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>In 4Q20, Amazon turned in another sensational quarter, but essentially hasn’t moved since September as it has been “growing” into its valuation after a meteoric move in 1H20. In the past year, Amazon has spent an incremental $11.5B on COVID related costs (~10% of 2020 opex), increased the square footage of its logistics network’s square footage by 50%  and also added ~650,000 (!!!) employees, doubling its employee base in what also turns out to be the largest mobilization of workers in the US since World War II. And yet…since September 2, the stock is down 4% from its alltime high. We think Amazon is worth closer to $6,000 then $3,000 and think that it has potentially the same type of setup as last year when we began writing (on Smartkarma) about Amazon. In years after the company has huge capacity expansions, it tends to outperform as the operating leverage of capacity utilization shines through.</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>

In 4Q20, Amazon turned in another sensational quarter, but essentially hasn’t moved since September as it has been “growing” into its valuation after a meteoric move in 1H20. In the past year, Amazon has spent an incremental $11.5B on COVID related costs (~10% of 2020 opex), increased the square footage of its logistics network’s square footage by 50%  and also added ~650,000 (!!!) employees, doubling its employee base in what also turns out to be the largest mobilization of workers in the US since World War II. And yet…since September 2, the stock is down 4% from its alltime high. We think Amazon is worth closer to $6,000 then $3,000 and think that it has potentially the same type of setup as last year when we began writing (on Smartkarma) about Amazon. In years after the company has huge capacity expansions, it tends to outperform as the operating leverage of capacity utilization shines through.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.

Meta Platforms (Facebook) / Equity Bottom-Up

<p>Alot of handwringing on the Facebook conference call about tough 2H20 comps and the big "Apple IDFA Overhang"...we think the lady doth protest too much. Facebook will be just fine, and at 14x forward EBITDA for ~20% EBITDA growth, its one of the most compelling values in TMT.</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>

Alot of handwringing on the Facebook conference call about tough 2H20 comps and the big "Apple IDFA Overhang"...we think the lady doth protest too much. Facebook will be just fine, and at 14x forward EBITDA for ~20% EBITDA growth, its one of the most compelling values in TMT.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.

Facebook 4Q20: Trying to Take a Bite Out of the Apple

Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

<p>JFrog, the liquid software company, will report financial results for the fourth quarter and fiscal year 2020 on February 11, 2021 following market close. JFrog successfully completed IPO in September 2020 and sold ~9.7 million shares at IPO price of $44 per share. Net proceeds reached ~$393 million and JFrog shares rose ~36% since IPO. We saw a temporary selling pressure on JFrog stock price due to early lock-up expiration in respect to 25% of shares under lock-up agreements. However, insiders and shareholders did not rush to sell JFrog shares in November and December previous year.</p><p>In our insight we will focus on JFrog 4Q:20 earnings preview and set a new 12-month price target on JFrog stock.</p>

JFrog, the liquid software company, will report financial results for the fourth quarter and fiscal year 2020 on February 11, 2021 following market close. JFrog successfully completed IPO in September 2020 and sold ~9.7 million shares at IPO price of $44 per share. Net proceeds reached ~$393 million and JFrog shares rose ~36% since IPO. We saw a temporary selling pressure on JFrog stock price due to early lock-up expiration in respect to 25% of shares under lock-up agreements. However, insiders and shareholders did not rush to sell JFrog shares in November and December previous year.In our insight we will focus on JFrog 4Q:20 earnings preview and set a new 12-month price target on JFrog stock.

Bear-Case Is Highly Unlikely. Risk/Reward Skewed To The Upside

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<p><strong>In this insight, we discuss the two contrasting views of what could happen next week in the United States on January 20th (Inauguration day of the next President of the United States). </strong></p><div class="content-highlight">
<h2>Conclusion</h2>
<p>Overall, we would not claim to know if Trump will enact the Insurrection Act in order to recount the votes next week. It is premature for us to know what will exactly happen. However, we do want to highlight that it is unprecedented to have nearly 25,000 troops to secure Washington DC for the Inauguration day. While the dominant view in the media is that Biden will be inaugurated as the next US President, there is a (very) minority view that Trump could enact the Insurrection Act to have the military intervene and recount the votes in key swing states. </p>
</div>

In this insight, we discuss the two contrasting views of what could happen next week in the United States on January 20th (Inauguration day of the next President of the United States). 
Conclusion
Overall, we would not claim to know if Trump will enact the Insurrection Act in order to recount the votes next week. It is premature for us to know what will exactly happen. However, we do want to highlight that it is unprecedented to have nearly 25,000 troops to secure Washington DC for the Inauguration day. While the dominant view in the media is that Biden will be inaugurated as the next US President, there is a (very) minority view that Trump could enact the Insurrection Act to have the military intervene and recount the votes in key swing states. 


