The Business World Is Full of Fakers–Watch Out For These 3 Red Flags to Avoid a Scam

“My company did four million in revenue last year,” the man at a networking event boasted as he sipped his cocktail. “Cool,” I replied and turned to roll my eyes. While the man could have been telling the truth, I’ve learned over time how to tell when someone’s success is legitimate or a figment of their own imagination.

During the course of running my business, I’ve been scammed, deceived, and played enough to now know every red flag in the book. Here are three warning signs you can look out for that can save you from the unnecessary headache of a business “player” who’s all talk and no action.

1. They’re talking numbers five minutes after meeting you.

Whether it’s at a party or business event, anytime I’ve encountered someone throwing around grandiose numbers about how much they pay for rent, how much they make, or how much their business is doing in revenue, I’ve often learned afterward that they are are only full of shi– shiny invented numbers.

It can be important to talk figures, but in due time. Anyone who runs out of the gate screaming, “My apartment costs five thousand per month!” or “My business did seven figures last year,” is not someone you should trust or want to do business with.

When someone starts talking numbers five minutes into a conversation, you can be certain that you’re dealing with inflated numbers and likely an inflated ego. In my experience, it’s often the most humble entrepreneurs who are the most successful.

As you’re doing business, learn to trust your gut. If a deal seems to good to be true, it almost always is.

2. They constantly build themselves up and won’t stop bragging.

Anyone who constantly compliments themselves during the conversation and brags about their accomplishments is likely embellishing–or has very low self-esteem. In both cases, this type of person is probably not someone you’re going to want to work with.

With technology at your fingertips, it can be easy to detect a fraud simply by looking them up online. By perusing LinkedIn, doing a quick Google search, and scrolling a bit through their social media profiles, you can often see if someone’s accomplishments match what they are saying.

Name dropping is a big red flag. Sometimes, I’ll meet someone new and within the first 20 minutes of conversation they are already dropping names about the famous people they know and the “huge companies” they’ve worked with. I’ve learned not to take these people seriously as they are usually lying or tend to have an ego the size of Texas. Anyone who is trying to hard to prove they are a success usually is overcompensating for the fact that they aren’t.

3. They go from zero to one hundred too fast.

“We should start a business together or partner on a project,” is something I’ve heard dozen of times, only to quickly learn that this person has zero follow-through. It’s important to take all business talk with a grain of salt until you can be certain that a person will actually act on their words.

Similar to an overzealous lover who confesses his love to you after one date, a business prospect who wants to partner up and take over the world together too fast is probably someone you shouldn’t take seriously.

When you’re evaluating a potential business partner, it’s important to take time to get to know them, how they work, and learn more about their background. Though their “talk” might sound good – it’s important to also learn if they can also walk the walk.

In the business world, you’ll encounter many individuals who resemble a cubic zirconia. Hold out for the diamonds, and you’ll be glad you did.

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​The most popular Linux desktop programs are…

Video: Barcelona: Bye Microsoft, hola Linux

LinuxQuestions, one of the largest internet Linux groups with 550,000 members, has just posted the results from its latest survey of desktop Linux users. With approximately 10,000 voters in the survey, the desktop Linux distribution pick was: Ubuntu.

While Ubuntu has long a been popular Linux distro, it hasn’t been flying as high as it once was. Now it seems to be gathering more fans again. For years, people never warmed up to Ubuntu’s default Unity desktop. Then, in April 2017, Ubuntu returned to GNOME for its default desktop. It appears this move has brought back some old friends and added some new ones.

An experienced Linux user who voted for it said, “I had to pick Ubuntu over my oldest favorite, Fedora. [That’s] Simply based on how quick and easy I can get Ubuntu set up after a clean install, so easy with the way they have it set up these days.”

Right behind Ubuntu was Linux Mint. Mint is a favorite for users who want an easy-to-use Linux desktop — or for users who want to switch over from Windows., followed closely by antiX. With either of these, you can run a high-quality Linux on PCs powered by processors as old as 1999’s Pentium III.

