The Incredible McDonald's With Butlers, a String Quartet and Reservations Required

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

One way of achieving this noble goal is to appear, well, more noble.

If your experience is more pleasurable, the quaint thought process goes, you’ll want to spend more money.

Last week, however, McDonald’s climbed the mountain to veritable poshness.

Naturally, this happened in the home of posh, the (Dis)United Kingdom.

Here was a McDonald’s with white-gloved butlers. It also enjoyed fancy tableware and candelabra. Red velvet abounded.

And of course you needed a reservation.

This attempt at taste was inspired by a snooty British TV personality named Mark Vandelli.

Here he is in this Haute McDonald’s.

Please believe me, he really is snooty.

Why was McDonald’s pushing the boat out so far toward an exotic island of luxury?

Though this was a one-night-only affair, it isn’t even the first time a McDonald’s has required reservations.

This is merely the latest drift toward competing with the likes of Shake Shack, where quality of food and customer experience are rather significant.

But will there ever come a day when you have to make a reservation to get your Big Mac?

That would, indeed, be a very strange day.

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Now's The Time To Scoop Stellar As Its Platform Sees Momentum

Not even Stellar Lumens (XLM-USD) has been spared the suffering cryptocurrencies have experienced in 2018. The fifth largest cryptocurrency has lost over 72% of its value since January.

However, like we have seen in the past, certain developments can breathe life back to a coin, and for this reason, we have every reason to believe XLM could rally soon. Below we will look at reasons why now might be the right time to invest in Stellar Lumens.

Global adoption plans

News of a special team being set up to help the cryptocurrency platform achieve global adoption has spurred XLM to overtake EOS in the 5th position in coin market cap.

The team will be made up of Shift Markets that has partnered with Lightyear.io. Commenting on this partnership, Ian McAfee, Shift’s CEO, said it was an exciting partnership for the platform as many of its clients would love to have Stellar Lumens trading on the exchange.

He praised Stellar for its commitment to providing financial technologies that cost less in developing countries, and this made it perfect for Shift’s market.

He added that the exchange aimed to increase the liquidity of Stellar Lumens and its usage for both major fiat currencies and exotic fiat currencies.

The news also had the Director of Sales and Partnerships at Lightyear.io, Paul Arnautoff, excited, and he said by partnering with Shift Markets, they would help expand the utility and the reach of the Stellar’s blockchain network.

He also added that Stellar’s customers would now be lucky to have access to an increasing number of liquidity providers in new and emerging markets, thanks to Shift’s market technology and customer base.

The Projects

As teams work on expanding Stellar’s international reach and adoption, the innovation surrounding Stellar remains strong. And its standing as a platform will be valued on what is being built on top of Stellar; the projects utilizing the platform and providing value for XLM-USD holders.

So what’s going on with Stellar projects? Well, we should start with the biggest one: KIN. While KIN has said it won’t run exclusively on Stellar, it will run part of its operation on the chain. And in Stellar, KIN, the coin of the now-infamous mega-ICO, sees a potentially better platform than Ethereum. KIN aims to be an in-app coin for the app generations; a mobile payment solution that can facilitate micro-transactions at no cost. And it’s a creation by the team behind Kik, the popular messaging app with millions of daily users. This could help KIN, and its Stellar blockchain usage, be one of the first widely adopted in-app currencies.

From KIN, a coin corresponding to an app with millions of daily average users, we see Stellar’s partner list that includes IBM, a noticeably mainstream company for the ever-crazy crypto markets. IBM has been partnered with Stellar for some time, but it has also illuminated the power of a platform that is now looking at breaking into a lot: African payment processing, real estate, and peer-to-peer lending. The diversity should signal some interest in just how far-ranging this platform can go.

