KEY POINTS OF DISCUSSION
- AD MODEL IS SO POORLY MONETIZED THAT: P’s ad-supported model hasn't produce any real operating leverage/cash flow to date, and is now more expensive to run post Web IV. P’s 2Q results reinforce our long-standing view that revenue growth is tied to its salesforce growth, meaning the ad model may never get off the ground. That said...
- VERY LITTLE SUB CONVERSION GOES A LONG WAY: The sub model is far more lucrative from both a revenue and margin perspective. The stark difference b/w the two models means the expanded sub launch is a massive growth opportunity, particularly in the initial years, maybe more depending on how aggressively P commits to it.
- P = CALL OPTION: Basically a hedged bet: mgmt either executes on its sub expansion (new deals + revenue) or is forced to entertain acquisition offers if can’t do so, which should buoy the stock at a minimum. The former offers more upside, but the stock should end up much higher either way by this time next year, if not sooner.
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