In the always hotly-contested Linux desktop environment survey, the winner was the KDE Plasma Desktop. It was followed by the popular lightweight Xfce, Cinnamon, and GNOME.

If you want to buy a computer with pre-installed Linux, the Linux Questions crew’s favorite vendor by far was System76. Numerous other computer companies offer Linux on their PCs. These include both big names like Dell and dedicated small Linux shops such as ZaReason, Penguin Computing, and Emperor Linux.

Many first choices weren’t too surprising. For example, Linux users have long stayed loyal to the Firefox web browser, and they’re still big fans. Firefox beat out Google Chrome by a five-to-one margin. And, as always, the VLC media player is far more popular than any other Linux media player.

For email clients, Mozilla Thunderbird remains on top. That’s a bit surprising given how Thunderbird’s development has been stuck in neutral for some time now.

When it comes to text editors, I was pleased to see vim — my personal favorite — win out over its perpetual rival, Emacs. In fact, nano and Kate both came ahead of Emacs.

There was, however, one big surprise. For the best video messaging application the winner was… Microsoft Skype. Now, Skype’s been available on Linux for almost a decade, and recently, Canonical made it easier than ever to install Skype on Linux. But, still, Skype on Linux?

Jeremy Garcia, founder of LinuxQuestions, thought the result might have come about because: “Video Messaging Application was a new category this year and participation was extremely low. Additionally, Secure Messaging Application was broken out into a separate category that had higher participation and resulted in a tie between Signal and Telegram.”

Of course, it’s also possible that even passionate Linux people can like a Microsoft product. After all, Microsoft now supports multiple Linux distributions on its Azure cloud.

Related stories

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McDonald's Just Did Something So Stunningly Strange That It'll Make You Wonder What's Coming Next

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

If there’s one thing McDonald’s wants you to think right now, it’s that it isn’t, you know, McDonald’s.

Not the old McDonald’s, that is.

Not the old, slightly worn, very predictable McDonald’s where the ice-cream machines rarely seemed to work.

The burger chain is trying all sorts of peculiar things to change its image.

It’s using, gasp, fresh beef. Or even no beef at all in its McVegan Burger.

But its latest foray into the unknown has a rather charming air about it.

McDonald’s, you see, is venturing into the area of, well, pretentiousness. 

You might think it unlikely or even a touch potty when I tell you that this is an ad campaign promoting the Big Mac x Bacon Limited Edition Collaboration in Canada.

But take a look and see if you find it refreshingly winning.

Here’s the Big Mac holding up a mirror to society, which, some might say, it’s been doing for a long time. 

[embedded content]

And here it is celebrating its sheer greatness.

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And then there’s the sense of exalted meaning that courses through every bite of a pickle-filled Big Mac. 

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What about the sense of existential harmony that pervades your Big Mac-eating experience?

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Perhaps these ads feel faintly silly.

For me, however, they show a certain courage and a willingness to shake previous negativity and rise to something slightly better. Or, at least, different.

There’s actually nothing special about this alleged collaboration at all. Anyone can ask for bacon to be added to their Big Mac.

But the attempts at wit offer a little confidence.

What’s most important for McDonald’s now — if it wants customers to reassess what they feel about a brand that’s being constantly challenged by fresher, younger competitors — is to revamp its products to create a true sense of surprise.

The problem, of course, is that McDonald’s is a huge company. 

Making the winds of change blow across the whole McDonald’s world will take a lot of doing. 

And a serious injection of, um, greatness. 

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Exclusive: China's Ant plans equity fundraising at potential $100 billion valuation – sources

HONG KONG (Reuters) – China’s Ant Financial Services Group is planning to raise up to $5 billion in fresh equity that could value the online payments giant at more than $100 billion, people familiar with the move told Reuters.

