Daily BriefsTMT/Internet

TMT: Softbank Group, Tokyo Electron, Microstrategy Inc Cl A, SUMCO Corp, Xperi, Arlo Technologies Inc, Ubiquiti Inc., Avaya Holdings Corp and more

In today’s briefing:

  • Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here
  • TEL – Margin Disappointment
  • MicroStrategy (MSTR US): Money From Nothing Is Worth?
  • Sumco – Still Underestimated
  • XPER: Streaming Free Cash Flow
  • ARLO: Prepping for Acceleration
  • UI: Shrinking Float Thru Buybacks
  • AVYA: Burning Thru Cash, Sell

Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here

By Kirk Boodry

  • Softbank reported record losses, as expected, including some writedowns in the private portfolio. That may not be enough to assuage concerns with valuations still in free fall
  • Management says tech’s day will come again and it is best to be more defensive for now, including a slower pace of investing, which we think is positive
  • Concern on weak tech and high leverage likely keep the discount in the mid-50s range.  There was nothing today to signal an inflection is at hand

TEL – Margin Disappointment

By Mio Kato

  • TEL generated ¥169bn in OP in 4Q, well above consensus at ¥150bn and even our ¥160bn estimate. 
  • The issue is that this was on ¥565bn in revenue, well above ourselves and consensus, due to ramping R&D and depreciation expenses. 
  • Those expenses also meant that guidance of ¥716bn in OP was just barely above consensus at ¥692bn.

MicroStrategy (MSTR US): Money From Nothing Is Worth?

By David Blennerhassett

  • MicroStrategy Inc Cl A (MSTR US) is now trading at a ~26% discount to NAV as the bitcoin barbeque continues.  
  • Bitcoin is down ~40% YTD. If it falls another 24%, this will trigger a margin call on one of its loans.
  • Should bitcoin decline to US$17.5k, MSTR’s crypto bet falls short of its debt obligation; debt that its software ops are not sufficiently profitable enough to service. 

Sumco – Still Underestimated

By Mio Kato

  • Sumco 1Q revenues were on the strong side, 1.5% above consensus but OP beat by 9.9%. 
  • As we have been flagging, consensus is underestimating operating leverage and that was before the weakening of the yen. 
  • Revenue guidance for 2Q was 4.9% above consensus and OP 12.8% higher but we expect results to be an even larger beat.

XPER: Streaming Free Cash Flow

By Hamed Khorsand

  • XPER reported first quarter results setting the path for the Company to generate approximately $200 million in free cash flow in 2022
  • The outperformance on the revenue line resulted in XPER exceeding our non-GAAP net income and EPS estimates
  • During the first quarter of 2022, XPER renewed a license with a virtual multichannel video programming distributor (“MVPD”)

ARLO: Prepping for Acceleration

By Hamed Khorsand

  • ARLO continued to grow the number of paid subscribers as consumers see the benefits of having an alert for their installed security cameras
  • ARLO reported a positive net income for the second straight quarter just as the firm is getting ready to launch a new brand awareness campaign in 2H22
  • ARLO reiterated its plans to increase marketing expense in the second half of 2022 to accelerate growth in 2023

UI: Shrinking Float Thru Buybacks

By Hamed Khorsand

  • The supply chain issues that became an obstacle for Ubiquiti (UI) have yet to abate. Ubiquiti missed fiscal third quarter (March) estimates with a meaningful decline in service provider revenue
  • The Company burned through inventory in the quarter and used its cash flow to aggressively repurchase shares
  • Ubiquiti’s foray into services should broaden the revenue stream and improve cash flow, but it could be another few quarters before this becomes a needle moving endeavor

AVYA: Burning Thru Cash, Sell

By Hamed Khorsand

  • AVYA has exhausted investor patience in the Company’s quest to transform into a subscription revenue business
  • Liquidity overtaking the conversation from ARR could have bigger impact to the stock price as investors try to assess the timing of when AVYA could generate free cash flow
  • AVYA reported fiscal second quarter revenue of $716 million below the Company’s guidance and our $739 million estimate

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