I’ve got some analysis and some trade alerts to deliver, so let’s jump right in.
Goldman Sachs added Pandora to their “Americas Conviction List” this morning and the stock is up near $15/share near recent highs.
The Goldman notes first caveats their conviction with the facts that the company faces “significant execution and competitive risks as it launches its new subscription models and transitions its ad-supported business to direct label relationships.”
But then the note goes into the bullish case for Pandora, namely that the analyst thinks there is meaningful upside potential in the “out-years, driven by premium radio and on-demand subscriptions.”
The analyst actually thinks that Pandora will see revenue growth accelerate from 20% to near 30% over the next four years, reflecting what the company itself projects in years ahead. The company has guided to revenues of $4 billion by 2020, at a five-year CAGR of 28 percent, as compared to the 20 percent growth in Q3.
The analyst also mirrors the company’s own explanation of how they’re magically going to accelerate growth in years ahead “With premium radio, on demand, ad supported listening, ticketing, and growth in auto and home listening, we see multiple avenues to get there.”
The Goldman analysts even say that they “expect competition to ease for the company in the online music space, with a slowing down of growth of new entrants, labels limiting ‘free model’ and existing providers focusing more on profitability.”
Uh, ok, let’s analyze that last part, as it’s astounding to me that the analyst can look around at Amazon Prime Music, Google Music, Apple Music, not to mention the 800-lb gorilla in the industry, Spotify and claim that competition will ease for the company. Certainly, there will fe a slowing down of growth of new entrants, but existing providers including all of the aforementioned names are focusing on growth and not profitability.
“We have revised our estimates to reflect potential new revenues and fully reflect the additional costs,” the Goldman analysis also notes as they raise 2017 and 2018 revenue estimates 11 percent and 31 percent, respectively, while also raising the EBITDA estimate for 2018 115 percent.
I think they’re right that there will be additional costs that aren’t yet factored into most analysts’ estimates, but I do not expect that Pandora’s going to see revenue growth ever get above its current 20-25% and is likely to actually slow, not accelerate.
I’m going to re-short some Pandora shares that I’d covered a few months ago when the stock was in the single digits and I’d covered half my short.
I’m also going to add another 1/3 tranche to my EWY short position that I’d initiated a few weeks ago. I think the Samsung Galaxy phone blow up issue will cause permanent damage to Samsung’s positioning in the market place and the profitability of their smartphone sector in years ahead. I’ll look to add some long-term EWY puts if it rallies above $60.
I’m also going to trim another 1/8th of my Twitter long, locking in nice profits and just being disciplined as this stock rallies into hoped-for acquisition potential.
I’m also going to trim about 1/10th of my Nvidia long, locking in some nice profits and just being disciplined as the stock has more than doubled in the six months we’ve owned it.
Finally, I’m going to trim 1/10th of my Amazon long, locking in some nice profits and just being disciplined as the stock is up in a straight line for the last few months and its current valuation of $400 billion makes it the fourth-most valuable company on the planet.