A fundraising would bring Ant, in which e-commerce firm Alibaba Group Holding Ltd is taking a one-third stake, a step closer to a hotly anticipated initial public offering by establishing a more current valuation.

Ant’s last fundraising in 2016 valued the owner of Alipay, China’s top online payment platform, at about $60 billion. The new round should start with a valuation of between $80 billion to $100 billion, the people said.

Ant is currently in talks to appoint advisers for the fundraising which is expected to be launched in the next couple of months, they added.

Ant declined to comment on its fundraising plans. All the people spoke to Reuters on the condition they not be identified due to the sensitivity of the issue.

While no timetable for an IPO has been set, nor any location yet chosen, Ant’s plans are being viewed as a pre-IPO fundraising, the people said. A pre-IPO round is an increasingly common move by sought-after Chinese companies to establish valuations and widen their investor base ahead of going public.

It was not immediately clear how the company plans to use the fresh cash.

The exact timing and size of the fundraising still depends on investor feedback but any deal will add to an already hectic pace of domestic and offshore fundraising by Chinese tech firms that are looking to expand both at home and abroad.

Chinese e-commerce firm is raising funds for its logistics unit with a target of attracting at least $2 billion, while live-video streaming start-up Kuaishou is nearing the close of a $1 billion funding round, sources have said.

Ant’s own existing investments include stakes in Paytm, the Indian mobile payment and e-commerce website, and Thai financial technology firm Ascend Money.

Last month, however, Ant suffered a setback when a U.S. government panel rejected its $1.2 billion offer for money transfer company MoneyGram International over security concerns.

At home, in addition to its core online payments business, which Ant says has 520 million yearly users, the company also offers wealth management, credit scoring, micro lending and insurance services.

Last week, Alibaba announced it would take a 33 percent stake in Ant – replacing the current system where Alibaba receives 37.5 percent of Ant’s pre-tax profit – in what was viewed as an important step ahead of any IPO.

Alibaba set up Alipay in 2004, modeling the business on PayPal, to help Chinese buyers shop online, and later controversially spun it off ahead of its own listing in 2014. Jack Ma, Alibaba’s founder, controls Ant, according to Alibaba filings with the U.S Securities and Exchange Commission.

Ant is considered by some analysts as one of the most valuable Alibaba assets due to its unique position in Chinese e-commerce.

Current shareholders in Ant include large state-owned institutions such as China Life Insurance, China Post Group – parent of Postal Savings Bank of China – and a unit of China Development Bank.

Reporting by Sumeet Chatterjee and Julie Zhu; Additional reporting by Kane Wu; Editing by Muralikumar Anantharaman and Edwina Gibbs

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The Big Question in *Waymo v. Uber*: What on Earth Is a Trade Secret, Anyway?

On the stand in San Francisco today, former Uber CEO Travis Kalanick appeared calm, cool, and well-hydrated, sipping from a series of tiny water bottles while serenely fielding questions from the legal team at Waymo, the Alphabet self-driving car effort that is suing Uber for trade secret theft. It was his first public speaking appearance since his resignation from the ridehailing company this summer, so his mere presence felt like big news.

But as the second day of the Waymo-Uber trial drew to a close, a quieter moment, one that dealt with the tricky nature of trade secrets, might become more consequential. If the lawyers do their job right, the jury will decide this case based not on salacious emails or meeting notes (though Waymo has presented plenty of internal Uber communications that are, well, juvenile at best). It will decide based on whether the laser technology Uber used in its self-driving cars qualify as Waymo trade secrets.

The moment: A long-time engineer for Waymo’s self-driving projects named Dimitri Dolgov testified that his company has long had a patent bonus program. If someone successfully files for a patent with the United States Patent and Trademark Office, they get a monetary prize. For a company in the business of breaking new technological ground, this makes sense: Invent a thing, win an award!