Though far-reaching the likely long-term potential for success of these partners seems, we can revisit the IBM partnership, which gave a boost to Stellar a few weeks ago as IBM announced it was exploring a stablecoin based on, you guessed it, Stellar’s blockchain. What’s the big deal with stablecoins? Well, it can be pegged to a dollar, allowing a blockchain-based asset to use this technology (quicker speed, lower cost) without the volatility that we’re seeing in coins like Bitcoin and Stellar.

And if international monetary systems are of interest to you, then Stellar’s recent certification might interest you.

Stellar Received Sharia Certification

The coin received a huge boost in July after a document was published which indicated that the Stellar network had received the Cryptoverse’s very first Sharia Certification from the Shariyah Review Bureau (SRB).

This was after the agency which is licensed by the Central Bank of Bahrain took a look at the properties and applications of Stellar and ascertained that they were Sharia compliant. SRB then came up with guidelines which would see Sharia-compliant applications of the Stellar platform utilized in Islamic financial institutions.

According to the document, the certification would help Stellar grow its ecosystem in areas where compliance with Islamic financing laws was required.

“What does this certification mean for the Stellar ecosystem? In partnership with SRB, this certification will help grow the Stellar ecosystem in regions where financial services require compliance with Islamic financing principles. For example, Islamic financial institutions in the Gulf Cooperation Council (i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) and parts of Southeast Asia (e.g. Indonesia and Malaysia) will now be able to integrate Stellar technology in their Sharia-compliant product and service offerings. This is a big advancement for the Stellar network given that these regions are endpoints of popular foreign worker remittance corridors.”

At that time, the news saw XLM outperform the other altcoins and gain over 20% in a 24-hour trading period to trade at $0.27.

Since then, the coin’s price has sunk, but the members of the Stellar Development Foundation continue to meet with global financial institutions to show the benefits of Stellar’s platform. And now that it can pitch to institutions with a Sharia-compliant chain, it opens the door to more financial products and services. That 20% rise may not have been a fluke, but a real tell of optimism that Stellar’s blockchain can be a part of a diverse and innovative future.

Price Movement

XLM one-year trading chart

Stellar achieved its highest price back on January 4th when the coin traded at $0.93. Since then, XLM has lost over 72% of its value, and it’s currently trading at $0.21. However, as we have seen with these new developments, all of which point to global adoption, at least we can expect the coin to surpass its highest price very soon.

I understand that the crypto’s recent moves have investors skittish, but this was always a high-risk market – big upswings and big nosedives. For those interested in the possibility of blockchain platforms, these nosedives are times to scoop up coins at discounted prices. And there’s enough good news surrounding Stellar (we didn’t even talk about the much covered Coinbase announcement) that the current price might just be the steal you’re looking for in crypto.

The page above lists the market that XLM-USD is traded on. If you’re interested in trading in XLM, our recommendation is to use Binance or Bittrex using whatever trading pair you’re comfortable with (USDT-USD, ETH-USD, or BTC-USD).

Disclosure: I am/we are long XLM-USD.

Business relationship disclosure: This article was written in collaboration with a researcher. No one involved has any relationship with the Stellar team.

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Still Not Much Momentum At Accuray

Small-cap oncology system manufacturer Accuray (ARAY) reported a decent fiscal fourth quarter, but it’s hard to see much momentum in the business or any real sign that this company is becoming a more disruptive force within the radiation oncology market. Although I continue to give management high marks for improving the underlying efficiency of the business and cleaning up the balance sheet, I just don’t see signs that Accuray is really gaining on Varian (VAR) (or even Elekta (OTCPK:EKTAY)) in any meaningful way, and I don’t see anything on the horizon that would drive a sudden shift in sentiment among customers.

Valuation remains undemanding, and I still believe the acquisition of Accuray by a Chinese or Japanese company is conceivable, but med-tech stocks most often trade on the basis of revenue growth and it looks like Accuray has a long row to hoe to generate enough revenue growth to get investors excited about the shares.

