P | Changing Its Tune (Strategic Update Call)

Takeaway: P basically conceded that its recent actions are hedges against Web IV, but also implied that a big risk to our short thesis isn't imminent

KEY POINTS

  1. CHANGING ITS TUNE: P hosted a call yesterday following the annonucement of its planned acquisition of certain Rdio assets, but the purpose of the call was to discuss the direction of the company moving forward.  P is diversifying away from its ad-supported model through ticketing and a harder push in the subscription market.  Mgmt also essentially admitted that the acquisitions of both Ticketfly and Rdio's assets are hedges against the Web IV outcome.  In short, P is trying to pitch another story to the street before the WebIV decision is out.   
  2. DIRECT DEALS AREN'T IMMINENT: P also suggested that it aiming to enter the interactive market (e.g. Spotify), but doesn't expect it will be able to offer an interactive product until late 2016.  That likely also means that a direct non-interactive license isn't imminent either; mitigating a big risk to our short thesis of P announcing a direct license agreement alongside the Web IV decision (or shortly after).  That said, P will likely be saddled with what we expect to be considerable increase in statutory royalty rates for at least the first half of 2016.  There's also no guarantee P will get favorable terms on any direct deal (or even deals with each of the majors) given that P has waited till the 11th hour to try to smooth things over with the labels following a historically contentious relationship.
  3. BUT STILL MISGUIDED? P suggested that it doesn't plan to scale back its Local Radio Advertising push in the event of an adverse Web IV decision.  Maybe P is waiting for the Web IV decision before publicly conceding that it will be deemphasizing its ad-supported model.  Given that P's viability in a post Web IV world will be dependent on its cash reserves, we're not exactly sure how P is actually planning to sustain that effort after committing 80% of its current cash to acquisitions and the pre-1972 settlement, while onboarding Rdio's employees at the same time.  Collectively, these actions suggest P is expecting a Web IV defeat, and is preparing to blow up its model.  P has committed too much capital to assume its recent actions are just a hedge.

 

See charts and notes below for supporting detail/analysis on P's model and Web IV.  Let's us know if you have any questions or would like to discuss further.

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

P | Changing Its Tune (Strategic Update Call) - P   Cash   Commitments 2

P | Changing Its Tune (Strategic Update Call) - P   pre 1972

P | Changing Its Tune (Strategic Update Call) - P   Web IV fallout 1

P | Changing Its Tune (Strategic Update Call) - P   Web IV fallout 2

P | Changing Its Tune (Strategic Update Call) - P   Cost structure slide

 

 

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

10/23/15 08:14 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]

 

P: Losing the Critical Debate? (Web IV)
04/08/15 08:53 AM EDT
[click here]

 


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

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