During his cross examination, Uber’s counsel Arturo Gonzalez asked Dolgov whether Waymo had a similar program for trade secrets. After all, Waymo is suing Uber for misappropriating eight of its trade secrets, after an engineer named Anthony Levandowski left Waymo to form his own autonomous truck company in January 2016. Uber acquired Levandowski’s startup just eight months later, which is how Waymo says their intellectual property ended up in Uber self-driving car lasers.

“There are eight trade secrets in this case, just eight,” Gonzalez said. “Tell the jury, who are the people who got bonuses for these eight things that are supposedly great ideas?”

There isn’t a program like that, Dolgov responded, because a bunch of people helped develop the trade secrets. Trade secret rewards, Dolgov said, “are not as clearly mapped.” He testified that he had only seen all eight trade secrets outlined after Waymo filed its lawsuit last year.

That sounds weird, but it lines up with how trade secrets work in the real world. “Often, companies won’t know what trade secrets are until they’re stolen,” says John Marsh, a lawyer with the law firm Bailey Cavalieri. You can accidentally infringe on a patent; you can also look them up, to make sure you’re not infringing on them. But two separate companies can develop the same concept, independently, and have it qualify as a trade secret—for each of them.

This is confusing. As one appellate judge wrote in 1978, “The term ‘trade secret’ is one of the most elusive and difficult concepts in the law to define.” Fortunately for both teams of lawyers in this self-driving smackdown, Judge William Alsup, who is overseeing the case, has already neatly outlined how he will ask to jury to think about trade secrets. (In a standard move, he’s released a preliminary jury instructions, to guide the lawyers when forming their cases.)

Alsup says a trade secret is anything—a formula, a design, a procedure, a code—that is securely contained and retained inside a company. Maybe it’s easier to define it by what it is not: “ skills, talents, or abilities developed by employees in their employment.”

For Waymo to win its case, Alsup explains, it must first prove the particular elements of lidar technology in question are secrets the company has gone out of its way to protect. Waymo has to show that Uber “improperly acquired”—stole—the trade secrets, and then used or disclosed them. And it has to prove that Uber enriched itself off the trade secrets. A tricky thing, when self-driving cars have yet to make money at all.

Which is to say, it’s no small feat for Waymo to establish that it had trade secrets in the first place. Despite lots of creepy looking evidence about Uber-related shenanigans—like forensic evidence shown in court today, linking Levandowski to downloads of Waymo files just a month before he left the company—jurors will be asked to keep their eyes on the prize: hard evidence that Uber stole trade secrets.

On the stand today, Uber lawyers tried to use Waymo’s own witnesses to prove the self-driving car company was careless with its information—which would indicate that the information was not, in fact, a trade secret. They asked a Google forensic analyst why Levandowski’s alleged download of those files didn’t set off “alarm bells.” The analyst said that monitoring the server in question wasn’t a specific person’s job. Uber also continued to weave the narrative it began to spin day one of the trial: that Waymo was out to get Levandowski and Uber out of fear of competition.

Waymo’s strategy, to show it was up against some bad guys at Uber, does ultimately help make its trade secrets case. “One of the key underpinnings of trade secret law is business ethics,” says Marsh, the lawyer. “There’s largely some requirement of misconduct or misbehavior by a party.”

To that end, lawyers from Waymo today used internal Uber communications to suggest Uber was panicked about its lack of progress in self-driving car sensors—and OK with cheating to get there. “Rush to laser – team really strained on trying to figure out best sensor set while also keeping up progress on so many fronts,” former Uber self-driving head John Bares wrote in notes dating to September 2015, while Levandowski was still at Waymo. “Laser is the sauce,” Travis Kalanick wrote on a whiteboard during a January 2016 meeting, a few weeks before Levandowski’s departure.

