- BOMBED-OUT SENTIMENT: The Web IV expectation heading into the ruling amongst the sell-side was primarily calling for down to flat rates. But we now realize that the actual buy-side expectation into the ruling was more aligned with our expectation (+.20c) than the sell-side’s since Web IV rates came in about 15% higher than 2015 rates, and the stock rallied. But the rally was fairly muted, closing up 14% off a near two-year low on lower volume than its last earnings release; it lost roughly half of those gains the following day. In short, we now realize that buy-side sentiment was bombed out into the ruling, and hasn’t really improved since.
- NO IMMEDIATE CATALYST: We suspect mgmt sandbagged 4Q15 guidance to bring down 2016 estimates. Consensus is now looking for revenue growth of only 23%. The Ticketfly acquisition should provide incremental revenue growth of roughly 5%-6% based on the limited info mgmt has provided. Net-net, consensus is only looking organic revenue growth in 2016 of ~17%, which is roughly half the rate at which P has onboarded sales reps YTD in 2015. While we still expect Active Listeners to decline on y/y basis, potentially as early as 4Q15 (see notes below for supporting analysis), we can’t pinpoint the exact quarter when that happens.
- HAS THE STORY CHANGED? Our thesis heading into the Web IV ruling was that P’s ad-supported model couldn’t survive the outcome. We suspect P came to same conclusion following final arguments, and hastily took steps to diversify its model. In the following months, P acquired both Ticketfly and Rdio’s assets, and extended multiple olive branches to the major labels in the pre-1972 settlement and publishing deals with Warner and Sony. More importantly, P has continued to strike additional deals with the industry despite a favorable Web IV ruling, suggesting P may actually be committed to working toward direct/interactive licenses, and pushing into the higher ARPU/margin subscription market. If that is the case, then P could be a different story.
Let us know if you have any questions, or would like to discuss further.
P: New Best Idea (Short)
12/22/14 03:56 PM EST
P: User Penetration Survey (N=20,000)
08/28/14 04:12 PM EDT