Two Contrasting Views of What Could Happen Next Week in the United States on January 20th

Alpha-Centric ESG Research

Kyle Rudden

<p>Oh, the inhumanity of <em>Monopolium Inquisitorum</em>, leviathans made to stand before the judgement of inquisitorial courts. Repent and reform, or burn in everlasting… fine, maybe just shed a few worldly possessions, WhatsApp would be a good start, and stop coveting thy neighbors' data so much.</p><p>Big technology companies (aka "Big Tech") are the subject of ever-expanding antitrust inquisitions by regulators and courts around the world. In the U.S., informal inquiries into prominent members of FAANG by the U.S. Congress turned into formal antitrust suits, first Alphabet then Facebook.</p><p>Yesterday, the U.S. Federal Trade Commission (FTC) announced yet another inquiry, this one into the data collection practices of social media companies. It mentioned nine companies by name, a few of which are "new" to this conversation (ByteDance, Tencent-investee Discord, and Snap).</p><p>This Insight looks at one particular ESG angle to this antitrust stuff. Specifically, the potential for antitrust investigations – not the outcomes, but the process – to trigger ESG ratings downgrades and, in turn, constituency changes to major ESG indices. Summary points, for the cover page:</p><ul>
<li>Antitrust investigations will inevitably result in additional ESG ratings downgrades, and since most ESG indices are constructed using those ratings, constituency changes are likely.</li>
<li>Index changes might not happen until annual reviews a few months from now, but they are not tied to eventual antitrust outcomes (e.g., breakups) that could be years away, or not at all.</li>
<li>Presently, Facebook and Alphabet are the only U.S. stocks that stand out vis-à-vis the potential for antitrust-driven changes to ESG ratings and/or ESG indices (more so for Facebook).</li>
<li>Let's be honest, we are not talking about Tesla being added to the S&amp;P 500. Even for larger ESG indices, index-linked AUM is <em>comparatively</em> small vis-à-vis broader market indices.</li>
<li>However, one thing keeps it interesting. ESG indices are bloated with Big Tech, many of which are right behind Facebook and Alphabet on the antitrust plank walk.</li>
</ul><p>Herein, I explain my thought process – antitrust, to ESG ratings downgrades, to ESG index changes – then cover Facebook and Alphabet in some detail (albeit limited by constraints). There is less to say about the other U.S. "antitrust stocks" at the moment, but that may change. More importantly, I am looking into something similar, but related to Asian stocks. So, more to come.</p>

Oh, the inhumanity of Monopolium Inquisitorum, leviathans made to stand before the judgement of inquisitorial courts. Repent and reform, or burn in everlasting… fine, maybe just shed a few worldly possessions, WhatsApp would be a good start, and stop coveting thy neighbors' data so much.Big technology companies (aka "Big Tech") are the subject of ever-expanding antitrust inquisitions by regulators and courts around the world. In the U.S., informal inquiries into prominent members of FAANG by the U.S. Congress turned into formal antitrust suits, first Alphabet then Facebook.Yesterday, the U.S. Federal Trade Commission (FTC) announced yet another inquiry, this one into the data collection practices of social media companies. It mentioned nine companies by name, a few of which are "new" to this conversation (ByteDance, Tencent-investee Discord, and Snap).This Insight looks at one particular ESG angle to this antitrust stuff. Specifically, the potential for antitrust investigations – not the outcomes, but the process – to trigger ESG ratings downgrades and, in turn, constituency changes to major ESG indices. Summary points, for the cover page:
Antitrust investigations will inevitably result in additional ESG ratings downgrades, and since most ESG indices are constructed using those ratings, constituency changes are likely.
Index changes might not happen until annual reviews a few months from now, but they are not tied to eventual antitrust outcomes (e.g., breakups) that could be years away, or not at all.
Presently, Facebook and Alphabet are the only U.S. stocks that stand out vis-à-vis the potential for antitrust-driven changes to ESG ratings and/or ESG indices (more so for Facebook).
Let's be honest, we are not talking about Tesla being added to the S&amp;P 500. Even for larger ESG indices, index-linked AUM is comparatively small vis-à-vis broader market indices.
However, one thing keeps it interesting. ESG indices are bloated with Big Tech, many of which are right behind Facebook and Alphabet on the antitrust plank walk.
Herein, I explain my thought process – antitrust, to ESG ratings downgrades, to ESG index changes – then cover Facebook and Alphabet in some detail (albeit limited by constraints). There is less to say about the other U.S. "antitrust stocks" at the moment, but that may change. More importantly, I am looking into something similar, but related to Asian stocks. So, more to come.

Big Tech Antitrust Scrutiny Could Mean ESG Ratings Downgrades, Constituency Changes for ESG Indices

United States

Microsoft Corporation operates as a software company. The Company offers applications, extra cloud storage, and advanced security solutions. Microsoft serves customers worldwide.

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Microsoft Corp (MSFT US)

Amazon 4Q20: The GOAT Departs

Amazon CEO Jeff Bezos is stepping down. We doubt he steps away. 2021 is a unique setup. Its the first time Amazon was up during a big capacity...

Aaron Gabin

Facebook 4Q20: Trying to Take a Bite Out of the Apple

Facebook printed a extremely strong quarter and commentary regarding potential overhangs from Apple and tough comps is just Facebook talking down...

Aaron Gabin

Bear-Case Is Highly Unlikely. Risk/Reward Skewed To The Upside

JFrog looks like a more attractive stock at current valuations keeping in mind forthcoming IPO of key VC-backed rival GitLab Inc.

Andrei Zakharov

Two Contrasting Views of What Could Happen Next Week in the United States on January 20th

In this insight, we discuss the two contrasting views of what could happen next week in the United States on January 20th (Inauguration day of the...

Douglas Kim

Big Tech Antitrust Scrutiny Could Mean ESG Ratings Downgrades, Constituency Changes for ESG Indices

Antitrust broaches several highly-material ESG issues. Growing antitrust scrutiny of "Big Tech" could lead to ESG rating downgrades, and in turn,...

Kyle Rudden

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