And during a skirmish before the judge with Uber lawyers, the Waymo legal team previewed plans to show the famous “greed is good” speech from Wall Street to the jury—because Levandowski sent Kalanick a YouTube clip of the scene in a text message. (Alsup will decide on whether to allow the clip later, though he did note the scene was “one the best moments in all of Hollywood.”)

Still, a calm Kalanick resisted Waymo’s insinuations he had implicitly encouraged Levandowski to cheat. The former Waymo engineer and his team did have to hit ambitious and specifically lidar-related milestones to get a full $590 million check for the acquisition of their self-driving truck startup. But he said they could also get the money if the overall initiative was successful—if they eventually cracked self-driving cars.

Kalanick will again take the stand tomorrow morning at 7:30 San Francisco time, and you can expect Waymo lawyers to attempt to show, once more, that the former CEO created an atmosphere that egged on extralegal shortcuts and winning at all costs. But while it’s tempting to boil this case down to Gordon Gekko, remember that this trial is really about trade secrets. Yeah, the boring stuff.

Trial of the Self-Driving Century

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Apple brings Alibaba-linked payment system into China stores amid market push

BEIJING/SHANGHAI (Reuters) – Apple Inc will accept Chinese mobile payment app Alipay in its local stores, boosting its ties with giant e-commerce firm Alibaba Group Holding Ltd amid a push by the iPhone maker to revive growth in the world’s No.2 economy.

The tie-up will make Alipay, run by Alibaba affiliate Ant Financial, the first third-party mobile payment system to be accepted at any physical Apple store worldwide, Ant Financial said in a statement on Wednesday. Apple’s own payment system has had a lukewarm reception in China.

The Cupertino-based firm will accept Alipay payment across its 41 brick-and-mortar retail stores in China, said Ant Financial, which was valued at $60 billion in 2016.

Apple, whose China website, iTunes store and App Store have been accepting Alipay for more than a year, did not immediately respond to requests for comment.

The deal comes as Apple is doubling down on the market and looking to strengthen ties with local Chinese partners and government bodies. The firm’s CEO Tim Cook has made regular recent visits to the country.

Apple is also shifting user data to China-based servers later this month to meet local rules and last year removed dozens of local and foreign VPN apps from its Chinese app store.

Alipay is China’s top mobile payment platform, but faces stiff competition from rival internet giant Tencent Holdings Ltd’s payment system that is embedded within its hugely-popular chat app WeChat.

China’s official Xinhua news agency said late on Tuesday that Apple would build its second data center in China in Inner Mongolia Autonomous Region after it set up a data center in the southern province of Guizhou last year.

Reporting by Pei Li in BEIJNG and Adam Jourdan in SHANGHAI; Editing by Himani Sarkar

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Singtel to spend up to $413 million to nudge up stake in India's Bharti Telecom

SINGAPORE (Reuters) – Singapore Telecommunications (Singtel) said it would spend up to $413 million on shares in India’s Bharti Telecom, lifting its stake slightly in the holding company for Bharti Airtel to just under half.

“While there are currently headwinds in India, we take a long-term view of our investment in Airtel which continues to be a strong market leader in a region with rapidly increasing smartphone penetration and mobile data adoption,” Arthur Lang, CEO International at Singtel, said in a statement.

India’s telecommunications sector has been hit hard by a price war since the entry of carrier Reliance Jio, the telecoms arm of Reliance Industries Ltd, more than a year ago.

The purchase worth as much as 26.5 billion rupees could increase Singtel’s stake in Bharti Telecom by up to 1.7 percentage points to 48.9 percent and its holding in Bharti Airtel, the country’s biggest mobile carrier, by up to 0.9 percentage points to 39.5 percent. The deal will be done via a preferential share allotment.

Singtel has assembled a portfolio of stakes in regional mobile firms outside its small home market, and overseas businesses now account for about 75 percent of its core earnings.

