RESEARCHNICE.TAabout 2 months ago5.5Kviews

NICE: the capex drag just stopped being a drag

The spend is finally producing more than it costs to carry. Every quarter past the crossover compounds in the opposite direction to the last two years.

Sara Cohen@sara_cohen

The mechanism is a depreciation schedule. Capacity is expensed over its useful life while the revenue it enables lands immediately, so the reported margin is worst in the build year and best two years after it, entirely independent of demand. The disclosure carries it. Management broke out the incremental contribution for the first time and it exceeded the incremental depreciation line, which is the first time that has been true since the build began. The position: long on NICE, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. The risk is that the build cycle extends. If capacity commitments rise again the crossover resets, and the argument is postponed rather than wrong, which is the harder outcome to hold through.

Discussion · 5

Omri ShakedJUL 26

Good piece. The installed base argument is stronger than the cycle argument here. Is there a cleaner way to express this than the equity?

Sara CohenAuthorJUL 25

That is where I would push back. Without the catalyst date I would not underwrite it. The date is doing a lot of the work and I would rather say that plainly.

Marco BianchiJUL 26

Reading this against my own model. The contract structure matters more than the headline rate. Is there a cleaner way to express this than the equity?

Dana KatzJUL 24

This is the clearest write-up I have seen on the name. The mix argument is the part I had not considered properly. Any view on how the read-across affects the rest of the group?

Omri ShakedJUL 24

Strong piece, one objection. The destocking signature is textbook and nobody is naming it. How are you thinking about the timing risk here?