Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

Equity Bottom-Up

<p>In August valuation of the world’s largest retail gaming company reached ~$14 billion and the stock price skyrocketed ~1000% year-to-date. Short interest (SI) in <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop (GME US)</a> declined to ~11% versus a peak of 141% at the beginning of 2021. Transformation plan started to bring benefit to the company as net losses narrowed and <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop (GME US)</a> could raise ~$1.7 billion of gross proceeds from At-The-Market (ATM) equity offering programs: (1) <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop (GME US)</a>  sold 3.5M shares of common stock in April (average price of $157 per share); (2) <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop (GME US)</a>  completed ATM equity offering program in June and sold 5M shares of common stock at an average price of $225 per share.</p>

In August valuation of the world’s largest retail gaming company reached ~$14 billion and the stock price skyrocketed ~1000% year-to-date. Short interest (SI) in GameStop (GME US) declined to ~11% versus a peak of 141% at the beginning of 2021. Transformation plan started to bring benefit to the company as net losses narrowed and GameStop (GME US) could raise ~$1.7 billion of gross proceeds from At-The-Market (ATM) equity offering programs: (1) GameStop (GME US)  sold 3.5M shares of common stock in April (average price of $157 per share); (2) GameStop (GME US)  completed ATM equity offering program in June and sold 5M shares of common stock at an average price of $225 per share.

Mind-Boggling Valuation and High Probability of New ATM Equity Offering

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight">
<p>The "K-Stop movement" made its first real move on <a href="https://www.smartkarma.com/entities/hlb-inc" target="_blank" data-smartkarma-citation="entities:16969:1" rel="noopener">HLB Inc (028300 KS) </a>today on July 15th. The K-Stop movement refers to "Korean Game Stop movement," where many Korean retail investors have gathered together to actively protest and trade against the institutional investors that have put short positions on various Korean stocks.</p>
<p>Similar to many retail investors in US that have traded heavily shorted stocks such as <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop (GME US) </a>and AMC, many Korean retail investors also want to capitalize on such potential buying of heavily shorted stocks in Korea. </p>
</div>


The "K-Stop movement" made its first real move on HLB Inc (028300 KS) today on July 15th. The K-Stop movement refers to "Korean Game Stop movement," where many Korean retail investors have gathered together to actively protest and trade against the institutional investors that have put short positions on various Korean stocks.
Similar to many retail investors in US that have traded heavily shorted stocks such as GameStop (GME US) and AMC, many Korean retail investors also want to capitalize on such potential buying of heavily shorted stocks in Korea. 


The Rise of the K-Stop Movement: Makes Its First Real Move on HLB

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

Equity Capital Markets

Robinhood Markets  / Equity Capital Markets

<p>Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.</p><p><strong>The payment for order flow generates the majority of its revenue</strong> as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still <strong>depends heavily on the users’ trading frequency and volume</strong> even though it doesn’t take any commission out of the trades.</p><p>The company’s <strong>rumored IPO valuation of $40 billion represents a significant premium to its peers</strong>. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.</p><p>In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also <strong>significant regulatory concerns</strong>. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.</p>

Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.The payment for order flow generates the majority of its revenue as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still depends heavily on the users’ trading frequency and volume even though it doesn’t take any commission out of the trades.The company’s rumored IPO valuation of $40 billion represents a significant premium to its peers. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also significant regulatory concerns. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

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.

<div><p>Roblox got sued...thats great news...to us. Says the platform's power is growing. Gamestop intriguing and IAC being IAC. </p></div><div><div><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></div></div>

Roblox got sued...thats great news...to us. Says the platform's power is growing. Gamestop intriguing and IAC being IAC. 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.  

TMT Weekly:  3 Things that Stood Out The Week of 6/11/​​​​​​2021

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Pershing Square Tontine Holdings / Event-Driven