Reporting by Aradhana AravindanEditing by Edwina Gibbs

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General Electric: Ignore The Noise And Buy

Summary Investment Thesis

To call the sentiment around General Electric (NYSE:GE) stock negative would be a gross understatement. A brief recap of the past several months explains the sour attitude toward the shares:

  • A reinsurance business that has not written a new policy in more than a decade and that most investors barely knew existed is now required to contribute $15B over the next seven years to bolster reserves for its long-term care liabilities.

  • The insurance debacle by itself forced the company to slash its dividend, which was cut 50%.

  • The former long-time CEO and CFO were pushed out and basically disowned by their successors for their management practices.

  • The company’s second largest segment, GE Power, has seen its profits crater, stoking fears that solar photovoltaic power is going to make the gas turbine market far smaller.

That’s a lot for investors to stomach, particularly those that relied upon a steady dividend. But we contend that the response of GE’s new management and the sell-side analyst community have made matters worse. GE’s new CEO has disavowed himself of his predecessor in a way that we’ve rarely seen at companies of this size. Yes, mistakes were made, but John Flannery is fooling himself if he thinks his added rigor will cure all ills with running a conglomerate that touches so many parts of the global industrial economy. It appears that he was given this new role because of improved results at GE Healthcare, a unit that he led for less than 3 years.

That period of time is simply too short to execute a strategic vision that matters to the bottom line, in our view, and those improved results might have been delivered by dozens of other executives inheriting an end market with tailwinds. Ditto for the new head of GE Power. The Power unit was caught extrapolating strong service trends into 2017, and paid the price, a mistake we’d guess most management teams would make. How often have you seen a management team post strong growth and then plan to scale back before the market turned against them. That’s contrary to the “bigger, better, faster” ethos of business. Business is optimistic by nature unless tempered by an uncooperative market response.

We understand that GE’s new management team is trying to restore investor confidence by proclaiming that the “fix it” team is here and prior management screwed up royally. But these are longtime GE executives, and the investor community has just been burned by longtime GE executives. Investors aren’t going to buy the idea that one group of GE execs is better than another (nor should they). A better approach would have been to admit the missteps, offer incremental process improvements, and remind the world that GE is run by managers, not fortune tellers (in a diplomatic way of course!).

Because new management has so distanced themselves from their predecessors, they have invited speculation from outside observers about “just how bad were the old guys?” In particular, sell-side analysts (and now the SEC) are questioning the propriety of the company’s accounting practices. Our best read as outside observers is that the GE Capital folks were banking on higher long-term interest rates to eventually dampen the potential long-term care liability. But claim trends finally triggered a revaluation of those liabilities and the jig was up. What was the incentive to revalue those insurance liabilities earlier? There was none, that’s why it didn’t happen until last year.

As for the contract asset accounting for commercial service agreements and long-term equipment projects, we note that the new CFO has defended the company’s practices and pointed out that this line item has grown with the number of units supported by such arrangements — i.e., growth in actual business being conducted. In our minds, it does raise questions about the credit quality of certain customers in what GE terms “difficult geographies” (how’s that for a euphemism?), but it does not cause us concern that GE’s accounting is inherently problematic.

In evaluating GE, we are stepping back from all of the finger pointing and hand wringing and focusing on the fundamentals of the business units that make up the company. And in our view, an objective analysis reveals a stock that is worth $21 per share. The biggest risk to GE’s value is potentially poor decisions to buy and sell businesses at the wrong times and for the wrong prices. GE’s strength is everyday management, not portfolio allocation. Our valuation assumes that the company decides to spin-off its interest in Baker Hughes given its size. This is really the only decision that makes any sense other than retaining their interest. Baker Hughes is too large to merge with another major oil services company, and selling the company off piecemeal makes even less sense from a value perspective. We have assumed that the Transportation and Lighting businesses will be sold, but have not factored any other portfolio changes into our analysis.

GE stock is a buy for investors with patience and the ability to ignore sell-side pundits and the media. What follows is a brief outlook for each business and a summary of our valuation exercise.

