P: Can We Still Be Friends? (3Q15)

Takeaway: We suspect P is expecting a Web IV defeat (Points 2&3), and is trying to smooth things over with the labels/artists before that happens


  1. UGLY PRINT: P wound up missing 3Q revenues after guiding 1% ahead of street expectations on the last print.  P’s 4Q revenue guidance missed consensus estimates by 7%.  For context, P’s 2015 revenue guidance is now near the low end of its initial 2015 revenue guidance, which it had raised twice this year.  P also missed Listener Hours and Active Listener expectations, with the latter decelerating from 4% to 2% y/y growth.  Note that P’s Active Listener metrics are based on the last month of the quarter, which is when it hosted its ad-free listener day that drew a record 30M users for a non-holiday; no telling what that would have been otherwise.  We continue to expect users to decline on a y/y basis by 4Q15.  Either way, the print doesn't matter (see below).
  2. RECKLESS OR DEFEATED? The $90M pre-1972 recordings settlement was confirmed; $60M is payable this quarter.  So after Ticketfly closes, P will only have $157M in cash prior ahead of the Web IV decision, with another $30M due in quarterly installments in 2016.  That is a dangerously low cushion prior to any clarity on Web IV, especially since small missteps in execution could lead to very big differences in cash burn, if not insolvency (see slides below).  That said, the decision behind the Ticketfly is either reckless confidence on Web IV, or P is preparing to blow up its model ahead of an expected defeat, and needs another story to pitch the street when it does.  
  3. CAN WE STILL BE FRIENDS? (WEB IV): The pre-1972 recordings settlement reinforces our view that P is expecting a Web IV defeat since it also covers the 2016 period, and it is pricing in a considerable rate increase.  P is paying $60M for its pre-1972 recording streams prior to 4Q15; it will be paying another $30M for the 5-qtr period ending 2016.  After weighting the $60M settlement for quarterly listener hours from 2010-2015, we estimate that P is paying a quarterly rate of $4.1M in 2015.  That will bump up $6.0M for the next 5 quarters, which translates to a 46% increase.  We’re not sure if there is a listener hour growth assumption in that rate, but after producing 3% in 3Q15, and guiding to the same in 4Q15; we doubt it’s much (if any).


P: Can We Still Be Friends? (3Q15) - P   pre 1972

P: Can We Still Be Friends? (3Q15) - P   Web IV fallout 2

P: Can We Still Be Friends? (3Q15) - P   Web IV fallout 1

P: Can We Still Be Friends? (3Q15) - P   Web IV fallout 3


Let us know if you have any questions, or would like to discuss further.  See notes below regarding Web IV developments and the Ticketfly acquisition.


Hesham Shaaban, CFA




P: Dumb or Defeated? (Ticketfly)
10/07/15 11:02 AM EDT

[click here]


P: It's All About the Benchmarks (Web IV)
10/02/15 12:22 PM EDT
[click here]


P: Fool's Gold (Web IV)
09/21/15 02:05 PM EDT
[click here]



Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more