The analyst primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report. 

Analyst Certifications and Independence of Research

Each of the LightShed analysts whose names appear on the front page of this content hereby certify that all the views expressed in this content accurately reflect our personal views about any and all of the subject securities or issuers and that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views of in this content. 

LightShed Partners (the “Company”) is an independent equity research provider. The Company is not a member of the FINRA or the SIPC and is not a registered broker dealer or investment adviser. LightShed Partners also has a separate business that allows investors to invest in emerging private technology companies. LightShed Partners has no other regulated or unregulated business activities which conflict with its provision of independent research. 

Ratings Definitions 

Current Ratings Definition 

LightShed Partners’ recommendations are based on a stock’s total forecasted return over the next 12 months. Total forecasted return is equal to the expected percentage price return plus gross dividend yield. We divide our stocks under coverage into three primary ratings categories, with the following return guidelines: 

Buy – we expect the stock price to appreciate by 15% or more over the next 12 months

Neutral – we expect the stock price to change by less than 15% within the next 12 months

Sell – our firm’s opinion is that this stock likely will be down by 15% or more over the next 12 months 

Limitations of Research and Information

This content has been prepared for distribution to only qualified institutional or professional clients of LightShed Partners. The contents represent the views, opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third-party data presented herein were obtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy or completeness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to, any such material or for any damage or lost opportunities resulting from use of this data. 

Nothing contained in this content or any distribution by the Company should be construed as any offer to sell, or any solicitation of an offer to buy, any security or investment. Any research or other material received should not be construed as individualized investment advice. Investment decisions should be made as part of an overall portfolio strategy and you should consult with a professional financial advisor, legal and tax advisor prior to making any investment decision. LightShed Partners shall not be liable for any direct or indirect, incidental or consequential loss or damage (including loss of profits, revenue or goodwill) arising from any investment decisions based on information or research obtained from LightShed Partners. 

Reproduction and Distribution Strictly Prohibited 

No user of this content may reproduce, modify, copy, distribute, sell, resell, transmit, transfer, license, assign or publish the content itself or any information contained therein. Notwithstanding the foregoing, clients with access to working models are permitted to alter or modify the information contained therein, provided that it is solely for such client’s own use. This content is not intended to be available or distributed for any purpose that would be deemed unlawful or otherwise prohibited by any local, state, national or international laws or regulations or would otherwise subject the Company to registration or regulation of any kind within such jurisdiction. 

Copyrights, Trademarks, Intellectual Property 

LightShed Partners, and any logos or marks included in this content are proprietary materials. The use of such terms and logos and marks without the express written consent of LightShed Partners is strictly prohibited. The copyright in the pages or in the screens of the content, and in the information and material therein, is proprietary material owned by LightShed Partners unless otherwise indicated. The unauthorized use of any material in this content may violate numerous statutes, regulations and laws, including, but not limited to, copyright, trademark, trade secret or patent laws. 

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.

American Tower (AMT, Buy, $257 PT)
Valuation: Our $257 price target is based on a sum-of-the-parts that implies a blended 26.6x multiple on our 2022 Cash EBITDA estimate. We rely on multiple expansion to achieve our price target. We estimate AMT’s current stock price implies 32.0x our 2021 domestic tower Cash EBITDA estimate. Our price target implies the multiple on the domestic tower business will expand to 35.0x on our 2022 estimate. Our price target also implies a 2022 FCF yield of 3.2% and a 2022 AFFO multiple of 26x on 6% growth. 
Risks: Risks that are specific to American Tower include its exposure to India where it is still working through operator consolidation. It also faces political and currency risk in other emerging markets where it operates.

Crown Castle (CCI, Buy, $183 PT)
Valuation: Our $183 price target is based on a sum-of-the-parts that implies a blended 30.5x multiple on our 2022 Cash EBITDA estimate. We rely on multiple expansion in Crown’s Macro tower business and contraction in its Fiber business to achieve our price target. We estimate the current stock price implies 31.5x our 2021 Domestic tower and 18.0x our 2021 Fiber Cash EBITDA estimates. Our price target implies the Macro tower multiple will rise to 35.0x and the Fiber multiple will contract to 16.0x on our 2022 estimates. Our price target also implies a free cash flow yield of 1.9%. This is lower than its peers due to the capital intensity of its Fiber business. It also implies a 2022 Adjusted AFFO multiple of 31x on growth of 8%.
Risks: Crown Castle’s company specific risks are the most notable. Crown materially outperformed the S&P 500 market in 2015, while its peers lagged the index primarily because of the small-cell, mmWave narrative pushed by Verizon following the AWS-3 auction. It underperformed its peers for the next four years as the pace of small cell growth failed to materialize in its reported results. We believe the deployment of C-Band spectrum on macro towers will limit the ability for small cell deployments to materially accelerate for several years. We believe it’s hard to argue for more than a 16x multiple on its Fiber business, given that 70% of revenue is from traditional enterprise fiber services and we remain skeptical about any acceleration of small cell growth.

Fubo (FUBO, Sell, $6.50 PT)
Valuation: Our $6.50 one-year price target is based on a 7.5x multiple of 2025 advertising contribution margin discounted back at 15% for four years. 
Risks: (1) Fubo is able to grow subscribers significantly above our forecast of 2 million by 2025. (2) Fubo is able to grow advertising revenue to far above $20/sub/month by 2025. (3) Fubo is able to bring down the price of programming or drop programming without losing subscribers or impacting subscriber growth. (4) Fubo figures out a way to generate meaningful revenue from sports betting. (5)Fubo is acquired by one of its vMVPD peers who looks to accelerate consolidation.

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

Loral Space (LORL, Buy, $42 PT)
Valuation: Our $42 price target is based on a sum-of-the-parts analysis, which is detailed in our initiation report. (Link)
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. The risks of the LEO business also include financing, especially if the ISED does not propose a C-Band clearing plan that pays Telesat material proceeds. There are obviously risks of competitive capacity from additional LEO satellite launches, if those companies’ pivot their model to Telesat’s target markets. We do not believe terrestrial networks pose material risks to satellite connectivity.

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.

Radius Global (RADI, Buy, $21 PT)
Valuation: Our price target of $21 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 16x, which assumes a high of 20x for the United States and a low of 10x for Latin American assets. This results in $11 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 15x exit multiple and find the present value using an 8% cost of equity. This results in $10 per share of value. Our price target also implies 22.6x our 2022 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.

SBA Communications (SBAC, Buy, $343 PT)
Valuation: Our $343 price target is based on a sum-of-the-parts that implies a blended 30.1x multiple on our 2022 Cash EBITDA estimate. We expect multiple expansion to achieve our price target. We estimate the current stock price implies 31.5x our 2021 domestic tower Cash EBITDA estimates. Our price target implies the domestic tower multiple will expand to 35.0x on our 2022 estimate. Our price target also implies a 2022 FCF yield of 3.0% and a 2022 AFFO multiple of 31x on 8% growth. 
Risks: Risks that are specific to SBA include its exposure to Brazil, which has a volatile currency and faces industry consolidation.

Snap, Inc. (SNAP, Buy, $20 PT)
Valuation: Our 12-month price target of $20 is based on a 25x 2022 EV/EBITDA multiple discounted back one year at 20%
Risks: Facebook increasing its focus on private messaging through Threads could pressure Snapchat’s user base. Outcome of ongoing SEC/DOJ Investigation is unknown. Snapchat’s entrance into mobile gaming could be met with increased ongoing competition through both subscription offerings (Apple Arcade, Google Play Pass) and free-to-play (evidenced by the recently released Call of Duty: Mobile). Increased competition in the mobile advertising space.

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.