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

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Corrigenda: There is an error in this Insight. Please note the correction.
Correction: The first line under Results in the Detail section should read "Revenues of $6.64B (+22% YoY), a touch ahead of consensus $6.6B."
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We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that appears now set to breakeven on FCF in 2021. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. The key blow to our thesis is that FCF was given the all clear by management last night, while the CFO said churn was a record low.
The key question going forward…if Netflix can now generate tangible FCF into the future and this model is sustainable, don’t we then have to value Netflix on FCF? You don’t short stocks over arguments about what multiple to put on terminal values, and we aren’t advocating outright shorting Netflix, which has proven to be the #2 alltime widowmaker of short sellers (after Tesla), but we think Netflix resumes its role as the favored funding short once the dust clears from this quarter’s FCF announcement and investors focus back on the decelerating sub growth.
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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.
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Corrigenda: There is an error in this Insight. Please note the correction.
Correction: The first line under Results in the Detail section should read "Revenues of $6.64B (+22% YoY), a touch ahead of consensus $6.6B."


We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that appears now set to breakeven on FCF in 2021. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. The key blow to our thesis is that FCF was given the all clear by management last night, while the CFO said churn was a record low.
The key question going forward…if Netflix can now generate tangible FCF into the future and this model is sustainable, don’t we then have to value Netflix on FCF? You don’t short stocks over arguments about what multiple to put on terminal values, and we aren’t advocating outright shorting Netflix, which has proven to be the #2 alltime widowmaker of short sellers (after Tesla), but we think Netflix resumes its role as the favored funding short once the dust clears from this quarter’s FCF announcement and investors focus back on the decelerating sub growth.

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.


Netflix 4Q20: It’s a Free Cash Flow Machine!

Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

Equity Capital Markets

The online gaming and entertainment technology decacorn Roblox intends to sell of up to ~197 million shares of Class A common stock through a direct listing in February. The opening public price of common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers. Roblox has the largest global online gaming community with more than 150 million MAUs and ~75% of all American children ages 9-12 play Roblox. In 2019 Roblox entered into a JV agreement with Songhua, an affiliate of Tencent Holdings to pursue opportunities of expanding business in China.Goldman Sachs and Morgan Stanley are lead financial advisors on the upcoming DPO. Roblox raised ~$856 million in funding over 9 rounds, according to Crunchbase. Their latest $520 million Series H round was led by Altimeter Capital and Dragoneer Investment Group.Altos Ventures, Tiger Global Management, Andreessen Horowitz, Investment Group of Santa Barbara and Warner Music Group also participated in this funding round. The Series H round valued Roblox at ~$29 billion, assuming a purchase price of $45 per share.

The online gaming and entertainment technology decacorn Roblox intends to sell of up to ~197 million shares of Class A common stock through a direct listing in February. The opening public price of common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers. Roblox has the largest global online gaming community with more than 150 million MAUs and ~75% of all American children ages 9-12 play Roblox. In 2019 Roblox entered into a JV agreement with Songhua, an affiliate of Tencent Holdings to pursue opportunities of expanding business in China.Goldman Sachs and Morgan Stanley are lead financial advisors on the upcoming DPO. Roblox raised ~$856 million in funding over 9 rounds, according to Crunchbase. Their latest $520 million Series H round was led by Altimeter Capital and Dragoneer Investment Group.Altos Ventures, Tiger Global Management, Andreessen Horowitz, Investment Group of Santa Barbara and Warner Music Group also participated in this funding round. The Series H round valued Roblox at ~$29 billion, assuming a purchase price of $45 per share. 

