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Company Valuation and Risk Disclosures
Activision Blizzard, Inc. (ATVI, Buy, $92 PT)
Valuation: Our $92 PT is 26x our average 2020-2022 EPS estimate of $3.52.
Risks: Our numbers assume meaningful bookings from upcoming Blizzard titles Overwatch 2 and Diablo 4. Any delay in production and release would have a direct impact on our numbers. Pandemic-related tailwinds abate faster than expected and are one-time in nature. Warzone’s success as an FTP offering ultimately cannibalizes sales of this fall’s newest COD premium release, Cold War. Activision’s upcoming releases, which are based on IP that originated 20+ years ago, could fail to resonate with present day players. CoD Mobile fails to maintain its current monetization trajectory over an extended period of time. Poor execution of in-game monetization could alienate consumers. Inability to develop advertising business and non-Candy Crush IP for King.
AMC Entertainment Holdings. (AMC, Sell, $.01 PT)
Valuation: Our $0.01 one-year price target is based on 8x 2022E adjusted EBITDA of $612 million, with AMC currently trading at over 15x 2022E adjusted EBITDA
Risks: Movie attendance returns (and sustains) at a level significantly greater than 2019, raising EBITDA to record highs. Studios do not maintain and expand upon significant window changes post-pandemic. AMC is able to continue working out relaxed debt/rent terms, pushing large cash outlays further out and delaying potential bankruptcy. Exhibitors are able to pivot the business in an unforeseen and non-traditional way that creates new revenue streams, increasing cash flow.
Anterix (ATEX, Buy, $96 PT)
Valuation: Our $96 price target is based on an NPV of future cash flows assuming spectrum monetization at $1.50/MHz/POP. We start taxing our cash flow at 28% starting in 2025, but believe there are opportunities to reduce this impact to our free cash flow estimates. We use a 15x multiple on our free cash flow estimate in 2027, the year we expect it to reach 50% spectrum monetization. Our cost of equity is 8%. We assign no incremental cost or value to its services business.
Risks: Risks include lengthy sales cycles with utility customers, competitive spectrum lease opportunities from 600 MHz spectrum owners, competitive connectivity options from shared wireless or satellite operators, and inability to negotiate the terms to clear existing spectrum users.
AT&T (T, Buy, $36 PT)
Valuation: Our $36 price target is the sum-of-the-parts of $6 per share from Warner Bros plus $30 per share for the remaining connectivity business. Our $30 per share value for AT&T’s remaining business is based on a 2023 free cash flow yield of 8.0%. In comparison, Verizon trades at that 2023 free cash flow yield today. Furthermore, these estimates assume a 25% cash tax rate for both companies. If AT&T’s effective cash tax rate ends up being 15%, frankly a more likely scenario, our $30 value would imply a 9.1% free cash flow yield. Our target also implies a 3.9% dividend yield.
Risks: The wireless market can see increased competition from well-funded, existing competitors and new entrants like Dish. Technological changes like eSIM can change the competitive dynamics of the market. The tax burden could be even higher than our conservative estimates or the WarnerMedia-Discovery deal could not be given favorable tax treatment. AT&T could spend more than our $12 billion estimate for the upcoming 3.45 GHz spectrum auction.
Iridium (IRDM, Buy, $58 PT)
Valuation: Our $58 price target is based on 4.5% free cash flow yield on our 2023 free cash flow estimate plus $4 for its stake in Aireon. Our core business target implies 19x our 2023 EBITDA. The stock currently trades at 15.5x our 2022 EBITDA estimate, so we are expecting the market to re-rate the company as the market shakes out the winners and losers in space. Iridium is a winner.
Risks: New LEO constellations could present competitive pressures as those are deployed. Supply-chain issues could limit growth for end user equipment. Satellite failure could disrupt service.
KORE Wireless (KORE, Buy, $14 PT)
Valuation: Our $14 price target on KORE is based on the present value of a taxed 2025 FCF estimate of $80 million. It implies a 3.0% free cash flow yield on our 2022 estimate of $31 million, which is not taxed. It also implies 19.4x our 2022 EBITDA estimate.
