- GOOD PRINT: P produced upside to 2Q estimates on a reacceleration in ad revenue growth, and also guided high 3Q15 revenues (we expected soft 3Q guidance). The biggest surprise from 2Q15 was a sharp acceleration in Advertising RPMs growth (up 25% vs. 15% in 1Q15), which on a stand-alone basis would be very encouraging, but was largely fueled by a sharp deceleration in listener hour growth from fewer skipped tracks (enhanced user customization). The one blemish was the consensus miss on Active Listeners, which we continue to expect will decline y/y by 4Q15. Regardless, a better print than we expected.
- ODD PIVOT: P softened its tone a bit regarding Web IV, suggesting that it’s planning for a range of potential outcomes, which is naturally the prudent move, and not a concern. But what caught us by surprise was P's new plan to ramp 2H15 marketing expenses. P left 2015 EBITDA guidance in tact despite net 1H15 upside ~$12M, which is supposedly going toward incremental 2H15 marketing. For context, marketing spend was $17.6M in 1H15, and $16.4M for all of 2014. We suspect this marketing ramp is either a sign that P is increasingly concerned with its attrition OR that P is trying to make a late push into its higher-ARPU subscription product ahead of a potentially crippling Web IV decision for ad-focused model. Either way, it’s an odd pivot this late in year, especially following closing arguments for Web IV this past Tuesday.
- WEB IV IS ALL THAT MATTERS: We have been writing about this ad nauseam, so we'll keep this brief, and refer you to the links below. We expect P is going to lose the one debate that it can't (bifurcated royalty), and our take from Web IV final arguments is that P will be the odd man out from the tacit horse trading between SX and NAB/IHRT. For more detail, see links below.
Let us know if you have any questions, or would like to discuss in more detail.
Hesham Shaaban, CFA
WEBCASTER IV NOTES
P: Notes from WebIV Closing Arguments
07/22/15 01:26 PM EDT
P: Losing the Critical Debate?
04/08/15 08:53 AM EDT
P: Worst-Case Scenario? (Web IV)
03/23/15 09:30 AM EDT
P: Webcaster IV = Powder Keg
01/13/15 02:49 PM EST