Business outlook


The future for GE’s jet engine business continues to look bright. Boeing expects annual airplane delivery growth to average 3-3.5% over the coming two decades, driven principally by strong growth in China, India, southeast Asia, and areas of the middle east that serve as a linkage between East and West. Boeing is a biased observer, but recent history bolsters the credibility of their outlook and it likely would take a major economic depression in China and other major regions to knock the long-term outlook off track.

In addition, GE’s market position is dominant when you factor in the company’s CFM International joint venture. Engines sold and serviced by the 50% owned venture with Safran Aircraft Engines combined with GE’s own engines means that GE powers roughly two out of every three flights in the sky each day. Recent deliveries and design wins suggest this share will remain stable.

Source: GE public filings.

However, our modeling suggests that GE Aviation’s operating profit is now about 15% above our mid-economic cycle estimate after 5 straight years of very strong growth. We project mid-economic cycle operating profit of $5.8B, vs. the $6.6B of segment profit delivered in 2017. One watch area in the near-term will be the profit margin trend as CFM ramps its production of the LEAP engine. Unexpected manufacturing issues could put a dent in profits, at least temporarily.


GE’s Power business has come under great scrutiny after results deteriorated dramatically in 2017. On the surface, it’s puzzling that a business dominated by gas-fired turbines should struggle given persistent growth in global electricity demand coupled with a push for cleaner fuel sources. The U.S. Energy Information Administration’s base case for growth of natural-gas generated electricity is about 2% per annum. Only renewable power sources are expected to grow faster. However, worldwide gas turbine orders this year are expected to be roughly half of the level demanded just two years ago. There is a growing narrative that renewables will be able to replace much of the peaking electricity demand currently filled by natural gas-fired plants, particularly as battery storage costs decline.

Source: U.S. Energy Information Administration, International Energy Outlook 2017.

Perhaps some of that fear is justified, but the reality of intermittent electricity generation from wind and solar means that more reliable sources of power must provide the base load of the electrical grid in most places. And the bulk of the deterioration of GE’s Power results in 2017 was not the result of weaker demand for heavy duty gas turbines. The biggest problem was that service revenue fell off a cliff, and that has nothing to do with the long-term economics of power generation sources.

It appears to us that that the collapse of the price of natural gas in late 2014 through 2015 contributed to strong growth of upgrades to older installed heavy duty gas turbines and higher utilization of merchant gas power plants. Higher natural gas-fired plant utilization contributed to greater outages and need for service from GE. As natural gas prices recovered during the latter half of ’16, the payback on upgrading older gas turbines became less compelling, and marginal gas generation assets were utilized less. Unfortunately, GE extrapolated strong service trends into 2017, resulting in a lot of excess inventory of plant upgrade kits and too much manpower.

Below is a chart of the Power segment’s service orders on a trailing four quarter basis. The constantly changing nature of GE’s business segmentation muddies the picture a bit, but we think this is a fair representation of the largest businesses in the segment. Service orders last fell off in 2013, coincident with a recovery of natural gas prices from lows set in early 2012. Our hunch is that the changing fortunes of GE’s Power services business is mostly a function of natural gas price fluctuations, and that a cyclical recovery lies ahead.

Index of Power Services Orders since 4Q12 (trailing four quarters)

Source: GE company public filings and ArcPoint Advisor estimates.

Likewise, equipment orders for gas turbines have been lumpy historically. It is premature to interpret the drop off in new orders over the past two years as a signal that global electricity generation is going completely in the direction of renewables. We would note that additions of coal generation capacity easily outstripped natural gas generation capacity in 2016, but nobody would argue that coal is the future (though its cost advantage will keep capacity additions strong in developing markets for years to come).

Our modeling suggests that GE Power’s mid-economic cycle operating profit is $5.5B, nearly twice the $2.8B of adjusted segment profit posted in 2017.