Like Many Quarters, Some Good And Some Bad In Fiscal Q4

Accuray reported stronger than expected revenue in the fourth quarter, with 2% growth driving a 5% beat. Outperformance was driven entirely by the service business (up 15% and about 13% above expectations), with product revenue down 10% and in line with expectations.

Although a higher than expected mix of service revenue did compress gross margin somewhat (and service margin declined 160bp year over year), product margin improved nicely (up over 600bp on an adjusted basis), helped by a richer mix of CyberKnife systems. Adjusted EBITDA declined 25% in the quarter, while operating income rose 10% and the company posted a minor miss at the operating line, but a small beat at the EPS line.

Orders were once again a source of disappointment. Gross orders rose 12%, missing expectations by around 10% despite what management characterized as “strong performance” in CyberKnife and a 26% improvement in orders from Asia. Net order performance was far worse, up 2% and almost 25% short of expectations as the company saw a significant increase in order cancellations – something that had been running at a fairly slow and steady pace.

Characterizing the orders, Accuray management said that 20% were replacement orders, 20% were competitive take-aways in established vaults and 60% were in new vaults. Although the company appears to be winning more business than it loses upon replacements, the pace of replacement orders has still been weaker than expected a couple of years ago.

Looking Back, This Wasn’t An Especially Great Year

I believe this is a reasonable time to look back at the guidance management gave a year ago for this fiscal year and see how things stack up.

On the revenue line, management exceeded initial expectations by a couple of percentage points relative to the midpoint of guidance and managed to exceed the high end of the initial guidance range. This came about from better-than-expected service revenue performance, though, as product revenue growth of 2% came in below the 5% to 10% growth guidance, with weaker sales to China tagged as the primary culprit.

Management met the gross margin target, but missed the adjusted EBITDA guidance range of $25 million to $30 million by a wide margin ($17 million reported), with the company electing during the year to spend more on developing the business (particularly R&D).

Gross order growth of 2% also missed guidance of 5%.

Looking Ahead

Management provided guidance of 4% to 8% product revenue growth for this next fiscal year, and overall revenue growth of about 4% at the midpoint – a level of growth that frankly doesn’t compare all that favorably to Varian or Elekta for a company that is supposed to be a share-gainer. Management is also no longer giving order guidance. While management claims this is due in part to its decision to focus more resources and attention on driving multi-system orders, which will be more volatile, I don’t view less guidance as a net positive, particularly from a company that has struggled to hit its own targets. I’d also note that the EBITDA guidance provided for the year ahead is lower than where expectations were going into the quarter.

Where’s The Spark?

I’m finding it harder to sustain the argument that Accuray has enough upside to be worth further patience, as the company just isn’t making the expected progress. While regulatory issues have held back sales in China and management claims to be “continuing to make progress” on finding a Chinese JV partner, the execution on the opportunity in China just hasn’t been there.

Likewise with the overall execution on Accuray’s opportunities in the market. Accuray has been unable to convince clinicians that CyberKnife or the Tomo platform offer meaningful treatment/outcome advantages over rival systems (particularly Varian). What’s more, while Accuray’s partnership with RaySearch (OTCPK:RSLBF) has helped it improve an area that was significantly deficient compared to Varian and Elekta (treatment planning software), the company has struggled to make a compelling “here’s why you should go with us” case that resonates with hospital purchasing managers.

And now there’s the added news that the company’s CFO of roughly three years is leaving to join a private med-tech. There was no couching this decision in terms of wanting to relocate to a particular geographic area or wanting to get back to a particular industry segment (the med-tech in question is a urology company), and I think investors should ask why the CFO would want to leave if great things were just around the corner.

To be sure, I’m not saying that Accuray is hopeless or that it cannot/will not continue to show improving margins and some level of ongoing product growth. Radixact has seen decent commercial interest and I still believe the Onrad system has potential in markets like China and Japan. Along those lines, I could also see Accuray having some possible acquisition appeal to a Chinese or Japanese acquirer, and I think Accuray’s small size and insignificant market share would help the deal approval process.

