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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<h2>We have been examining the <a href="https://www.smartkarma.com/entities/iac-interactivecorp" target="_blank" data-smartkarma-citation="entities:754:1" rel="noopener">IAC/InterActiveCorp (IAC US)</a>. Our headline take is we like ANGI <a href="https://www.smartkarma.com/entities/angi-homeservices" target="_blank" data-smartkarma-citation="entities:4722:1" rel="noopener">ANGI Homeservices (ANGI US)</a> and IAC as longs, and while we think <a href="https://www.smartkarma.com/entities/match-group-inc" target="_blank" data-smartkarma-citation="entities:25903:1" rel="noopener">Match Group Inc (MTCH US)</a> is a short.</h2>
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Summary:  Match Group, the online dating market leader, is likely to underperform over the next 1-2 quarters as its juggernaut app, Tinder, faces a series of extremely difficult comps while also navigating Apple’s subscription changes which are a headwind to net adds. ARPU growth is likely to slow as Tinder reaches saturation in the US and leans more heavily on lower monetizing international subscribers. Slowing subscriber and ARPU growth paired with increased legal, marketing, and spin costs will cause EBITDA to come in 10-15% below consensus estimates. At all-time high current levels ($90 and 30x Forward EV/EBITDA), we think the market is not pricing in these near term risks.
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<li>Base Case PT: $65</li>
<li>Upside PT: $110</li>
<li>Bear Case PT: $50</li>
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The Insight is meant to be used by investors as a road map to evaluate Match Group's progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.
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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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We have been examining the IAC/InterActiveCorp (IAC US). Our headline take is we like ANGI ANGI Homeservices (ANGI US) and IAC as longs, and while we think Match Group Inc (MTCH US) is a short.



Summary:  Match Group, the online dating market leader, is likely to underperform over the next 1-2 quarters as its juggernaut app, Tinder, faces a series of extremely difficult comps while also navigating Apple’s subscription changes which are a headwind to net adds. ARPU growth is likely to slow as Tinder reaches saturation in the US and leans more heavily on lower monetizing international subscribers. Slowing subscriber and ARPU growth paired with increased legal, marketing, and spin costs will cause EBITDA to come in 10-15% below consensus estimates. At all-time high current levels ($90 and 30x Forward EV/EBITDA), we think the market is not pricing in these near term risks.

Base Case PT: $65
Upside PT: $110
Bear Case PT: $50




The Insight is meant to be used by investors as a road map to evaluate Match Group's progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.


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 & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

<div class="content-highlight"><a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> has changed its mind, again, and now reportedly is <a href="https://electrek.co/2019/03/08/tesla-freezes-store-closure-layoffs-chaotic-sales-strategy/" target="_blank">putting on hold</a> plans to close hundreds of its mostly newly opened stores and lay off thousands more employees--at least until the end of the month.</div>Employees, customers, suppliers, and investors still are reeling over Tesla's startling decision, <a href="https://www.tesla.com/blog/35000-tesla-model-3-available-now" target="_blank">announced February 28th</a>, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report <a href="https://www.smartkarma.com/insights/tesla-s-new-plan-buy-before-you-try" target="_blank">Tesla's New Plan: Buy Before You Try</a>).I warned clients that Tesla's stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter--troubling trends that may continue. However, as <a href="https://twitter.com/VickiBryanBondA/status/1101940247930249222" target="_blank">I noted</a>, it also costs money to close stores, get out of leases (<a href="https://www.wsj.com/articles/landlords-to-tesla-youre-still-on-the-hook-for-your-store-leases-11552059041?mod=searchresults&amp;page=1&amp;pos=1" target="_blank">good luck with that</a>), <a href="https://electrek.co/2019/03/02/tesla-cut-employee-compensation-layoff/" target="_blank">fire employees</a> and redistribute remaining staff, and sell off fairly new equipment at steep losses.Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country--a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see "<a href="https://www.smartkarma.com/insights/musk-and-weird-q3-developments-are-driving-investors-to-telsa-s-rivals" target="_blank">Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals</a>" and "<a href="https://www.smartkarma.com/insights/tesla-dave-s-not-here-and-musk-won-t-leave" target="_blank">Tesla – Dave’s Not Here, and Musk Won’t Leave</a>" and <a href="https://www.smartkarma.com/insights/tesla-down-to-the-wire" target="_blank">"Tesla: Down to the Wire"</a> and <a href="https://www.smartkarma.com/insights/tesla-truth-and-consequences" target="_blank">Tesla - Truth and Consequences</a>).Tesla probably hasn't seen the light--it's just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see <a href="https://www.smartkarma.com/insights/tesla-shanghai-surprise" target="_blank">Tesla - Shanghai Surprise</a>). Unfortunately, the four banks in Tesla's new "<a href="http://ir.teslamotors.com/node/19561/html" target="_blank">China Loan Agreement</a>," which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running--much less also stave off the current cash crunch.But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the <a href="https://twitter.com/elonmusk/status/1102332778492772352" target="_blank">long-awaited Model Y</a>--though I suspect this won't result in a massive burst of cash from new reservations as Tesla hopes. Years of robbing Peter to pay Paul hasn't produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, "Wow, we didn't see that coming."<a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1"></a>Continue reading for Bond Angle analysis.