Second only to Siemens, GE is a global leader in diagnostic imaging equipment. GE Healthcare will continue to benefit from aging populations in the U.S. and Europe and modernization of health systems in emerging markets (both aging and modernization factors apply in the case of China). Countering these trends will be an increasing cost burden born by the consumer in the U.S., as well as the rapid consolidation of U.S. medical providers in an effort to gain efficiencies in the delivery of care. GE Healthcare has enjoyed two strong years of growth across geographies and registered segment profit of $3.4B in 2017. Our modeling suggests mid-economic cycle operating profit is $3.0B, about 13% below last year’s strong results.

Oil and Gas

The most recent cyclical bottom for Baker Hughes (62.5% owned by GE) likely has passed. North American drilling activity has recovered along with commodity prices and international land drilling and offshore drilling activity have stabilized. Upstream service revenues should continue to recover in 2018, though longer cycle businesses like subsea trees (used in offshore oil & gas production) could take years to normalize. Our modeling suggests that GE Oil & Gas’ mid-economic cycle operating profit is $2.0B (excluding the share of earnings attributable to minority shareholders), well above the $900M segment profit recorded in 2017.

Renewable Energy

The outlook for GE Renewable Energy, dominated by the wind turbine business, is mixed. Wind turbine demand likely will be steady to slightly higher over the coming years, as suggested by the International Energy Agency’s forecast (see their Renewables 2017 report). But growth in renewables increasingly favors solar photovoltaic as costs have come down. And unlike the dominant market share GE enjoys in jet engines and heavy duty gas turbines, the wind turbine market is much more fragmented. GE management has cited increasing price competition as an issue in recent quarters. Our modeling suggests GE Renewable Energy’s mid-economic cycle operating profit is $700M, consist with the $727M posted in 2017.


The ever shrinking GE Capital business has become less valuable in the wake of a massive adjustment to future claims expectations for long-term care insurance. Management expects ongoing earnings of ~$500M annually beginning in 2020. However, that would represent a mere 0.37% return on assets and 3.7% return on equity. More typical returns for this type of business would be on the order of 1% on assets and 10% on equity, implying earnings potential of ~$1.35B annually. Our modeling splits the difference between management’s guidance and this more typical profit level, yielding a mid-economic cycle net profit of $925M.

GE Capital Balance Sheet 2019E

Source: Company filings and ArcPoint Advisor estimates.

Putting it all together

We project mid-economic cycle segment operating profit of $17B for the five industrial business units expected to be retained (or spun). On an after-tax basis, we project industrial net earnings of ~$8.5B, or roughly $1 per share. Applying a 21.7x P/E multiple (our estimated current market P/E multiple on mid-cycle earnings for large-cap U.S. stocks) implies a value of $186B, or $21 per share, for the retained industrial businesses.

Value of GE Industrial Businesses ex. Pension Deficit ($M)

Source: ArcPoint Advisor estimates.

We peg the value of GE Capital at $14B, or ~$1.60 per share. This valuation assumes $925M of mid-cycle earnings, capitalized by an estimated 15.2x P/E multiple (our estimated current market P/E multiple on mid-cycle earnings for large-cap U.S. financial companies).

Value of GE Capital ex. Pension Deficit ($M)

Source: Company filings and ArcPoint Advisor estimates.

Our total estimated share value for GE is $21. To arrive at this figure, we first sum our equity values for the retained industrial businesses and GE Capital. We then add an estimate for the net after-tax proceeds of a sale of the Transportation and Lighting businesses of $9B. We assume these two units are sold rather than spun-off and that the taxable basis is effectively zero. Finally, we deduct our estimate of how much capital would be required to fully fund GE’s pension based on figures provided in the most recent 10-K. The pension hole is so large that it effectively cancels out the combined value of GE Capital and expected asset sale proceeds!

Value of GE Shares ($ in M, except per share data)

Source: Company filings and ArcPoint Advisor estimates.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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

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