The Opportunity

After incorporating fourth quarter performance and guidance, I’m still looking for long-term revenue growth in the neighborhood of 3%. Although Elekta continues to struggle in the market, Varian seems to be benefitting the most from that. I do expect Accuray to be cash flow positive and generate better FCF margins in the coming years as the company slowly builds operating leverage on a growing revenue base. The biggest upside to those numbers, aside from some sort of unexpected shift among key opinion leaders that CyberKnife is must-have/must-use technology, would be more clarity in China and stronger sales execution in what should be a sizable long-term market opportunity for the company.

The Bottom Line

Accuray is not at all expensive, and I believe fair value remains between $4.50 and $5.50. Although announcing multiple multi-system wins could get some excitement back in the shares, as could the announcement of a meaningful partnership in China, the valuation argument is hampered by the reality that med-tech, and particularly small-cap med-tech, stock performance is typically driven by revenue growth and Accuray just isn’t likely to produce a lot of that. Consequently, investors need to at least appreciate the risk of this becoming/remaining a value trap and understand that it’s going to take time for the story to work.

Disclosure: I am/we are long ARAY.

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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Tesla shares sink after analysts warn on Model 3 margins, Musk interview

(Reuters) – Tesla Inc’s (TSLA.O) shares slumped 8 percent on Friday after Chief Executive Elon Musk told the New York Times his tweet about taking the company private was not reviewed by anybody, and a brokerage raised doubts about the profitability of the electric carmaker’s Model 3 sedan.

FILE PHOTO: The Tesla logo is seen at the entrance to Tesla Motors’ new showroom in Manhattan’s Meatpacking District in New York City, U.S., December 14, 2017. REUTERS/Brendan McDermid/File Photo

Musk shocked markets last week with a tweet that he was considering taking Tesla private for $420 and that he had secured funding.

The paper also reported that efforts were underway to find a No. 2 executive to help take some of the pressure off Musk, after his tweet drew attention from U.S. regulators and angered the company’s board.

Federal regulators are pressuring Tesla’s directors for details on how much information Musk had shared with them before the tweet went public, according to the Wall Street Journal.

The company’s stock was also under pressure after UBS analysts said in a research note that the carmaker’s premium Model 3 sedan will not produce better profit margins than a conventional BMW (BMWG.DE).

UBS analyst Colin Langan said Tesla could actually lose $6,000 on every base model due to higher costs for the powertrain, in the note titled “Is Tesla Revolutionary or Evolutionary?”

The note, dated Aug. 15, said the powertrain – a component crucial to Model 3’s architecture – cost $950 higher than a previous forecast, but was still better compared with General Motors Co’s (GM.N) Chevy Bolt.

“While Tesla’s powertrain was better than peers in terms of cost per kWh and performance, their lead was not as large as we would have expected,” Langan said.

Tesla is banking on its Model 3 to ensure future profitability. The base model is priced at $35,000, but car buyers can upgrade to a $49,000 version, which has a longer range battery and high-end trim.

Langan added that the cell cost at $148/kWh is well above Tesla’s guidance of below $100/kWh ending 2018.

He said the powertrain modules are designed and built in-house by Tesla, which is enabling the company to move earlier with new technologies.

The Model 3 UBS Evidence Lab disassembled was a $49,000 version, which included the 75 kWh battery and the high end trim.

According to the note, Tesla’s gross margin comes in at 18 percent for a high-end Model 3, while the BMW 330i records 21 percent. The powertrain for Tesla’s Model 3 costs $17,827, more than double BMW spends on the component.

“With these economics, we expect the $35k base Model 3 to lose about $6k/car,” Langan said.

On Thursday, Evercore analysts said Tesla was on its way to make 8,000 Model 3 cars per week even as it burns more cash, basing their estimate on a visit to the company’s California factory.

Reporting by Nivedita Balu in Bengaluru; Editing by Bernard Orr and Saumyadeb Chakrabarty

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