Seeking Beta To Your Alpha

Seeking Beta To Your Alpha
Contributor since: 2012
While you may have mentioned that Spotify and P are different in your article, much of the discussion in your article appears to assume they are similar businesses. This is a serious point of confusion for the casual investor that doesn't understand the music streaming business.
The fact that Taylor Swift pulled her content from Spotify, but not from P should send a message about how different the two businesses are.
Gotta agree with all the points made by dgulick here. Then again, I'm not long P, so I'm definitely biased.
Agree with your point regarding monetization. From the perspective of leveraging P's product, the US is where P's biggest opportunity is.
Also agree with the fact that bandwidth is becoming a fungible product. The problem is that its not free - yet. I suspect that in our lifetime, free or virtually free high speed internet/broadband will become a fact. Right now though, that's where I see P's biggest "bottleneck."
I'm kicking myself for not buying P at $8. I remember thinking about pulling the trigger when it was that low. Even still, I'm pretty happy with my 2017 calls. I agree that the CRB rate setting in December could be a huge catalyst.
The other thing is that if the rates are relatively in line with reasonable projections, then that should provide P with enough relative stability over the next five years to disclose and implement various plans (e.g. international expansion, etc.) that will hopefully provide even more reasons for the stock to go higher...
Guess like most things, only time will tell...
@ Mikestesla
your questions was: "Could you please provide the data from business stand point , what % from the revenue is Spotify transferring back to content providers vs. P."
Spotify hasn't gone public yet so its not subject to the same reporting requirements that public companies are. If the information regarding the breakdown of how Spotify is spending its revenue is public information, then please share since I'd love to know.
As for the rate information that dgulick posted in the comment below, well, that information was in my comment above: "Price paid out per stream from Pandora ranges from about 1/2 or 1/6th of what Spotify pays out, depending on the article you read."
As for the question in your post above: "who determines the % royalty payments that go to artists ? Is it P or Spotify management or external forces ? Does P or Spotify have control of what % of their revenue goes to artists is what I am asking you?"
The answer is - it depends. Private companies like P or Spotify can negotiate deals directly with music labels/artists. The Copyright Royalty Board (CRB) also establishes rates.
http://www.loc.gov/crb
Not so sure if I'd completely agree with opportunity in the US, since P's opportunity as a free ad based service (which is the company's bread and butter) will always be limited by bandwidth. This means you can only play P if you have an internet connection or can stream content over your phone. P's customer base is then limited to listening at home, or alternatively by the data plan on their phones (not everyone has an unlimited plan).
This means that until there is free internet for everyone, everywhere, P will always be competing directly, to some degree, with terrestrial radio for advertising dollars. Right now, I suspect (no real data to prove it though) that most folks who have internet in the US have decided on which streaming service they want. On the other hand, there are overseas markets where streaming brands may be less established, and there is where I think P has opportunity for easy growth.
I suspect P will announce international expansion once CRB rates are solidified. It is a company that understand's Wall Street's obsession with numbers and growth. If anything, the announcement will be made in an attempt to show large amounts of immediate growth in the short term - even if the "quality" of those numbers may not mean much.
I'm not saying that this is a bad thing, but rather a game that P will likely play. By showing increased growth, it will have the ability to increase its stock price and use those gains for leverage when necessary.
In any case, I am long P at this point and loaded up on Jan 2017 long calls before the Q2 earnings report. IMHO, the risk/reward profile was too attractive to pass up.
@ Miketesla,
I wish I had that data. Sadly I do not. What we do know is that P is trying to distinguish itself based on its service as a "passive" player of content. On the other hand, "on-demand" services like Spotify have a harder time justifying lower copyright payment rates to the CRB since a listener can "bypass" purchases by simply putting a song on "repeat" and listening to it whenever they want.
Price paid out per stream from Pandora ranges from about 1/2 or 1/6th of what Spotify pays out, depending on the article you read.
I guess one could "model" total revenue, and then try to figure out content costs by "guestimating" usage, but in the end, unless each company decides to open their books to the public, it will be a guess.
http://bit.ly/1OFGfWD
http://bit.ly/1dl6O6s
At the end of the day though, my main point is that the differences between P's streaming model (passive radio) vs. Spotify's streaming model (on-demand) does have real "differences." The OP comment had argued that the differences were meaningless, which I don't agree with.
At the end of the day, these differences are part of what make up the argument that P pitched to the CRB as a basis to keep its royalty payments at a lower rate. These are arguments that Spotify can't make - and ergo, that's why IMHO, the differences matter.
