Issue #14: Profiting from the global semiconductor shortage and becoming the Netflix of live sport ⚽
Ticker Nerd Platinum Report

Issue #14: Profiting from the global semiconductor shortage and becoming the Netflix of live sport ⚽

Sam Renotte

April 28, 2021

May 5, 2021
5 min

Here’s what we found:

  • A company that is growing rapidly as the world's supply of semiconductors shrinks.
  • A live sports streaming company that is about to enter the lucrative online sports wagering market.

Himax Technologies, Inc. ($HIMX)

$14.02 - Share price at time of writing

Source: marketstream.io

Summary:

  • Himax Technologies is a fabless semiconductor company based in Taiwan.
  • This means it designs and sells semiconductor chips while outsourcing the fabrication to specialized manufacturers.
  • It serves several markets with its products being used in smartphones, TVs, tablets, monitors, cars, and gaming.
  • Himax is well-positioned for accelerated growth due to boosted demand for tech such as TDDI, AMOLED drivers, PMIC for 5G phones, and CMOS image sensors.

What they do:

Himax Technologies is a fabless semiconductor company from Taiwan.

Semiconductors are an essential component in most electronic devices.

There is currently a global semiconductor shortage.  

The shortage has caused shift cuts at a Ford auto plant in Kansas and a General Motors plant in Brazil, has boosted an eBay scalpers market on the PlayStation 5 and high-end graphics cards, and has forced Samsung to cancel the latest version of the Galaxy Note phone.


The current shortage was triggered by COVID-19-related production and shipping problems but has become increasingly dire over the past few months.

Why they’re spiking in interest:

According to Gambiste.com, the Twitter score* for HIMX increased by over 33% during the past 3 month period.

*The score is calculated by weighing each comment based on user reputation and filtering through spam/low-quality posts.

The semiconductor shortage has grabbed the attention of investors as there are currently no signs of the shortage ending within the next year.

Notable comment from Reddit:

"Just loaded up on more HIMX. With the chip shortages I could see this doubling by years end as the economy picks up. Definitely a longer hold though" - yerawizardIMAWOTT

💸 Signal: Billionaire hedge fund manager Jim Simons increased his position in HIMX by over 405,000 shares in Q4 2020 and is still currently holding. Source - cheaperthanguru.com

Why HIMX could be valuable:

The increased demand for semiconductors has allowed Himax to increase its profit margins from around 20-22% to over 31% in Q4 2020 and 40.2% in Q1 2021.

The expected revenue growth for 2021 will increase their earnings per share to $1.20 (conservatively) or to $1.52 in a best-case scenario. The positive trends are here to stay for at least 6-8 more quarters with strong demand for tablets, computers, displays, smartphones plus a recovery in the automotive sector.

Himax is also tapping into smart AI devices as well as microdisplays, two rapidly growing markets. Himax is already playing a major role in these markets through products like the Himax Ultralow Power CMOS Image Sensor (CIS), Himax Smart Sensing and LCOS for AR goggles.

Himax's biggest growth driver is TDDI. TDDI stands for Touch and Display Integration and has become the standard for touchscreens in cars. Himax is one of the market leaders in TDDI and is steadily replacing the legacy technology. Global demand is expected to increase by 33% to 1.13 billion units by 2025, according to Omdia.


Other areas Himax is seeing strong demand include Wafer-Level Optics (WLO) and Time-of-Flight (ToF) 3D sensing. These technologies are used in smartphones and 3D sensing for facial recognition.

The shift to remote work has also boosted demand for its CMOS Image sensors, used in webcams and laptops. These tailwinds are expected to stay for at least the next couple of quarters. This will continue to boost Himax's earnings and revenues in the medium to long term.

What the risks are:

The biggest risk to Himax is double-ordering by customers. Double ordering can artificially inflate demand which forces supply to keep up. This results in demand slowing as supply begins to exceed the "real" demand.

Another key risk to consider is the production capacity of specialized foundries since Himax doesn't manufacture its own products.

fuboTV Inc. ($FUBO)

$22.11 - Share price at time of writing

Source: marketstream.io

Summary:

  • fuboTV's stock has been crushed over the last two months, but the selloff doesn't appear to be justified.
  • Their price-to-earnings has fallen from 13 times current sales to around 5 times.
  • This kind of valuation is quite low for a company with a real business model with 548,000 subscribers paying on average almost $63 per month.

What they do:

fuboTV is a streaming platform focused on live sports.

fuboTV has two main lines of revenue: subscriptions, which now makes up 89% of revenue, and advertising, which grew at a whopping rate of 157%.

The company is also planning to introduce sports betting services (FUBO Sportsbook) in Q4 2021 using a similar strategy to DraftKings who recently partnered with Sling TV. The potential revenue from FUBO Sportsbook hasn't been included in their guidance for 2021.

The company has also made key strategic deals, including exclusive rights to the 2022 Qatar World Cup.

The company has $139 million in cash ($0.96 per share), no long-term debt, and a low debt to equity ratio of 5.38%.

Why they’re spiking in interest:

According to MarketStream.io, the latest data for Reddit mentions of FUBO shows a 173% increase in mentions over a 4 day period.

Interest spiked around the same time news was announced that fuboTV was hiring over 100 employees to grow their gambling division.

Discussion around whether FUBO had become underpriced after the continued sell-off also likely contributed to the increase in mentions.

Notable comment from Reddit:

"I've been buying FUBO shares in the 20s back in January. I could've sold, but I didn't because I like the stock and I believe in this company." - sicknology

💸 Signal: Billionaire hedge fund manager David Einhorn purchased over 1.2 million FUBO shares in Q4 2020 and is still currently holding. Source - cheaperthanguru.com

Why FUBO could be valuable:

Currently, fuboTV sits at the intersection of three megatrends: the decline of traditional television, the shift of TV ad dollars to connected devices and online sports wagering.

The streaming industry is expected to grow at a CAGR of 21% for the next seven years. Despite competition heating up with Disney+, Dsicovery+ and Paramount+  sports streaming has yet to be captured by any of these new entrants.

fuboTV has also made serious progress on the profitability of its subscription business.

Each subscriber cost the company $61.10 per month or $733.20 per year in Q4 2020 while generating $69.19 per month or $830.28 annually in revenue in Q4. This is a margin of 8.8%, up from razor-thin margins of 0.7% in 2019's Q4 and negative 4.0% margins in Q4 2018.

FuboTV is not only seeing strong growth in its subscriber business, but its ad business is now its number one growth center.

Its ad business has begun contributing a significant amount to revenue, nearly 11% of 2020 revenues.

Ad ARPU increased 52% year-over-year in the fourth quarter of 2020, continuing the trend of being the higher growth business unit.

FuboTV plans to start its entry into the sports wagering market with free-to-play predictive games and believes the service will enhance its sports streaming experience. While at the same time, providing a bridge between its content and sports wagering product.

What the risks are:

There are some gaming industry veterans that feel that fuboTV's plan is unrealistic.

An article from Legal Sports Report pointed out that any product that offers wagering will be immediately subject to gaming regulations.

This means new customers will need to go through a much more stringent sign-up process, including submitting social security details.

The regulatory aspects of sports betting might not be ideal for fuboTV and could possibly slow down subscriber growth.