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Takeaway: P's new plan to ramp 2H15 marketing expense is an odd pivot this late in the year. Mgmt may be getting more nervous about Web IV.


  1. 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.
  2. 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.  
  3. 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



P: Notes from WebIV Closing Arguments

07/22/15 01:26 PM EDT

[click here]

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]