<p><em>An "Everlasting Gobstopper" was a fictional candy from Roald Dahl's children's story Charlie and the Chocolate Factory. It was, according to Willie Wonka - owner of the factory and inventor of its confections - "for children with very little pocket money." The hard candy would change flavours and colours in one's mouth, but it would never shrink to nothingness. It would never disappear. </em></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/405/original/Everlasting+Gobstopper+Gif1.gif?1622964485" class="editor-image img-responsive" data-smartkarma-image-id="211405"></figure></section><hr><p>Today 4 June 2021, at 2:30am E.S.T., <a href="https://www.smartkarma.com/entities/pershing-square-tontine-a" target="_blank" data-smartkarma-citation="entities:33390:1" rel="noopener">Pershing Square Tontine -A (PSTH US)</a> issued a <a href="https://pstontine.com/wp-content/uploads/2021/06/PSTH-Press-Release-6.4.2021.pdf" target="_blank" rel="noopener">Press Release</a> describing a complex series of transactions related to the pre-existing Pershing Square (Pershing Square Capital Management or "PSCM") SPAC vehicle (PSTH), <a href="https://www.smartkarma.com/entities/vivendi-sa" target="_blank" data-smartkarma-citation="entities:21076:1" rel="noopener">Vivendi SA (VIV FP)</a> and its unit Universal Music Group ("UMG") which is scheduled to IPO, and a group of follow-on assets.</p><p>Pershing Square listed what was at the time the largest SPAC ever in July 2020 at US$20/share with a drop-dead dead (when PSTH needed to get a deal done) in late July 2022. The SPAC includes a 1/9th warrant with every share, and holders who hold all the way through the prospective business combination without redeeming were going to get a 2/9th warrant (which was called a Tontine Tarrant). In order to live up to their name, Tontine Warrant holders would also receive a pro-rata portion of the forsaken Tontine Warrants left over when some redeemed their SPAC shares. The SPAC also entered into a "Forward Purchase Agreement" with Pershing Square L.P. and Pershing Square International, and <a href="https://www.smartkarma.com/entities/pershing-square-holdings-ltd" target="_blank" data-smartkarma-citation="entities:967:1" rel="noopener">Pershing Square Holdings (PSH NA)</a> whereby the three parties would purchase US$1bn worth of SPAC shares (with one-third Sponsor Warrants attached) at a date no later than the business combination, and they had the option to purchase up to $2bn more of shares (plus 1/3 Sponsor Warrants). The strike price on the Common Shares for the Redeemable Warrants and Tontine Warrants is US$23.00/share. Sponsor Warrants are US$24.00/share (but longer maturity). The total available capital to contribute to such a combination would therefore be up to US$6.45bn. There was a clause allowing Pershing Square to put in more than $3bn if so mutually agreed. Given that PSTH is/was run by PSCM, "agreement" meant "if Bill Ackman wants to."</p><p>There has been a lot of speculation on targets based on the initial idea of it being a "mature unicorn", with most observers concentrating on the word "unicorn" and not "mature" for the Tontine SPAC but Pershing Square head Bill Ackman has given hints in interviews (including <a href="https://youtu.be/sRH8F42yo04" target="_blank" rel="noopener">one video interview</a> with WSJ last month) and observer comments had been, as far as I could tell, way off base with people looking at companies to which Bill Ackman would likely be loathe to attach his name. </p><p>The <em>promise</em> of Tontine Holdings was that it would be a large pot of capital which would "solve the seller's problem." It would also be "iconic" and the S-1 described the acquisition criteria (which effectively meant a bunch of the possible candidates bandied about were never really candidates):</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/174/original/Screenshot+2021-06-04+at+5.24.47+PM.png?1622798725" class="editor-image img-responsive" data-smartkarma-image-id="211174"></figure></section><p>Point #1 probably ruled out an internet growth company. Point #6 suggested it needed to be $15-20bn in market cap. Point #1 and Point#3-4 together suggested a mature cash-flow generative business which could grow. If Thomson Reuters had been for sale, one could have imagined that. There was speculation, quickly denied, that Bloomberg could be the target, but those businesses seem a bit disrupt-able. When I thought of "set-it-and-forget-it" businesses which needed to IPO, I thought of UMG, the Sony-EMI Music Publishing business, or a carveout food products business, because Bill Ackman loves his packaged food products. But I couldn't personally come up with one where I thought that Bill Ackman's structure could "solve a problem" which needed to be solved by Bill Ackman and not public markets. </p><p>This is a complicated transaction. It seems <em>unnecessarily</em> complicated as so far described. While Bill Ackman is a consummate salesman - everything he has ever invested in as been good for the world if you listen to him - so one has to take what he says with a grain of salt. My first look at the structure suggests that some of the "complexity" involved as discussed in the WSJ interview is due to Bill Ackman solving for Bill Ackman's problems, not Bill Ackman solving for the Seller's Problems. </p><p>Below the fold I break down the complexity, and the payoff structure for holders of PSTH and how that could work going forward. </p>