Risks: KORE competes against (and is a partner with) a number of larger, well-funded competitors whose strategies could evolve as their existing enterprise customers develop IoT. KORE does not own a network, but purchases capacity on a wholesale basis from network operators. IoT use cases and device proliferation may not occur at as rapid a pace as many estimates suggest. The limited float could create volatility in the stock, particularly around the registration of 22.5 million shares sold in the Pipe, 45-90 days after close.
Live Nation (LYV, Buy, $100 PT)
Valuation: Our 12-month price target of $100 is based on a 19.5x 2021 EV/EBITDA multiple.
Risks: A global recession could limit discretionary income and slow fan and ticket growth. Regulatory risk tied to Live Nation’s vertically integrated business model. An inability to meaningfully scale sponsorship opportunities outside of festivals. Slower-than-expected international growth as Live Nation moves into new markets
Madison Square Garden Entertainment (MSGE, Buy, $120 PT)
Valuation: Our $120 price target is based on a SOTP methodology
Risks: MSGE is levered to the entertainment industry, which is uniquely impacted by the ongoing COVID-19 global pandemic. We have accounted for a prolonged downturn due to COVID-19. However, any extension of COVID-19’s impact beyond our modeled timeline could have a negative impact on MSGE’s entertainment business and the company’s valuation. We also model material Sphere AOI in 2023. Any delay in construction timeline could also impact our valuation.
Netflix, Inc. (NFLX, Buy, $630 PT)
Valuation: Our 12-month price target of $630 is based on a 25x 2023 EBITDA discounted back at 15%.
Risks: Proliferation of new SVOD and AVOD streaming services (Disney+, Apple TV+, HBO Max, Quibi, Peacock, etc) increases competition for consumer time and money, which could have a negative impact on Netflix’s subscriber growth, particularly in the US . More competition for content could increase Netflix’s content costs and slow its contribution margin growth. Competitors have started to pull library content from Netflix, which could increase the service’s churn. Netflix has historically accessed debt markets for financing. Any adverse changes in lending standards could impact Netflix’s ability to continue increasing their spend. International growth will require specific, and potentially expensive, content tied to each individual market, with no guarantees that the content will resonate outside of its intended market.
Pinterest Inc. (PINS, Buy, $100 PT)
Valuation: Our 12-month price target of $100 is based on a 35x 2024 EBITDA discounted back two years at 15%.
Risks: Lower engagement as the world reopens post-pandemic. Increased competition from Facebook, Instagram and other large tech platforms that are making more of their content shoppable. Weaker economic outlook pressuring advertising revenues, which make up 100% of Pinterest’s revenues. Failure to improve overseas monetization.
Radius Global (RADI, Buy, $24 PT)
Valuation: Our price target of $24 is based on a sum-of-the-parts of Radius’s two businesses. The Portfolio company can be simply valued as a multiple of its In-Place Rents. We believe the appropriate blended multiple should be 16.5x, which assumes a high of 20.0x for the United States and a low of 10.5x for Latin American assets. This results in $14 per share of value. We value the Acquisition company by estimating the amount of In-Place Rents we believe it can generate in 10 years. We then assume a 17.5x exit multiple and find the present value using an 8.5% cost of equity. This results in $10 per share of value. The resulting Radius price target of $24 implies 20.7x our 2023 Portfolio Company EBITDA estimate.
Risks: Radius is subject to currency and political risks since the majority of revenue is generated outside the US. There is potential regulatory risk in the UK where operators have been pushing for rent abatements. The company could face some pressure on its rooftop sites if wireless carriers decide to relocate.
Roblox Corp. (RBLX, Buy, $85 PT)
Valuation: Our 12-month price target of $85 is based on 20x our 2022 bookings estimate of $2.75bn.
Risks: Lift from COVID is temporary and Roblox users become much less engaged following reopening. Even if Roblox provides better tools, UGC developers are unable to create experiences with broader appeal. Developers require significantly larger bookings share, especially as a result of competition with Epic / Fortnite. UGC experiences lose appeal as professional studios create better experiences and metaverse is more interoperable / distributed.
