking the bank.
  • Issues recommendations about how to offer these rewards and what demographic groups could be most receptive to them.
Get The Consumer Cards Report

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Alibaba is reportedly setting up its own company to make a customized artificial-intelligence chip (BABA)

Wed, 09/19/2018 - 2:31pm

  • Alibaba is setting up its own company to make a customized artificial intelligence chip, Reuters reported.
  • The chip, which is expected to be launched in the second half of 2019, could help Alibaba's fast-growing cloud and Internet of Things (IoT) businesses.
  • Alibaba's Tmall Genie, an AI-powered voice assistant, has been integrated with the company's interactive local services, such as Hema supermarket.
  • Watch Alibaba trade in real time here.

Alibaba is reportedly setting up its own company to make a customized artificial-intelligence chip for its fast-growing cloud and internet businesses.

The Chinese e-commerce giant aims to launch its first self-developed AI inference chip in the second half of 2019. It could be used for autonomous driving, smart cities and logistics, Alibaba announced Wednesday at an event in Hangzhou, China, according to Reuters.

Alibaba is in "a unique position to lead real technology breakthroughs in disruptive areas, such as quantum and chip technology" due to its advantages in algorithms and data, Alibaba Chief Technology Officer Jeff Zhang said, according to CNN

Its competitive cloud business should continue to drive its market share gain, Jefferies says.

"Apsara Deck, the cloud operating system powering AliCloud, shows better performance of single virtual machine with throughput more than 3 times that of closest competitor," Jefferies analyst Karen Chan said in a note sent out to clients on Wednesday.

"Less competitive pricing, lack of localization and incomplete compliance certification remain as the biggest hurdles for international vendors in China."

Chan added that Internet of Things (IoT) businesses, a network of physical devices embedded with electronics to connect and exchange data, remains as a key technology investment area for Alibaba.

Alibaba's Tmall Genie, an AI-powered voice assistant, has sold 5 million units since it was launched in July 2017, and has been integrated with healthcare and home appliance products from electronics manufacturers such as Phillips and Siemens, and also the Alibaba's interactive local services, such as Hema, the company said. Hema, a chain of supermarkets launched in 2015, is famous for its free 30-minute delivery and facial-recognition payment technology. It is described as the "pathfinder" of Alibaba's "new retail" strategy to go back to brick-and-mortar stores. 

Chan has a buy rating and $225 price target for Alibaba, 39% above where shares are currently trading. Alibaba jumped 3.5% Wednesday, but is down 12% this year. Now read:

 

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