Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>On 17 February, it was revealed that <a href="https://www.wsj.com/articles/buffetts-berkshire-hathaway-bets-billions-on-verizon-and-chevron-11613517434" target="_blank" rel="noopener">Warren Buffett's Berkshire Hathaway</a> invested $8.6 billion in <a href="https://www.smartkarma.com/entities/verizon-communications-inc" target="_blank" data-smartkarma-citation="entities:790:1" rel="noopener">Verizon Communications (VZ US)</a>. At the end of 2020, Verizon was one of the top 10 holdings of Berkshire Hathaway. </p><p><strong>Not being able to read the mind of Warren Buffett, there are probably three main reasons why he invested billions of dollars in Verizon. </strong></p><ul>
<li>A big beneficiary of 5G services in the US</li>
<li>A defensive stock with excellent cash flow</li>
<li>Cheap valuations</li>
</ul><div class="content-highlight"><p><strong>Warren Buffett buying a big amount of Verizon is another example of a rotation into value from growth which has been evident in the stock market in the past few weeks. </strong></p></div><p>Verizon appears to be an excellent value stock with solid cash flow dynamics and these may be the key reasons why Warren Buffett invested in this stock. For the global investors searching for greater value, SK Telecom could potentially deliver even higher value than Verizon. </p><p>SK Telecom is currently trading at 4.5x EV/EBITDA (2021) multiples right now, which is 41% lower than the EV/EBITDA multiple of Verizon. The average EV/EBITDA multiple of SK Telecom is 5.0x from 2018 to 2020, which is 33% lower than the average EV/EBITDA multiple of 7.4x for Verizon during this period.</p>

On 17 February, it was revealed that Warren Buffett's Berkshire Hathaway invested $8.6 billion in Verizon Communications (VZ US). At the end of 2020, Verizon was one of the top 10 holdings of Berkshire Hathaway. Not being able to read the mind of Warren Buffett, there are probably three main reasons why he invested billions of dollars in Verizon. 
A big beneficiary of 5G services in the US
A defensive stock with excellent cash flow
Cheap valuations
Warren Buffett buying a big amount of Verizon is another example of a rotation into value from growth which has been evident in the stock market in the past few weeks. Verizon appears to be an excellent value stock with solid cash flow dynamics and these may be the key reasons why Warren Buffett invested in this stock. For the global investors searching for greater value, SK Telecom could potentially deliver even higher value than Verizon. SK Telecom is currently trading at 4.5x EV/EBITDA (2021) multiples right now, which is 41% lower than the EV/EBITDA multiple of Verizon. The average EV/EBITDA multiple of SK Telecom is 5.0x from 2018 to 2020, which is 33% lower than the average EV/EBITDA multiple of 7.4x for Verizon during this period.

Warren Buffett Invests Big in Verizon - Impact on SK Telecom

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.

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<p><em><strong>Corrigenda: There is an error in this Insight. Please note the correction.</strong></em></p>
<p><em><strong>Correction: The first line under Results in the Detail section should read "Revenues of $6.64B (+22% YoY), a touch ahead of consensus $6.6B."</strong></em></p>
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<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. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. The key blow to our thesis is that FCF was given the all clear by management last night, while the CFO said churn was a record low.</p>
<p>The key question going forward…if Netflix can now generate tangible FCF into the future and this model is sustainable, don’t we then have to value Netflix on FCF? You don’t short stocks over arguments about what multiple to put on terminal values, and we aren’t advocating outright shorting Netflix, which has proven to be the #2 alltime widowmaker of short sellers (after Tesla), but we think Netflix resumes its role as the favored funding short once the dust clears from this quarter’s FCF announcement and investors focus back on the decelerating sub growth.</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>


Corrigenda: There is an error in this Insight. Please note the correction.
Correction: The first line under Results in the Detail section should read "Revenues of $6.64B (+22% YoY), a touch ahead of consensus $6.6B."


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. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. The key blow to our thesis is that FCF was given the all clear by management last night, while the CFO said churn was a record low.
The key question going forward…if Netflix can now generate tangible FCF into the future and this model is sustainable, don’t we then have to value Netflix on FCF? You don’t short stocks over arguments about what multiple to put on terminal values, and we aren’t advocating outright shorting Netflix, which has proven to be the #2 alltime widowmaker of short sellers (after Tesla), but we think Netflix resumes its role as the favored funding short once the dust clears from this quarter’s FCF announcement and investors focus back on the decelerating sub growth.

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.


Netflix 4Q20: It’s a Free Cash Flow Machine!

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

<p>Local press reporting that <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> has made significant improvement on their 5nm technology which is a significant improvement given <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> 's to desire to take close the gap with <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a> this is a big step.  Or was it already in the cards from a prior deal? </p>

Local press reporting that Samsung Electronics (005930 KS) has made significant improvement on their 5nm technology which is a significant improvement given Samsung Electronics (005930 KS) 's to desire to take close the gap with TSMC (2330 TT) this is a big step.  Or was it already in the cards from a prior deal? 

Samsung Closed the Gap with TSMC Already at 5nm? Whoa!

<p>Three things caught our eye this first week of 2021: eBay, Amazon, and the spectrum auction.</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>

Three things caught our eye this first week of 2021: eBay, Amazon, and the spectrum auction.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.

TMT Weekly: 3 Things that Stood Out The Week of 1/8/2021

<p>Last week, we wrote about how Third Point's Dan Loeb wrote a letter to Disney urging it to spend more on content. Within days, the company announced a major reorganization of its content creation and distribution strategy, with an emphasis on focusing on DTC (streaming). We applaud the move...and think Disney becomes an even more compelling long as it plays catchup to the rest of the "COVID winners" from its position in the COVID loser camp. We have a catalyst path to follow now...earnings in November, Analyst Day on December 10th. Stock will be $150 by then. </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>

Last week, we wrote about how Third Point's Dan Loeb wrote a letter to Disney urging it to spend more on content. Within days, the company announced a major reorganization of its content creation and distribution strategy, with an emphasis on focusing on DTC (streaming). We applaud the move...and think Disney becomes an even more compelling long as it plays catchup to the rest of the "COVID winners" from its position in the COVID loser camp. We have a catalyst path to follow now...earnings in November, Analyst Day on December 10th. Stock will be $150 by then. 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

Verizon Communications Inc. is an integrated telecommunications company that provides wire line voice and data services, wireless services, Internet services, and published directory information. The Company also provides network services for the federal government including business phone lines, data services, telecommunications equipment and payphones.

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Verizon Communications (VZ US)

Warren Buffett Invests Big in Verizon - Impact on SK Telecom

Warren Buffett buying a big amount of Verizon is another example of a rotation into value from growth. This may also lead to more investors...

Douglas Kim

Netflix 4Q20: It’s a Free Cash Flow Machine!

Netflix posted an inline quarter, but the stock is up 14% on commentary about sustainability of FCF going forward. We don't advocate shorting NFLX...

Aaron Gabin

Samsung Closed the Gap with TSMC Already at 5nm? Whoa!

Samsung Electronics' desire to catch TSMC starts with how they can proceed with leading tech. Are we almost there already?

Ken S. Kim

TMT Weekly: 3 Things that Stood Out The Week of 1/8/2021

This week we highlight eBay's new tool to drive online advertising adoption, Amazon's further foray into logistics, and the $90B spent in the...

Aaron Gabin

Disney: They Listened to Loeb (Quickly!)

Disney's reorganization announcement of its content and distribution organizations is signal that management has been listening to investors.

Aaron Gabin

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