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Takeaway: We expect a light 3Q guide, but 2015 is irrelevant. Web IV is all that matters now, and we expect P to lose the one debate that it can't.


  1. 2Q15 UNINSPIRING, BUT 2015 IS IRRELEVANT: We’re having a hard time getting to 2H15 consensus Advertising Revenue estimates, which essentially call for accelerating growth in its conflicting growth drivers (see table below).  In turn, we’re expecting 3Q revenue guidance to disappoint.  Further, we suspect P’s y/y user growth could slow to the point where it prints another sequential decline in users, which will likely take the street by surprise.  But even if we’re wrong on all the above, we don’t see P catching a bid this close the potential fallout from Web IV.
  2. WHAT WE’RE KEYING IN ON: Listener Hours. Web IV is all that really matters now, and we expect P will lose the one debate that it can’t on royalty rates (different rates for ad-supported vs. subscription music).  Given the potentially significant increase in rates, the more hours P enter 2016 with, the more bearish we become.  The situation would be far too sensitive to just apply a simple listener cap, and hope it would suffice (see table below).  P would need to take more drastic steps to reign in content costs.  We’ll be in Washington for final arguments tomorrow; we’ll report back what we learn.

Let us know if you have any questions, or would like to discuss in more detail.  For Web IV supporting analysis, see links below. 

Hesham Shaaban, CFA


P: Thoughts into the Print (2Q15) - P   2H15 Ad rev scen v2 


P: Losing the Critical Debate?

04/08/15 08:53 AM EDT

[click here]

P: Worst-Case Scenario? (Web IV)

03/23/15 09:30 AM EDT

[click here]

P: Webcaster IV = Powder Keg

01/13/15 02:49 PM EST

[click here]