AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

<ul>
<li>The <a href="https://www.smartkarma.com/entities/netflix-inc" target="_blank" data-smartkarma-citation="entities:20451:1" rel="noopener">Netflix Inc (NFLX US) </a>fall out has created a significant buying opportunity in Warner Bros. Discovery (WBD US)</li>
<li>Warren Buffet's purchases of WBD peer Paramount Global (PARA US) only serves to validate the buying opportunity in the much cheaper WBD</li>
<li>Attributing a PARA-like value multiple to WBD's Consensus 2023 EBITDA which is a little lower than management's reaffirmed guidance, indicates a value up lift of 80% plus</li>
</ul>


The Netflix Inc (NFLX US) fall out has created a significant buying opportunity in Warner Bros. Discovery (WBD US)
Warren Buffet's purchases of WBD peer Paramount Global (PARA US) only serves to validate the buying opportunity in the much cheaper WBD
Attributing a PARA-like value multiple to WBD's Consensus 2023 EBITDA which is a little lower than management's reaffirmed guidance, indicates a value up lift of 80% plus


MergerTalk: Why Warner Bros. Discovery Is A Mis-Valuation Opportunity Rather Than A Value Trap

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

<ul>
<li>Netflix management came off as unprepared for its current circumstances. Ramping competition and TAM saturation have been known for 2 years.</li>
<li>Competitive responses sounded half baked: increasing price to deter password sharing and launching advertising tiers...in 2 years?</li>
<li>The viability of the longterm growth algorithm and 10 year DCFs that Netflix investors have leaned on for years has been rightfully vaporized. </li>
</ul>


Netflix management came off as unprepared for its current circumstances. Ramping competition and TAM saturation have been known for 2 years.
Competitive responses sounded half baked: increasing price to deter password sharing and launching advertising tiers...in 2 years?
The viability of the longterm growth algorithm and 10 year DCFs that Netflix investors have leaned on for years has been rightfully vaporized. 


Thematic (Sector/Industry)

<ul>
<li>New data from Deloitte shows US streaming subscription churn is 35% and over 50% for younger demographics. Whoa!</li>
<li>Competition for attention and competition for the wallet are causes, a combination of the volume of streaming services combined with social media, gaming, and UGC....many of which are free. </li>
<li>The LT takeaway is streaming services likely have to rely on free-ad supported tiers to retain customers. Higher customer acquisition costs and lower multiple ad revenues not good for streamers.</li>
</ul>


New data from Deloitte shows US streaming subscription churn is 35% and over 50% for younger demographics. Whoa!
Competition for attention and competition for the wallet are causes, a combination of the volume of streaming services combined with social media, gaming, and UGC....many of which are free. 
The LT takeaway is streaming services likely have to rely on free-ad supported tiers to retain customers. Higher customer acquisition costs and lower multiple ad revenues not good for streamers.


<ul>
<li>Incredible quarter for Parks, with sustainably higher levels of profitability in the cards due to Disney's pricing power.</li>
<li>Streaming is still worrisome, growth driven by bundling and Hotstar+ subs which we don't value as worth much to Disney.</li>
<li>SoTP gets us to ~$155 at best, which is where the stock trades post earnings. Not great risk reward here.</li>
</ul>


Incredible quarter for Parks, with sustainably higher levels of profitability in the cards due to Disney's pricing power.
Streaming is still worrisome, growth driven by bundling and Hotstar+ subs which we don't value as worth much to Disney.
SoTP gets us to ~$155 at best, which is where the stock trades post earnings. Not great risk reward here.


Disney 1Q2022: Knockin It Out of the Park

<ul>
<li>Shockingly poor 1Q subscriber guidance implies 9M net adds for 2022, well below the ~25M level investors are accustomed to, implying saturation, competition, or both. (We think both)</li>
<li>Operating Margin guidance cut blamed on FX, we think more likely the demand for heightened content spend due to competition.</li>
<li>Netflix valuation always built on a long term DCF...very sensitive to downward revisions in subscribers and ARPU...we think Netflix settles around $400 until it can disprove bear thesis.</li>
</ul>


Shockingly poor 1Q subscriber guidance implies 9M net adds for 2022, well below the ~25M level investors are accustomed to, implying saturation, competition, or both. (We think both)
Operating Margin guidance cut blamed on FX, we think more likely the demand for heightened content spend due to competition.
Netflix valuation always built on a long term DCF...very sensitive to downward revisions in subscribers and ARPU...we think Netflix settles around $400 until it can disprove bear thesis.


United States

Warner Bros. Discovery, Inc. operates as a media and entertainment company. The Company offers a complete portfolio of content, brands, and franchises across television, film, streaming, and gaming.

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Warner Bros Discovery (DISCA US)

MergerTalk: Why Warner Bros. Discovery Is A Mis-Valuation Opportunity Rather Than A Value Trap

Why Warren Buffet's enthusiasm for Paramount Global should encourage value investors to take a closer look at Warner Bros, Discovery

Robert Sassoon

Netflix 1Q22: Willfull Ignorance

Netflix management seemed unprepared for its current circumstances. Ramping competition and TAM saturation have been known for 2 years. Competitive...

Aaron Gabin

Streaming's New Hamster Wheel

New data shows US streaming subscription churn is 35% and over 50% for younger demographics. To compete, streamers will have to rely more on free...

Aaron Gabin

Disney 1Q2022: Knockin It Out of the Park

Despite a fantastic Parks quarter, which we think offers sustainably higher profits, the higher competitive intensity in streaming means the SoTP...

Aaron Gabin

Netflix 4Q21: Don’t Look Down

Netflix's poor 1Q subscriber guidance implies 9M net adds for 2022, well below the ~25M level investors are accustomed to, implying saturation,...

Aaron Gabin

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