Roblox DPO. Going Public Through A Direct Listing Instead Of A Traditional IPO

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<a href="https://www.smartkarma.com/entities/starhub-ltd" target="_blank" data-smartkarma-citation="entities:119:1" rel="noopener">Starhub Ltd (STH SP)</a> pay-TV has been the problem child alongside the Mobile segment due to overcrowded space, led to a higher churn in the number of subscribers coupled with a lower ARPU, followed by a decline in the share price. <a href="https://www.smartkarma.com/entities/the-walt-disney-co" target="_blank" data-smartkarma-citation="entities:15439:1" rel="noopener">The Walt Disney Co (DIS US)</a> + coming to Singapore will cause a further decline in the Pay-TV ARPU. Starhub's Enterprise Business which recently has gained momentum and for the first time in almost 3 years, its revenue contribution almost equaled Mobile's. As a result, the revenue in Q3 2020 went up 2% compared to the average of 1H 2020. <div class="content-highlight">After underperforming Singtel by 20% for the past 3 years, it is now maybe the time for Starhub to play catch up with the Enterprise Business finally is taking off. With a 3.6% higher yield than Singtel, Starhub sounds like a bargain. </div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/179/625/original/image_25922309421608537778217.png?1608537778" class="editor-image img-responsive" data-smartkarma-image-id="179625"></figure><div class="content-remarks">source: Capital IQ</div>

Starhub Ltd (STH SP) pay-TV has been the problem child alongside the Mobile segment due to overcrowded space, led to a higher churn in the number of subscribers coupled with a lower ARPU, followed by a decline in the share price. The Walt Disney Co (DIS US) + coming to Singapore will cause a further decline in the Pay-TV ARPU. Starhub's Enterprise Business which recently has gained momentum and for the first time in almost 3 years, its revenue contribution almost equaled Mobile's. As a result, the revenue in Q3 2020 went up 2% compared to the average of 1H 2020. After underperforming Singtel by 20% for the past 3 years, it is now maybe the time for Starhub to play catch up with the Enterprise Business finally is taking off. With a 3.6% higher yield than Singtel, Starhub sounds like a bargain. source: Capital IQ

Starhub (STH): Disney Is Coming but Enterprise Is Gaining Momentum

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

We wrote a few weeks ago that Iqiyi’s short-term liquidity <a href="https://www.smartkarma.com/insights/iqiyi-another-tough-quarter" target="_blank" rel="noopener">looked ‘stretched’</a> with worrying signs in its balance sheet. Post the close yesterday, Iqiyi announced it plans to raise 1.6bn USD in a combination of notes and equity offering. We look at the current operational situation for Iqiyi below

We wrote a few weeks ago that Iqiyi’s short-term liquidity looked ‘stretched’ with worrying signs in its balance sheet. Post the close yesterday, Iqiyi announced it plans to raise 1.6bn USD in a combination of notes and equity offering. We look at the current operational situation for Iqiyi below

Iqiyi Placement – an Attempt to Shore up Short-Term Liquidity

Alpha-Centric ESG Research

Kyle Rudden

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:<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 comparatively 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>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.

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

Netflix Inc. is an Internet subscription service for watching tv shows and movies. Subscribers can instantly watch unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile devices and in the United States, subscribers can receive standard definition DVDs and Blu-ray Discs delivered to their homes.

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Netflix Inc (NFLX US)

Netflix 4Q20: It’s a Free Cash Flow Machine!

Netflix posted an inline quarter, but the stock is up 14% on commentary about sustainability of FCF going forward. We don't advocate shorting NFLX...

Aaron Gabin

Roblox DPO. Going Public Through A Direct Listing Instead Of A Traditional IPO

Roblox is the most innovative company in gaming space and largest social platform for play with online gaming community of 150M+ MAUs worldwide

Andrei Zakharov

Starhub (STH): Disney Is Coming but Enterprise Is Gaining Momentum

Starhub's Enterprise Business finally is taking off, almost equal to the Mobile. With a 3.6% higher yield than Singtel, Starhub sounds like a bargain.

Henry Soediarko

Iqiyi Placement – an Attempt to Shore up Short-Term Liquidity

We wrote a few weeks ago that Iqiyi’s short-term liquidity looked ‘stretched’ with worrying signs in its balance sheet. Post the close yesterday,...

Rickin Thakrar

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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