SBA Communications (SBAC, Buy, $413 PT)
Valuation: Our $413 price target implies a 3.0% AFFO yield on our 2023 estimate of $12.48. It is based on a sum-of-the-parts that implies a blended 32.4x multiple on our 2023 Cash EBITDA estimate.
Risks: SBA operates in markets outside of the US where it could face political and currency risk particularly in emerging markets. US wireless operators could establish new, greenfield tower companies that could accept lower rents, a strategy used in the past. Small cells could present a larger opportunity in the future as networks densify further.
Snap, Inc. (SNAP, Buy, $84 PT)
Valuation: Our 12-month price target of $84 is based on 35x 2024 EBITDA discounted back at 15% for two years, which equates to 20x 2022 revenues.
Risks: Increased competition from TikTok, Facebook and Instagram could pressure Snapchat’s user base and engagement pressuring advertising growth. Geopolitical uncertainty and/or reacceleration in the global health crisis weakening the global economy and in turn, the global ad market. Creators migrate to other platforms away from Snapchat due to superior monetization opportunities elsewhere. AR commerce/shopping fails to develop a meaningful consumer use case.
Spotify Technology (SPOT, Buy, $260 PT)
Valuation: Our 12-month price target of $260 is based on 25x our 2024 EBITDA discounted back one year at 15%.
Risks: Artists removing their music from Spotify in protest of Spotify’s podcasting shows/hosts, particularly Joe Rogan. Slower than expected growth of MAUs, leading to fewer total advertising impressions. Slower than expected conversion from free, ad-supported usage to paid, premium subscriptions. Tougher label negotiations leading to less margin expansion than expected. Advertising competition. Spotify advertising competes against a wide array of online advertising options such as Google and Facebook. To the extent Spotify’s ad-targeting fails to improve, it could lose ground to more robust advertising platforms even as ad dollars shift from terrestrial radio to Internet based music.
Telesat (TSAT, Buy, $60 PT)
Valuation: Our $60 price target is based on a Sum-of-the-Parts valuation. We value the legacy business and US C-Band proceeds at $25 per share to create a floor value, based primarily on a 22% free cash flow yield of the legacy business and implying 5.5x 2023 EBITDA. We value the Litespeed LEO business at $35 per share based on a 10-year DCF using a 15% discount rate and a 10x terminal multiple.
Risks: The risks to the legacy business include the end of the useful life of satellites in terms of their functionality and the revenue renegotiations on contracts that had been previously tied to their useful life. The decline in the Pay TV market also increases the risks of non-renewals. That risk is elevated in the event of a merger of DirecTV and Dish, a deal that we believe could pass regulatory review under the Biden administration.
Regulatory risk is always a factor for a global business selling connectivity. Telesat is not receiving any proceeds from Canada’s C-Band spectrum auction and may not be reimbursed for clearing. There are obviously risks of competitive capacity from additional LEO satellite launches, if those companies’ pivot their models to Telesat’s target markets. We do not believe terrestrial networks pose material risks to satellite connectivity.
The Madison Square Garden Company (MSG, Buy, $360 PT)
Valuation: We value MSG at $360, based on a sum-of-the-parts basis. We are valuing Entertainment Co at $161 excluding its retained interest in sports. We are valuing Sports Co at $198. If we allocate 1/3 of Sports to Entertainment, Entertainment shareholders would own $227 per share of value in the Entertainment company and $133 in Sports company. Adding the two pieces together, we get $360.
Risks: Greater-than-anticipated capex and lower-than-anticipated EBITDA tied to the MSG Spheres. Economic downturn in New York City. Declining or stagnant professional sports franchise valuations in future ownership sales.
Twitter Inc. (TWTR, Buy, $45 PT)
Valuation: Our 12-month price target of $45 is based on a 25x 2021 EV/EBITDA multiple.
Risks: DAU growth slows and/or reverses due to reduced interest in the Twitter product offering and/or increased competition from larger industry peers such as Facebook and Google. Given that the overwhelming majority of Twitter’s revenues are derived from advertising, a meaningful downturn in the global economic outlook could pressure Twitter’s earnings growth. Increased regulation adds to cost pressure and weakens the ability to monetize Twitter’s user base. Weakness in the Japanese market given that it represented 16% of total company revenue in 2019.