TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<p>The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Match 1Q21 Earnings: Looking for an Opening

<p>Amazon’s businesses are booming. Retail is on a $400B runrate growing 45%. AWS $54B, growing 32%, Advertising $25B, growing 73%. We think the company is worth $3T or $6000 a share.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Amazon’s businesses are booming. Retail is on a $400B runrate growing 45%. AWS $54B, growing 32%, Advertising $25B, growing 73%. We think the company is worth $3T or $6000 a share.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Amazon 1Q21: The Fastest Growing Business in the World

<p>Spotify printed a 1Q21 miss on MAUs and mediocre guidance update for 2021. We’ve said this before and we’ll say it again…Spotify strikes us as one of the worst business models of a large cap TMT company we’ve ever seen. The future bliss of podcasting driven profitability is clearly just that…future bliss. Management has NEVER explained how podcasting will translate into a more profitable business other than through hazy comments about “holistic nature of churn reduction and new users”…it reminds us of Reed Hastings when he promised that one day Netflix would be FCF positive years ago…but at least Netflix had an operating model with inherent operating leverage and pricing power, neither of which is present with Spotify. We can justify downside to $125, but realistically think $200 is a reasonable price target. Stay Short.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Spotify printed a 1Q21 miss on MAUs and mediocre guidance update for 2021. We’ve said this before and we’ll say it again…Spotify strikes us as one of the worst business models of a large cap TMT company we’ve ever seen. The future bliss of podcasting driven profitability is clearly just that…future bliss. Management has NEVER explained how podcasting will translate into a more profitable business other than through hazy comments about “holistic nature of churn reduction and new users”…it reminds us of Reed Hastings when he promised that one day Netflix would be FCF positive years ago…but at least Netflix had an operating model with inherent operating leverage and pricing power, neither of which is present with Spotify. We can justify downside to $125, but realistically think $200 is a reasonable price target. Stay Short.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Spotify 1Q21 Earnings: What Is an Audio Platform Worth? 2-3x Sales?

<p><strong>Summary: </strong>Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case.</p><p> <strong>Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20</strong></p><p></p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Summary: Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case. Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Telco/Internet specialist

Kirk Boodry

Redex Research

<p>Z Holdings shares have sold off on disappointment over mid-term profitability targets that remain unchanged despite the addition of Line and possible synergies (and equity dilution). But management believes investments will pay off with stronger top-line growth. Some of its aspirational targets (like eCommerce leadership) seem to be a stretch but we do think that the merger gives it the resources to compete with heavyweights like Google (online ads), Facebook (social media), Amazon (eCommerce) and Rakuten (fintech). We are initiating coverage at Buy with a <a target="_blank">¥680 </a>FY21 (Mar-22) target price.</p>

Z Holdings shares have sold off on disappointment over mid-term profitability targets that remain unchanged despite the addition of Line and possible synergies (and equity dilution). But management believes investments will pay off with stronger top-line growth. Some of its aspirational targets (like eCommerce leadership) seem to be a stretch but we do think that the merger gives it the resources to compete with heavyweights like Google (online ads), Facebook (social media), Amazon (eCommerce) and Rakuten (fintech). We are initiating coverage at Buy with a ¥680 FY21 (Mar-22) target price.

Z Holdings - Great Expectations On (The) LINE (Initiation of Coverage)

United States

Alphabet, Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

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Alphabet (GOOG US)

Match 1Q21 Earnings: Looking for an Opening

Match's EV/EBITDA is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive...

Aaron Gabin

Amazon 1Q21: The Fastest Growing Business in the World

Amazon’s businesses are booming. Retail is on a $400B runrate growing 45%. AWS $54B, growing 32%, Advertising $25B, growing 73%. We think the...

Aaron Gabin

Spotify 1Q21 Earnings: What Is an Audio Platform Worth? 2-3x Sales?

Spotify printed a 1Q21 miss on MAUs and mediocre guidance update for 2021. Spotify is one of the worst business models of a large cap TMT company...

Aaron Gabin

Coursera: Back to School

Coursera, an online education platform will see its business model decelerate faster than expected. Downside risks around regulation and...

Aaron Gabin

Z Holdings - Great Expectations On (The) LINE (Initiation of Coverage)

Z Holdings has sold off on disappointment over profitability targets that remain unchanged despite the addition of Line but near-term investments...

Kirk Boodry

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