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

<div><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. Over the course of the past year we have gone from being short Netflix to long Netflix beginning this past summer, which has played out...and now we return to the sidelines (but not interested in reshorting Netflix), as we think to get more bullish on Netflix from here requires greater clarity on future revenue optionality around gaming and consumer products. The increasingly saturated streaming space means Netflix will only be growing subs ~10% for the forseeable future, with most of that growth from lower priced regions, while it will be investing with a vengeance to drive more content, likely capping expectations for continued margin expansion and FCF.</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>

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. Over the course of the past year we have gone from being short Netflix to long Netflix beginning this past summer, which has played out...and now we return to the sidelines (but not interested in reshorting Netflix), as we think to get more bullish on Netflix from here requires greater clarity on future revenue optionality around gaming and consumer products. The increasingly saturated streaming space means Netflix will only be growing subs ~10% for the forseeable future, with most of that growth from lower priced regions, while it will be investing with a vengeance to drive more content, likely capping expectations for continued margin expansion and FCF.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>Comcast and Charter have had big pullbacks in the past month, leading to an attractive setup into earnings with valuations having compressed significantly over transitory weakness in broadband due to tough COVID comps and overstated competitive concerns. We'd be buyers of both. </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>

Comcast and Charter have had big pullbacks in the past month, leading to an attractive setup into earnings with valuations having compressed significantly over transitory weakness in broadband due to tough COVID comps and overstated competitive concerns. We'd be buyers of both. 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.

Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

BWS provides independent stock specific research focused on companies with distinct value that are going through a special situation where there is a tangible catalyst not priced in. The catalyst can be anything from new product, restructuring, M&A, management change, change in business strategy, etc. BWS’s focus is to understand the change and evaluate the potential return for investors.

BWS utilizes a self formed proprietary approach in discovering stocks by putting great emphasis on deep research. BWS does generate short recommendations following a similar criteria.

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<strong>Calix (CALX)</strong> has benefited from an increase in small broadband service providers adopting the Company’s software solutions during a time when people were staying at home, but those trends are now changing. Service providers are reporting a slowdown in broadband customers as the industry begins to experience some of the cyclicality that has usually been present each year.</li></ul><p> </p><ul type="disc"><li>In the last two weeks <strong>Comcast Corp. (CMCSA)</strong> and <strong>Altice USA (ATUS)</strong> have reported a decline in broadband subscribers. The larger service providers might be reporting what the smaller service providers were already going through this year. We believe these smaller customers are more likely to change their spending habits quickly than commit to spending money when subscriber trends change.</li></ul><p> </p><ul type="disc"><li>During the June quarter of this year, service providers were reporting an increase in subscribers and were painting a generally positive picture for the rest of the year. Since then, there has been a change in consumer habits. There are fewer people who need to purchase a subscription for back to school since they are already a customer thanks to either cord cutting or staying home because of COVID-19.</li></ul>


Calix (CALX) has benefited from an increase in small broadband service providers adopting the Company’s software solutions during a time when people were staying at home, but those trends are now changing. Service providers are reporting a slowdown in broadband customers as the industry begins to experience some of the cyclicality that has usually been present each year. In the last two weeks Comcast Corp. (CMCSA) and Altice USA (ATUS) have reported a decline in broadband subscribers. The larger service providers might be reporting what the smaller service providers were already going through this year. We believe these smaller customers are more likely to change their spending habits quickly than commit to spending money when subscriber trends change. During the June quarter of this year, service providers were reporting an increase in subscribers and were painting a generally positive picture for the rest of the year. Since then, there has been a change in consumer habits. There are fewer people who need to purchase a subscription for back to school since they are already a customer thanks to either cord cutting or staying home because of COVID-19.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

SPDR S&P Oil & Gas Exploration / Technical Analysis

<p>Weak market dynamics continue to be counterbalanced by the fact that there is an absence of breakdowns at the index and Sector level; even the weakest Sectors such as Energy (<strong>XLE, XOP, RYE</strong>) and Transportation (<strong>IYT, XTN, JETS</strong>) are holding above key supports. Until we start to see breakdowns at the Sector and index level, we remain constructive overall.</p><p>Charts highlighted: XOP, JETS, S&amp;P 500, IWM, IWC, WTI Crude Oil, Copper, US dollar, CMCSA, CHTR, LBRDA, AMT, SBAC, ACN, INFY, EQIX, WIT, CTSH, IT, WM, RSG, WCN, and ROL</p>

Weak market dynamics continue to be counterbalanced by the fact that there is an absence of breakdowns at the index and Sector level; even the weakest Sectors such as Energy (XLE, XOP, RYE) and Transportation (IYT, XTN, JETS) are holding above key supports. Until we start to see breakdowns at the Sector and index level, we remain constructive overall.Charts highlighted: XOP, JETS, S&amp;P 500, IWM, IWC, WTI Crude Oil, Copper, US dollar, CMCSA, CHTR, LBRDA, AMT, SBAC, ACN, INFY, EQIX, WIT, CTSH, IT, WM, RSG, WCN, and ROL

U.S. Equity Index and Sector Breakdowns Remain Absent; Buying Communications & Services Stocks

<p>After breaking out Disney+Hotstar's business and Hulu's advertising contribution, we come away with a valuation~20-25% lower than we used to ascribe to Disney's streaming portfolio. As a result, we think Disney is more than fully valued at $180 / share post 3Q21 earnings. </p><p></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>

After breaking out Disney+Hotstar's business and Hulu's advertising contribution, we come away with a valuation~20-25% lower than we used to ascribe to Disney's streaming portfolio. As a result, we think Disney is more than fully valued at $180 / share post 3Q21 earnings. 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.  

Disney 3Q21: We’re Cautious on Streaming

United States

Comcast Corporation provides media and television broadcasting services. The Company offers video streaming, television programming, high-speed internet, cable television, and communication services. Comcast serves customers worldwide.

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Comcast Corp Class A (CMCSA US)

Netflix 3Q21: Saved By Squid Game

Over the course of the past year we have gone from being short Netflix to long Netflix...and now we return to the sidelines. We need greater...

Aaron Gabin

US Cable: Good Entry Point

Comcast and Charter have had big pullbacks in the past month, leading to an attractive setup with valuations having compressed due to tough COVID...

Aaron Gabin

CALX: Risk of Throttling Growth

A slowdown in subscriber adds should lead to CALX experiencing a slowdown in spending from small broadband service providers, who do not have the...

BWS Financial Inc

U.S. Equity Index and Sector Breakdowns Remain Absent; Buying Communications & Services Stocks

Until we start to see breakdowns at the Sector and index level, we remain constructive overall. Charts highlighted: XOP, JETS, S&P 500, IWM, IWC,...

Vermilion Research

Disney 3Q21: We’re Cautious on Streaming

After breaking out Disney+Hotstar's business and Hulu's advertising contribution, we have a valuation~20-25% lower than we used to ascribe to...

Aaron Gabin

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