Tesla Motors (TSLA US) has changed its mind, again, and now reportedly is putting on hold plans to close hundreds of its mostly newly opened stores and lay off thousands more employees--at least until the end of the month.Employees, customers, suppliers, and investors still are reeling over Tesla's startling decision, announced February 28th, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report Tesla's New Plan: Buy Before You Try).I warned clients that Tesla's stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter--troubling trends that may continue. However, as I noted, it also costs money to close stores, get out of leases (good luck with that), fire employees and redistribute remaining staff, and sell off fairly new equipment at steep losses.Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country--a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see "Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals" and "Tesla – Dave’s Not Here, and Musk Won’t Leave" and "Tesla: Down to the Wire" and Tesla - Truth and Consequences).Tesla probably hasn't seen the light--it's just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see Tesla - Shanghai Surprise). Unfortunately, the four banks in Tesla's new "China Loan Agreement," which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running--much less also stave off the current cash crunch.But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the long-awaited Model Y--though I suspect this won't result in a massive burst of cash from new reservations as Tesla hopes. Years of robbing Peter to pay Paul hasn't produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, "Wow, we didn't see that coming."Continue reading for Bond Angle analysis.

<div class="content-highlight"><a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> revealed that's its big news teased since Wednesday night was the long-promised launch of the "Everyman" version of its<a href="https://www.tesla.com/blog/35000-tesla-model-3-available-now" target="_blank"> flagship Model 3 priced at $35k</a>, give or take depending on new options for range and interior selections.</div>Buried in the lede is that Tesla also is initiating additional price cuts across the board, including for Models S and X. It's moving to an online-only sales strategy and closing hundreds of stores which will trigger additional layoffs.Oh, and the first quarter will not be profitable after all, according to CEO Elon Musk on the conference call today to discuss Tesla's announcements.So is Telsa pursuing a new, evolving strategy for the future or is it being pushed to retrench?Read on for Bond Angle analysis.

Tesla Motors (TSLA US) revealed that's its big news teased since Wednesday night was the long-promised launch of the "Everyman" version of its flagship Model 3 priced at $35k, give or take depending on new options for range and interior selections.Buried in the lede is that Tesla also is initiating additional price cuts across the board, including for Models S and X. It's moving to an online-only sales strategy and closing hundreds of stores which will trigger additional layoffs.Oh, and the first quarter will not be profitable after all, according to CEO Elon Musk on the conference call today to discuss Tesla's announcements.So is Telsa pursuing a new, evolving strategy for the future or is it being pushed to retrench?Read on for Bond Angle analysis.

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Carvana Co. operates an online platform for buying used cars. The Company offers test drives, vehicle financing, and car reviews. Carvana serves customers in the United States.

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Carvana (CVNA US)

Match Group (MTCH): Tinder Can Burn

We have been examining the IAC/InterActiveCorp (IAC US). Our headline take is we like ANGI ANGI Homeservices (ANGI US) and IAC as longs, and while...

Aaron Gabin

Tesla's Plan B 2.0; Y Not

Tesla Motors (TSLA US) has changed its mind, again, and now reportedly is putting on hold plans to close hundreds of its mostly newly opened stores...

Vicki Bryan

Tesla's New Plan - Buy Before You Try

Tesla Motors (TSLA US) revealed that's its big news teased since Wednesday night was the long-promised launch of the "Everyman" version of its...

Vicki Bryan

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