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>The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.</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>

The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.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.

Match 1Q21 Earnings: Looking for an Opening

<p>Post 3Q20, we closed out our note saying, “We think COVID will result in more headwinds then tailwinds, which will provide a headwind to guidance, and what we think will be an entry point come February when 2021 guidance is given. By then we will be 3 months closer to vaccines and 3 months closer to last years’ Q2 which was horrendous due to the initial restrictions and gives a great setup for an explosive 2Q21 quarter.”</p><p>Match  pulled back 8% on earnings and is down 11% in two weeks. At 36x forward EV/EBITDA, we are at the same valuation Match was after 2Q and 3Q…except we are now one quarter away from entering a period of accelerating EBITDA growth. Guidance does not contemplate a full return to “normal” by the back half of 2021…which means guidance is likely too conservative. Entry points on one of the great business models in TMT are few and far between. Its time to buy Match.</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>

Post 3Q20, we closed out our note saying, “We think COVID will result in more headwinds then tailwinds, which will provide a headwind to guidance, and what we think will be an entry point come February when 2021 guidance is given. By then we will be 3 months closer to vaccines and 3 months closer to last years’ Q2 which was horrendous due to the initial restrictions and gives a great setup for an explosive 2Q21 quarter.”Match  pulled back 8% on earnings and is down 11% in two weeks. At 36x forward EV/EBITDA, we are at the same valuation Match was after 2Q and 3Q…except we are now one quarter away from entering a period of accelerating EBITDA growth. Guidance does not contemplate a full return to “normal” by the back half of 2021…which means guidance is likely too conservative. Entry points on one of the great business models in TMT are few and far between. Its time to buy Match.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>We have always enjoyed following IAC because we share a worldview with management about investing behind THE major secular trend in the world today…offline to online transition of massive TAMs. Even the largest TAMs in the world – groceries, entertainment, autos, commerce, finance, real estate, etc. are still incredibly early in the long term replatforming of how the global economy functions.</p><p>What’s interesting this quarter is Covid’s impact, which was a tailwind for both ANGI and IAC for most of the year has morphed, and become a serious headwind for ANGI in the short term…but really only the short term. We view this pullback as a great entry point on ANGI for a longer term investor, because it is set up for an ongoing reacceleration throughout 2021 as the quirky supply/demand environment normalizes.</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 always enjoyed following IAC because we share a worldview with management about investing behind THE major secular trend in the world today…offline to online transition of massive TAMs. Even the largest TAMs in the world – groceries, entertainment, autos, commerce, finance, real estate, etc. are still incredibly early in the long term replatforming of how the global economy functions.What’s interesting this quarter is Covid’s impact, which was a tailwind for both ANGI and IAC for most of the year has morphed, and become a serious headwind for ANGI in the short term…but really only the short term. We view this pullback as a great entry point on ANGI for a longer term investor, because it is set up for an ongoing reacceleration throughout 2021 as the quirky supply/demand environment normalizes.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>We wanted to follow up on Match given we advocated it from the short side early in the year, and closed the short in May before the spinout. Is now the time to re-engage?</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 wanted to follow up on Match given we advocated it from the short side early in the year, and closed the short in May before the spinout. Is now the time to re-engage?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>We have always enjoyed following IAC because we share a worldview with management about investing behind THE major secular trend in the world today…offline to online transition of massive TAMs. Even the largest TAMs in the world – groceries, entertainment, autos, commerce, finance, real estate, etc. are still incredibly early in the long term replatforming of how the global economy functions.</p><p>COVID has turbocharged these trends, which may be why we’ve seen such massive outperformance by the stocks at the forefront of these trends.</p><div><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 always enjoyed following IAC because we share a worldview with management about investing behind THE major secular trend in the world today…offline to online transition of massive TAMs. Even the largest TAMs in the world – groceries, entertainment, autos, commerce, finance, real estate, etc. are still incredibly early in the long term replatforming of how the global economy functions.COVID has turbocharged these trends, which may be why we’ve seen such massive outperformance by the stocks at the forefront of these trends.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.

United States

ANGI Homeservices Inc. operates an online portal for home improvement. The Company offers a digital platform that connects homeowners with service professionals for home services. ANGI Homeservices serves customers worldwide.

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ANGI Homeservices (ANGI US)

Match 1Q21 Earnings: Looking for an Opening

Match's EV/EBITDA is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive...

Aaron Gabin

Match 4Q20 Earnings: Hook It Up

Match has sold off on 4Q20 earnings based on overly conservative 2021 guidance. We would be buyers on this selloff as 2021 sets up for a strong...

Aaron Gabin

IAC / ANGI 3Q20: A Tale of Two Cities

IAC and ANGI reported earnings that showed how Covid is boosting demand for its businesses...and in ANGI's case, boosting demand so much that its...

Aaron Gabin

Match 3Q20: Love Rollercoaster

We re-evaluate Match Group as we head back into pandemic-driven lockdowns. We thought it was a short a year ago, but now think its (going to be) an...

Aaron Gabin

IAC / ANGI 2Q20: Doubling Down

We have always enjoyed following IAC because we share a worldview with management about investing behind THE major secular trend in the world...

Aaron Gabin

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