I wouldn't necessarily say that the fact that they're not the same is meaningless. Some of the differences are what forms the basis for P's arguments about why its payment rates should be different. Sure - they're competitors, but from a business standpoint, if Spotify has to pay higher content costs while P's content costs are lower, well, from that perspective, that difference could be pretty significant.
I dunno - I think there are plenty of positives that one could find in P's latest earnings report. Heck, if I had brain cancer, and found out it was in remission, I'd be pretty positive about that. Not saying that P is the next TSLA, FB, YELP (which I still think is a terrible business model), or similar kind of stock, but there are possibilities with P that seem very interesting right about now.
Brian - I think you hit the nail on the head with your analysis that P is finally leveraging data effectively. There are huge possibilities here.
For example, if you're a sports bar in Philly, and want your ad to play after someone plays "Eye of the Tiger" - or another song in that genre, during football season, but only before an Eagles game - P has the ability to sell that ad slot. If you're a pharmaceutical company with a new depression drug, and you want your ad to play every time someone plays "yesterday - or another song in that genre, during the winter, right after Valentines day - P has the ability to sell that ad slot.
Lots of companies have the ability to sell what they know about you. Very few companies know an emotion that you might be feeling, or trying to feel, better than P. At the end of the day, the kind of music one listens to, which has the potential to vary, depending on the situation, mood, etc. provides information that very other few companies have, and which very few other companies can replicate.
More importantly, P can sell those ad slots for a premium, while also making that time affordable. Businesses can pay less overall by decreasing the volume they are advertising, but would likely be willing to pay more for the time they are advertising, so long as their ads are more targeted to the users they are trying to reach.
Three things that I've been thinking of/had questions about are:
1. How the rise of streaming internet video (sans advertisements), will impact P's ad revenue. With fewer folks watching "ad based TV," other venues like P, which has a very loyal listener base, should become much more valuable. Sure, a company can do things like market its product directly in the program you're watching on Netflix/Amazon Prime/Ad free Hulu - but there more than a few advertisers that can't do things like that because they need to explain a message.
http://tcrn.ch/1JEbLjh
2. How the rise of "free" broadband will affect P's user base. One of P's major problems has been, is, and will be, the fact that its service is limited to folks who have internet connections. No internet connection - no P...and until everyone has free unlimited broadband, there will always be a place for free terrestrial ad based radio.
http://bit.ly/1JEbM6P
3. How might original content change P? We saw what happened after NFLX started releasing original exclusive content. P has started down this path/direction with comedy features, and there has been talk about P original content with respect to "spoken word programming"
http://bit.ly/1JEbM6U
But what I'm wondering about is what happens if/when P decides to start its on music label? I'm not even sure if this is possible, but assuming it is in the realm of possible, what happens when P starts leveraging its listener base, its data analytic capabilities, and its brand to musicians? Sure, it probably doesn't want to do that now because of the tension it would create between the company and existing music labels (along with all the reasons everybody said that NFLX wouldn't do it), but at the end of the day, what when you cut out the middle man, there is plenty of fat that P can keep for itself, plenty of ways for P to drive down content costs, and also would be a means to attract talent.
In any case, good article. P still has lots of problems, and a lot of its future will depend on CRB rates - but the possibilities are out there. I'm interested to see how all this will turn out.
Lots of P shorts on SA...which is fine. Pandora has its flaws. Lets call a spade a spade though - and lets stop all the direct comparisons between it and other streaming music services.
Pandora's focus is on free ad based streaming. It has a pay feature, but that's not its bread and butter. On the other hand, Google, Apple, and Spotify are all more focused and geared toward a subscription and pay model. Yes, P has a subscription service, and the other streaming services have free ad based services, but the focus of P is free ad based music (like FM stations) while the other streaming services have no real interest in trying to sell ads.
http://tnw.co/1NKeBXR
http://bit.ly/1NKeBXS#/
Its similar to ad based TV vs. Netflix, or AM/FM ad based stations vs. Satellite pay based stations. Sure - they are competitors to some extent, but to characterize the other streaming services as a direct competitor to P is simply not accurate.
All the talk about how competition is going to put P out of business is nonsense, the company is here to stay. Its profits will always be subject to question because it has no control over royalty payment which will fluctuate every few years. Once there is more certainty though and if P expands internationally there will be sirious growth potential.
So the author agrees with the analysis outlined by two other analysts who upgraded TWTR last week?
