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>Snap is a deservedly crowded long. It had heightened expectations coming into the quarter, especially for the 2Q21 guide, which buyside expected to be a huge number given the easy comp. And Snap didn’t disappoint. The key takeaway for us about why one can (kind of) ignore valuation, which at 20x forward sales seems extremely high, is that Snap has entered the Facebook zone from 2015-2017, when the company had finally hit its stride at executing self-serve targeted direct response advertising at scale, reducing friction for advertisers to enter the platform. Facebook became part of THE online ad duopoly and started adding millions of businesses every year because of the highest ROI in online advertising, growing revenues 50%+ annually, even as it scaled from $12B to $40B in revenues because of the unlimited optionality around new ad units…and yet to be monetized massive products like Instagram. We aren’t saying Spotlight or Maps is the equivalent of Instagram, but we do think Snap has long passed the threshold of required advertising platform for large advertisers and can compound for years, even despite its meteoric rise in the past year.</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>

Snap is a deservedly crowded long. It had heightened expectations coming into the quarter, especially for the 2Q21 guide, which buyside expected to be a huge number given the easy comp. And Snap didn’t disappoint. The key takeaway for us about why one can (kind of) ignore valuation, which at 20x forward sales seems extremely high, is that Snap has entered the Facebook zone from 2015-2017, when the company had finally hit its stride at executing self-serve targeted direct response advertising at scale, reducing friction for advertisers to enter the platform. Facebook became part of THE online ad duopoly and started adding millions of businesses every year because of the highest ROI in online advertising, growing revenues 50%+ annually, even as it scaled from $12B to $40B in revenues because of the unlimited optionality around new ad units…and yet to be monetized massive products like Instagram. We aren’t saying Spotlight or Maps is the equivalent of Instagram, but we do think Snap has long passed the threshold of required advertising platform for large advertisers and can compound for years, even despite its meteoric rise in the past year.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.

SNAP 1Q21: Spotlight on Spotlight…Why Snap Is Still a Multi Bagger

<p>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 since last year that Netflix is a good relative short given the extreme pull-in of demand from COVID, and the fact that Netflix’s stock performance tracks the pace of sub growth, and the shockingly weak guidance for 2Q21 implies this stock will continue to be the #1 large cap funding short for the foreseeable future. But for how long?</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>

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 since last year that Netflix is a good relative short given the extreme pull-in of demand from COVID, and the fact that Netflix’s stock performance tracks the pace of sub growth, and the shockingly weak guidance for 2Q21 implies this stock will continue to be the #1 large cap funding short for the foreseeable future. But for how long?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.

Thematic (Sector/Industry)

<p>So many datapoints in the past week speak to how strong earnings should be for the biggest online advertising players. Our order of preference for 1Q21: Facebook, Amazon, Google, Snap, eBay, Pinterest.</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>

So many datapoints in the past week speak to how strong earnings should be for the biggest online advertising players. Our order of preference for 1Q21: Facebook, Amazon, Google, Snap, eBay, Pinterest.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 4/9/2021: Be Long Online Advertising for Earnings

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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.

Equity Capital Markets

Zhihu Technology / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a> is the largest Q&amp;A-inspired online community and one of the top five comprehensive online content communities in China, both in terms of average mobile MAUs and revenue in 2020, according to CIC. Zhihu is acknowledged as the first choice among all online content communities in China where people look for information to make decisions or find answers, according to CIC. Zhihu is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> and <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>.</p></div><div><p>At the mid-point of the proposed IPO price range of $9.50-11.50 per ADS, Zhihu will have a fully diluted market cap of $6.2 billion. Zhihu will also raise an additional $250 million in a concurrent private placement to <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>, Tencent and Lilith Games. At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $801.3 million. </p></div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/zhihu-ipo-initiation-question-time" target="_blank" data-smartkarma-citation="insights:48928" rel="noopener">Zhihu IPO Initiation: Question Time</a>, we opined that as the largest Q&amp;A-inspired online community, Zhihu is well-positioned to benefit from favourable industry trends. We concluded that Zhihu’s fundamentals are attractive. Our valuation analysis suggests that the IPO price range is attractive. Overall, we would participate in the IPO. </p></div></div>

Zhihu Technology (ZH US) is the largest Q&amp;A-inspired online community and one of the top five comprehensive online content communities in China, both in terms of average mobile MAUs and revenue in 2020, according to CIC. Zhihu is acknowledged as the first choice among all online content communities in China where people look for information to make decisions or find answers, according to CIC. Zhihu is backed by Tencent Holdings (700 HK), Kuaishou Technology (1024 HK) and Baidu (BIDU US).At the mid-point of the proposed IPO price range of $9.50-11.50 per ADS, Zhihu will have a fully diluted market cap of $6.2 billion. Zhihu will also raise an additional $250 million in a concurrent private placement to Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), Tencent and Lilith Games. At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $801.3 million. In Zhihu IPO Initiation: Question Time, we opined that as the largest Q&amp;A-inspired online community, Zhihu is well-positioned to benefit from favourable industry trends. We concluded that Zhihu’s fundamentals are attractive. Our valuation analysis suggests that the IPO price range is attractive. Overall, we would participate in the IPO. 

