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>Across the board miss as DTC losses peak, park margins weaken, and linear likely to fall off a cliff. </li>
<li>Big FY2023 guide down on revenues (HSD vs. LDD previously) and OI growth (HSD vs. ~25% consensus previously). </li>
<li>Disney profitability lower for longer as macro headwinds on parks, accelerating cord cutting, and pushed out D+ profitability means OI likely down $2B in both FY23-24.</li>
</ul>


Across the board miss as DTC losses peak, park margins weaken, and linear likely to fall off a cliff. 
Big FY2023 guide down on revenues (HSD vs. LDD previously) and OI growth (HSD vs. ~25% consensus previously). 
Disney profitability lower for longer as macro headwinds on parks, accelerating cord cutting, and pushed out D+ profitability means OI likely down $2B in both FY23-24.


Disney 4Q2022: Cord Cutting Exacerbating DTC Losses

<ul>
<li>Netflix's stock has outperformed the market by 25% over the past quarter on faith that the new advertising tier will unlock the next leg of the growth narrative. </li>
<li>3Q22 had two of its biggest hits ever - Stranger Things and Dahmer, Netflix beat its own guidance of 1M by only 1.4M...APAC added 1.4M, most from low ARPU India</li>
<li>Pulling subscriber guidance is a yellow flag, as is the lack of details on how AVOD will be "neutral to positive" over time. </li>
</ul>


Netflix's stock has outperformed the market by 25% over the past quarter on faith that the new advertising tier will unlock the next leg of the growth narrative. 
3Q22 had two of its biggest hits ever - Stranger Things and Dahmer, Netflix beat its own guidance of 1M by only 1.4M...APAC added 1.4M, most from low ARPU India
Pulling subscriber guidance is a yellow flag, as is the lack of details on how AVOD will be "neutral to positive" over time. 


<ul>
<li>Meta now trades at 14x P/E and 6x fwd EV/EBITDA...valuation inline with Paramount and Warner Brothers Discovery. This is nuts!</li>
<li>While the drumbeat of competitive concerns and self inflicted wounds has piled up in the past month, even core Facebook is not in a death spiral of engagement.</li>
<li>META is investing in new ad tech and ad formats, and has the ability to cut significant opex from its budget that could yield 10-20% upside to current 2023 consensus.</li>
</ul>


Meta now trades at 14x P/E and 6x fwd EV/EBITDA...valuation inline with Paramount and Warner Brothers Discovery. This is nuts!
While the drumbeat of competitive concerns and self inflicted wounds has piled up in the past month, even core Facebook is not in a death spiral of engagement.
META is investing in new ad tech and ad formats, and has the ability to cut significant opex from its budget that could yield 10-20% upside to current 2023 consensus.


What Are the Prospects for a Meta Rebound?

<ul>
<li>Netflix has had a slew of upgrades recently on bullish estimates for its coming advertising supported tier...with the upgrades buying into Netflix's exorbitant CPM demands.</li>
<li>We think advertising supported is revenue accretive for the US and Canada, but question how this works out internationally.</li>
<li>Disney is far better positioned for AVOD. It has a developed ad infrastructure, owns all its content, and has better brands to sell advertising against.</li>
</ul>


Netflix has had a slew of upgrades recently on bullish estimates for its coming advertising supported tier...with the upgrades buying into Netflix's exorbitant CPM demands.
We think advertising supported is revenue accretive for the US and Canada, but question how this works out internationally.
Disney is far better positioned for AVOD. It has a developed ad infrastructure, owns all its content, and has better brands to sell advertising against.


Ad-Based Streaming: Are We Sure This Is Netflix's Panacea (Or Disney?)

<ul>
<li>Netflix's quarter was modestly better than reset bearish expectations...but not by much. 1M subscriber gains projected for 3Q below consensus 1.7M.</li>
<li>Timeline for reaccelerating subscriber growth from advertising and password sharing still seems shockingly long. </li>
<li>Netflix remains a top funding short for the forseeable future, we think $210 is the high end of the range, $170 the low end, but could justify $150.</li>
</ul>


Netflix's quarter was modestly better than reset bearish expectations...but not by much. 1M subscriber gains projected for 3Q below consensus 1.7M.
Timeline for reaccelerating subscriber growth from advertising and password sharing still seems shockingly long. 
Netflix remains a top funding short for the forseeable future, we think $210 is the high end of the range, $170 the low end, but could justify $150.


Netflix 2Q22: Low Growth, Low FCF, Low (Management) Conviction

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 (WBD US)

Disney 4Q2022: Cord Cutting Exacerbating DTC Losses

Disney shockingly weak profitability outlook for FY2023 is more a reflection of the return of cord cutting to being issue #1 denting the model,...

Aaron Gabin

Netflix 3Q22: Coast Is Clear?

Netflix's stock has outperformed by 25% over the past quarter on blind faith that the new advertising tier unlock incremental subs and margins. We...

Aaron Gabin

What Are the Prospects for a Meta Rebound?

Meta has seen its valuation converge with structurally impaired cable network / streamers with margins 50% lower. We think it can boost EPS through...

Aaron Gabin

Ad-Based Streaming: Are We Sure This Is Netflix's Panacea (Or Disney?)

Aince last quarter’s earnings Netflix is up 18%, outperforming the S&P by nearly 23%. 4 recent upgrades share the thesis that ads will stimulate...

Aaron Gabin

Netflix 2Q22: Low Growth, Low FCF, Low (Management) Conviction

Netflix has become a legacy cable network - little pricing power, little volume growth, and massive competition. Oh yeah, minimal FCF a management...

Aaron Gabin

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