Hedgeye's Internet Analyst Nails Pandora Short Call | $P

Takeaway: Our contrarian Internet analyst made the short call on Pandora (P) before the bottom fell out.

It’s been a (really) rough day for Pandora shareholders. The stock has cratered over 30% today after the online radio streaming company reported ugly 3Q results.  


Hedgeye's Internet Analyst Nails Pandora Short Call | $P - 10 23 2015 Pandora


One Wall Street analyst wasn't caught by surprise. Hedgeye Internet & Media analyst Hesham Shaaban has long been skeptical about the stock. It was added to his Best Ideas Short list on 12/22/2014. Since then, Pandora is down 29%.    


Here’s an update from Shaaban following results:


“Pandora's 3Q release was pretty ugly.  P wound up missing 3Q revenues after guiding high on the last print, and cut 2015 revenue guidance back toward the low end of its initial 2015 guidance release, which it had raised twice this year.  More importantly, P may have telegraphed that it expects to lose Web IV through both its Ticketfly acquisition and its pre-1972 settlement.  Once the Web IV decision is out, P could be a single digit stock.” 


***Click here to read Shaaban’s research note earlier this week heading into the print.


Check out the slide below on Pandora. It's from his “Quarterly Internet Best Ideas Call” he hosted last week with institutional subscribers where he reviewed major themes and incremental developments for a slew of his best idea longs/shorts including Yelp!, LinkedIn and more.


Hedgeye's Internet Analyst Nails Pandora Short Call | $P - Pandora


***If you’d like to learn more about our institutional research offerings please ping

RTA Live: October 23, 2015



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USD, Oil, US 10 YR

Client Talking Points


Draghi rang that #cowbell and macro markets absolutely ripped – gotta love that, even though people will realize it’ll perpetuate as opposed to arrest #deflation (see our research note from last night); here’s a visual on USD during #GrowthSlowing data vs. Euro QE.


Showing no follow through on the QE “buy everything” hopes this morning and that makes sense to me – Nat Gas -1.3% to $2.36 and I think it’s time to sell some (or all) of the net long position we’ve been advocating in Commodities (Gold specifically) as of late.

US 10 YR

Up Dollar, Down Rates à not a growth signal, and we’ll stay with the USA Long Bond position as German 10yr Bund Yield breaks down to 0.50% and Swiss 10yr deflates to -0.33%

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald’s reports 3Q15 earnings Thursday, October 22nd before the market opens, with a conference call at 11:00am ET. We are expecting strong sequential improvement in performance globally. We look forward to giving you an update on the company’s performance next week, but this week we wanted to focus on the ‘Looming Crash in Beef.'


On Thursday, October 15th, we held a thought-leader call regarding the declining price of beef and how long it will continue. Prices have sky rocketed in recent years and are now standing at more than two standard deviations above the 30 year average. We believe a 50% decline down to historical averages is well within the realm of possibilities. Declining beef prices will be a major tailwind for McDonald’s as they navigate their turnaround.


Restoration Hardware opened its new Full Line Design Gallery at the Cherry Creek Shopping Center in Denver this week.  This is another anchor property -- using 53,000 feet of the 90,000 left vacant by Saks at Cherry Creek.


RH is taking up the size of its stores from an average of 8,000 square feet to about 40,000+ for its new stores – and productivity rates on these new assets are headed higher. In the old stores, RH could only show 10% of its assortment, while in the newer format stores, the company is showcasing better than 75%. Consumers can’t (and don’t) buy what they don’t see.


The #SlowerForLonger theme from Hedgeye Macro has been consistent and straightforward. Our pivot in advance of the most recent jobs report to get long of gold and stay out of the way short-side on commodities turned out to be a good position.


Growth expectations have been correctly revised, but there’s still a good amount of room between Hedgeye estimates and consensus. We are expecting GDP in a range of 0.1%-1.5% for Q3 and another 1-handle in Q4. If that proves accurate, flatter goes the Treasury curve (TLT, EDV), wider goes high yield spreads (bad for JNK), and down goes the USD (GLD).

Three for the Road


Most interesting macro signal today is the Bond Market doesn't give a damn about US stocks "up"



"To be the man, you gotta beat the man!"

-Ric Flair


Even though the Seahawks defeated the 49ers last night 20-3, Russell Wilson only put up 13.40 fantasy points.

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]



CHART OF THE DAY: Draghi Puts His Finger On The Trigger (Again)


CHART OF THE DAY: Draghi Puts His Finger On The Trigger (Again) - 10.23.15 EL chart


Ultimately (and perversely) Down Euro Devaluation is a global TIGHTENING event because the world’s biggest asset price #deflation risk is that the world’s inflation expectations (commodities, debt, etc.) are DENOMINATED IN DOLLARS.


Yep. I’m going all CAPS on you at the top of this freshly squeezed and stimulated risk management morning! Let’s get after it.

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