Daily Brief TMT/Internet: Nintendo, Softbank Group, Z Holdings, Taiwan Semiconductor (TSMC) – ADR, ROHM Co Ltd, Apple, Vection Technologies Ltd, Pinterest Inc, Soluna Holdings, Ebay Inc and more

• Nintendo reported operating profit of 190b yen (-8% YoY), falling far short of Street expectations
• The Nintendo Switch is now a six-year old console and demand is exhausted. A normalization of chip/supply chain issues benefits the newer PS5
• Our thesis is that the hardware cycle has peaked and that the share price will head lower in tandem with the dwindling top line

• Management pushed a conservative / defensive line for Q3 as markets remain uncertain and investment losses continue
• Revenue growth at ARM was better than expected as licensing revenues rebounded strongly. Guidance for the timing of an IPO (sometime in 2023) remains unchanged
• This was a slightly disappointing quarter but hopes were not high heading into the print with the discount hovering around 35%

• ZHD F3Q22 (C4Q22) net revenue slightly missed our est. and cons. by (2%) and (1%). Adjusted EBITDA margin was in line with our est. excluding impact from PayPay consolidation. 
• PayPay will continue to be the growth driver for ZHD with increase in unit spending supported by premium credit card offering and deepening integration with group’s other services.
• We upgrade ZHD to BUY and raise our TP to JPY 435 to reflect beat in profitability and upsides in PayPay

• China Balloon Incident — Negative news for China semiconductor restrictions; Up to 45nm may now be hobbled by Japan & Netherlands joining.
• Hon Hai — January sales results strong, could help market look forward to Hon Hai’s future growth.
• Mediatek Results & Upcoming Results — Signs of slight smartphone stablization, also we highlight key Auto & Industrial Semiconductor related results ahead.

• While OP margin remains flat, ROE increased moderately due to higher in total-asset-turnover. Going forward, the drivers of ROE growth are likely to continue through reductions in cash and cross-shareholdings.
• It would be more likely to find it in a company that already has high operating profit margin and where ROE can be improved by improving the total asset turnover.
• Based on my analysis so far, I assume that companies that raised their stock price valuations did so by clarifying their cash allocation policies and engaging in communication with investors.

• Since our Long Apple vs. Short Quanta & Pegatron piece, Apple has outperformed by 11.7% in USD-adjusted terms.
• Apple has reported results recently, thus the next major events could be Quanta and Pegatron results.
• Given Apple has outperformed by a significant amount, we believe the best of Apple’s relative outperformance is done for the near-term. One can thus look for levels to unwind.

Vection Technologies (VR1) reported A$4.6m in Q223 receipts, up A$0.2m q-o-q. Recent announcements of the company’s selection to develop virtual reality (VR) and metaverse technologies to promote space travel underpin the vital role partnerships play in the company’s strategy. VR1 also reported progress in commercial opportunities in defence, aerospace and service agencies, among others, all expected to bear fruit in the latter half of the current fiscal year. As such, management reiterated its FY23 revenue guidance of A$24–26m. We are encouraged by the Q223 results and maintain our FY23 forecasts.

• MAUs grew just 5M or 1% QoQ while ARPU was flat. Little turnaround traction evident despite lots of empty statistics offered.
• Longtime CFO Todd Morgenfeld departing, offers vague margin expansion promises.
• Revenue and opex guidance for 1Q23 below consensus…not good for a consensus long.

• Soluna’s flagship Project Dorothy has now entered ERCOT’s operations phase, putting it on the cusp of energizing and generating revenues. 
• Texas electric grid operator ERCOT, which has held up the project while it created and implemented its Large Flexible Load approval process, has now moved the project through both of its multi-month-long planning and modeling phases where the project was evaluated for its impact on the Texas electric grid.
• A key milestone that allows Soluna to finalize the financing and set operational plans to energize.

• In May 2022, I wrote about ebay, and how they were ‘skating to where the puck is going’ after they announced an exclusive deal to sell Ice Hockey legend Wayne Gretzky NFTs, at the time.
• We haven’t seen much of (2) from Ebay so far, but it looks like they’re trying to push hard on the natively digital front.
• One of the things that I also wrote about was how important a place Ebay became for the reselling of physical collectables during the Covid pandemic.