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Event-Driven

<div><p>Kuaishou Technology (KT) raised around US$6.2bn in its Hong Kong IPO and ended its first day up 161%. Key dates for index inclusion are 17th Feb, 22nd Feb and 1st March.</p></div><div><p>I have covered various aspects of the company’s performance in my previous notes: </p></div><div><ul style="list-style-type: disc;">
<li> <a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-the-positives-hot-segment-fast-growth" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - The Positives - Hot Segment, fast growth</a>
</li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-the-negatives-ample-doubts-remain" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - The Negatives - Ample Doubts Remain</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-peer-comparison-and-thoughts-on-valuation" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - Peer Comparison and Thoughts on Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-phip-updates-user-growth-has-been-slowing-down-post-covid" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - PHIP Updates - User Growth Has Been Slowing Down Post COVID</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-updated-forecasts-and-valuation" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - Updated Forecasts and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-pre-ipo-index-implications-msci-ftse-and-hsi-indices" target="_blank" rel="noopener">Kuaishou Technology Pre-IPO - Index Implications, MSCI, FTSE and HSI Indices</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-ipo-blue-chip-cornerstones-sober-valuations-going-into-ftse-and-msci-index" target="_blank" rel="noopener">Kuaishou Technology IPO - Blue Chip Cornerstones, Sober Valuations, Going into FTSE and MSCI Index</a></li>
<li><a href="https://www.smartkarma.com/insights/kuaishou-technology-ipo-trading-might-be-doubling-but-still-not-near-bubbling" target="_blank" rel="noopener">Kuaishou Technology IPO Trading - Might Be Doubling but Still Not near Bubbling</a></li>
</ul></div><div><p>In this note, I’ll talk about valuation and index inclusion timeline.</p></div>

Kuaishou Technology (KT) raised around US$6.2bn in its Hong Kong IPO and ended its first day up 161%. Key dates for index inclusion are 17th Feb, 22nd Feb and 1st March.I have covered various aspects of the company’s performance in my previous notes: 
 Kuaishou Technology Pre-IPO - The Positives - Hot Segment, fast growth

Kuaishou Technology Pre-IPO - The Negatives - Ample Doubts Remain
Kuaishou Technology Pre-IPO - Peer Comparison and Thoughts on Valuation
Kuaishou Technology Pre-IPO - PHIP Updates - User Growth Has Been Slowing Down Post COVID
Kuaishou Technology Pre-IPO - Updated Forecasts and Valuation
Kuaishou Technology Pre-IPO - Index Implications, MSCI, FTSE and HSI Indices
Kuaishou Technology IPO - Blue Chip Cornerstones, Sober Valuations, Going into FTSE and MSCI Index
Kuaishou Technology IPO Trading - Might Be Doubling but Still Not near Bubbling
In this note, I’ll talk about valuation and index inclusion timeline.

Kuaishou IPO Trading - Bubbling Now, Spread Out Index Inclusion Might Keep It Going for a Bit

United States

Snap Inc. provides technology and social media services. The Company develops mobile camera application products and services that allow users to send and receive photos, drawings, text, and videos. Snap serves customers worldwide.

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Snap (SNAP US)

SNAP 1Q21: Spotlight on Spotlight…Why Snap Is Still a Multi Bagger

Snap had a very strong 1Q21 and even stronger 2Q21 guidance. Despite a monster 1 year run, we think Snap is set up for a Facebook like multi-year...

Aaron Gabin

Netflix 1Q21: We Ran Out of Content

Netflix just issued its weakest guidance in years. We think subscriber growth will reaccelerate in a few quarters, making Netflix a sneaky long by...

Aaron Gabin

TMT Weekly 4/9/2021: Be Long Online Advertising for Earnings

Online Advertising and eCommerce is still buoyed by secular tailwinds despite the fears on tough pandemic driven comps. We prefer Amazon, Facebook,...

Aaron Gabin

Zhihu IPO: Valuation Insights

At the mid-point of the $9.50-11.50 IPO price range, Zhihu's net proceeds inc. the concurrent private placement is $801.3 million. Our valuation...

Arun George

Kuaishou IPO Trading - Bubbling Now, Spread Out Index Inclusion Might Keep It Going for a Bit

Kuaishou Technology (KT) raised around US$6.2bn in its Hong Kong IPO and ended its first day up 161%. Key dates for index inclusion are 17th Feb,...

Sumeet Singh

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