An "Everlasting Gobstopper" was a fictional candy from Roald Dahl's children's story Charlie and the Chocolate Factory. It was, according to Willie Wonka - owner of the factory and inventor of its confections - "for children with very little pocket money." The hard candy would change flavours and colours in one's mouth, but it would never shrink to nothingness. It would never disappear. Today 4 June 2021, at 2:30am E.S.T., Pershing Square Tontine -A (PSTH US) issued a Press Release describing a complex series of transactions related to the pre-existing Pershing Square (Pershing Square Capital Management or "PSCM") SPAC vehicle (PSTH), Vivendi SA (VIV FP) and its unit Universal Music Group ("UMG") which is scheduled to IPO, and a group of follow-on assets.Pershing Square listed what was at the time the largest SPAC ever in July 2020 at US$20/share with a drop-dead dead (when PSTH needed to get a deal done) in late July 2022. The SPAC includes a 1/9th warrant with every share, and holders who hold all the way through the prospective business combination without redeeming were going to get a 2/9th warrant (which was called a Tontine Tarrant). In order to live up to their name, Tontine Warrant holders would also receive a pro-rata portion of the forsaken Tontine Warrants left over when some redeemed their SPAC shares. The SPAC also entered into a "Forward Purchase Agreement" with Pershing Square L.P. and Pershing Square International, and Pershing Square Holdings (PSH NA) whereby the three parties would purchase US$1bn worth of SPAC shares (with one-third Sponsor Warrants attached) at a date no later than the business combination, and they had the option to purchase up to $2bn more of shares (plus 1/3 Sponsor Warrants). The strike price on the Common Shares for the Redeemable Warrants and Tontine Warrants is US$23.00/share. Sponsor Warrants are US$24.00/share (but longer maturity). The total available capital to contribute to such a combination would therefore be up to US$6.45bn. There was a clause allowing Pershing Square to put in more than $3bn if so mutually agreed. Given that PSTH is/was run by PSCM, "agreement" meant "if Bill Ackman wants to."There has been a lot of speculation on targets based on the initial idea of it being a "mature unicorn", with most observers concentrating on the word "unicorn" and not "mature" for the Tontine SPAC but Pershing Square head Bill Ackman has given hints in interviews (including one video interview with WSJ last month) and observer comments had been, as far as I could tell, way off base with people looking at companies to which Bill Ackman would likely be loathe to attach his name. The promise of Tontine Holdings was that it would be a large pot of capital which would "solve the seller's problem." It would also be "iconic" and the S-1 described the acquisition criteria (which effectively meant a bunch of the possible candidates bandied about were never really candidates):Point #1 probably ruled out an internet growth company. Point #6 suggested it needed to be $15-20bn in market cap. Point #1 and Point#3-4 together suggested a mature cash-flow generative business which could grow. If Thomson Reuters had been for sale, one could have imagined that. There was speculation, quickly denied, that Bloomberg could be the target, but those businesses seem a bit disrupt-able. When I thought of "set-it-and-forget-it" businesses which needed to IPO, I thought of UMG, the Sony-EMI Music Publishing business, or a carveout food products business, because Bill Ackman loves his packaged food products. But I couldn't personally come up with one where I thought that Bill Ackman's structure could "solve a problem" which needed to be solved by Bill Ackman and not public markets. This is a complicated transaction. It seems unnecessarily complicated as so far described. While Bill Ackman is a consummate salesman - everything he has ever invested in as been good for the world if you listen to him - so one has to take what he says with a grain of salt. My first look at the structure suggests that some of the "complexity" involved as discussed in the WSJ interview is due to Bill Ackman solving for Bill Ackman's problems, not Bill Ackman solving for the Seller's Problems. Below the fold I break down the complexity, and the payoff structure for holders of PSTH and how that could work going forward. 

Pershing Square (PSTH) Turns a Tontine to an Everlasting Gobstopper

United States

GameStop Corporation operates specialty electronic game and PC entertainment software stores throughout the United States, Australia, Canada and Europe. The Company stores sell new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise.

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GameStop (GME US)

Mind-Boggling Valuation and High Probability of New ATM Equity Offering

Our bear thesis assumes long path to profitability, single digit revenue growth rates from 2022 through 2025 and ongoing operating losses

Andrei Zakharov

The Rise of the K-Stop Movement: Makes Its First Real Move on HLB

The "K-Stop movement" made its first real move on HLB Inc (028300 KS) today on July 15th. Many Korean retail investors have gathered together to...

Douglas Kim

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Although Robinhood had an impressive growth in recent years, the downside risk, in relation to its over-reliance on PFOF and the regulatory...

Alec Tseung

TMT Weekly: 3 Things that Stood Out The Week of 6/11/2021

Three items that stood out last week to us in TMT...the most interesting was a lawsuit by music publishers against Roblox, signaling the importance...

Aaron Gabin

Pershing Square (PSTH) Turns a Tontine to an Everlasting Gobstopper

Pershing Square Tontine Holdings is in talks to own 10% of Universal Music Group. The Transaction is complex, with future optionality for PSTH...

Travis Lundy

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Mind-Boggling Valuation and High Probability of New ATM Equity Offering

Our bear thesis assumes long path to profitability, single digit revenue growth rates from 2022 through 2025 and ongoing operating losses

Andrei Zakharov

The Rise of the K-Stop Movement: Makes Its First Real Move on HLB

The "K-Stop movement" made its first real move on HLB Inc (028300 KS) today on July 15th. Many Korean retail investors have gathered together to...

Douglas Kim

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Although Robinhood had an impressive growth in recent years, the downside risk, in relation to its over-reliance on PFOF and the regulatory...

Alec Tseung

TMT Weekly: 3 Things that Stood Out The Week of 6/11/​​​​​​2021

Three items that stood out last week to us in TMT...the most interesting was a lawsuit by music publishers against Roblox, signaling the importance...

Aaron Gabin

Pershing Square (PSTH) Turns a Tontine to an Everlasting Gobstopper

Pershing Square Tontine Holdings is in talks to own 10% of Universal Music Group. The Transaction is complex, with future optionality for PSTH...

Travis Lundy

TMT Weekly: 3 Things that Stood Out The Week of 6/11/2021