Editor's Note: Pandora (P) is currently on our Internet & Media analyst Hesham Shaaban's Best Ideas List as a long. He is hosting a call today at 1pm ET to update his thesis and dissect the company's latest quarterly report. Send an email to sales@hedgeye.com for access or for additional information about our institutional research.
KEY TOPICS OF DISCUSSION:
- AD MODEL IS SO POORLY MONETIZED THAT: P's ad-supported model can'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 depends on its salesforce growth, meaning the model may never monetize above cost.
- 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 between 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: management either executes on its sub expansion (new deals + revenue) or is forced to entertain acquisition offers if can't do so, which at a minimum should buoy the stock. The former offers more upside, but the stock should end up much higher either way by this time next year, if not sooner.