@borisb - that assumes that the current twtr price is low. I'm in agreement with "22643611." TWTR's recent head of engineering "resignation" and the company's desperate "acquisition strategy" are the telltale signs of a company that is in turmoil.
There will be better entry points in the future after next quarter's results and there is room for further deterioration in the company's stock price - especially once the "voluntary" insider restriction on stock sales ends.
No other competition appears to be coming?
Yahoo and Microsoft are already starting up their streaming businesses.
http://bit.ly/1k55Ps3
http://bit.ly/1k55Ps4
Companies like Apple and AT&T are in talks to potentially enter the market (e.g. Apple/Comcast talks; AT&T was rumored to be considering an acquisition of Hulu - and the recent acquisition of DISH might complement the acquisition of a streaming content provider).
Having "cut the cord" for two years to save money, I was a proud Netflix subscriber. I watched network TV through my digital tuner on my Sony Bravia flatscreen, and convinced myself that the buffered Netflix streaming movies that took hours to watch were fine, because in the end, I was saving at least $1k each year...
And then I realized that Comcast was charging me more for my internet than what I would've been paying for the last six months had I opted to purchase both internet and cable from them...($65 a month for internet only vs. $59.95 a month for the double play bundle w/ no annual contract).
Netflix will only last as long as Comcast and Verizon allow it to. The minute both of those companies make the decision to undercut Netflix on pricing, and as long as the law allows them to reduce the feeds of Netflix streams, Netflix won't stand a chance. Right now, Comcast is milking both Netflix and the consumers.
Long story short = Comcast long and Netflix short.
The valuation on YELP is insane. Investors who justify the valuation of the company by comparing YELP to AMZN, TSLA, and other companies that are seeing massive revenue growth are missing the point.
YELP exists because it provides a useful service. Unfortunately those who use the service are not the same as prospective customers. There is a massive disconnect here. Even more unfortunate is the fact potential customers hate YELP.
There is a reason why the company has not been acquired to date. The business model relies heavily on a sales force, who are expected to push services on a customer base that does not like the company.
The stock price will crash...its just a matter of when, not if...
@StoneFox, the "content" analysis doesn't work. Yelp may "own" the reviews that are posted on the site, but it doesn't have the ability to keep people from posting reviews on other sites.
Someone who eats at a restaurant can post the same review on Yelp, Google, TRIP, ANGI, etc.
More importantly, Google is starting to win the local content wars. Six months ago, Yelp's reviews outnumbered Google local reviews about 5 - 1 for most restaurants. That number has dropped significantly. I suspect it has a lot to do with the way that Google has revamped their local restaurant searches.
Don't take my word for it though. Do a Google search for your favorite restaurant or your favorite category of restaurant. You should notice a significant difference than what you found six months ago. You'll also notice that each restaurant has a lot more local reviews on Google.
Yelp will be bought out by another company before 2014...and it will be bought out at a price similar to what Yelp paid for Qype...
Another thing that has the potential to hurt Yelp is the gigantic revenue gains that it saw last year during this time.
Yelp benefited greatly from significant improvements on dismal performance. Most of the poor performance was blamed on the company "just going public" and the characterization that Yelp was a nascent technology company (even though its been around almost as long as FB).
Last quarter, it was clear that revenue growth stalled (Yelp had to spend a ton of money to generate growth). Fortunately for Yelp, it did so poorly in the comparison quarter from the year before, that the results still looked like it was expanding at a rapid pace.
It will be interesting to compare this quarter's results with last year's same quarter results. Based on the large number of insider transactions, I suspect the outcome will not be as favorable as it was last year (when Yelp was the subject of significant hype due to its integration with Apple).
@ Trainer,
I think economicsmaster had it backwards. I think economicsmaster believes that this move will help Yelp long term because he is mixing up Yelp's users with the company's customers.
@follow the herd?
Yes, that was exactly my point.
Agreed, which makes the decision to list public health ratings even more confounding.
@ Nash1983,
If a city hires a swat team, there are two ways to look at it. One way to say, "great!, my city hired a swat team to fight violent crime."
Another way to look at it is, "hey, we didn't need a swat team before, looks like we've got a serious violent crime problem in the city."
Yelp needs the review filter because it has a serious problem with bad reviews. If you don't believe me, explain how a Taco Bell in Chicago becomes one of that city's best rated restaurants? Check the article in the link below.
http://bit.ly/Wn0X1X
FB probably got out of the review business because its just not very profitable. Users don't want to pay for information (which is why business models that charge for review information like ANGI don't make money). The "pay for info" model doesn't seem to work because it also has the effect of limiting reviews, which in turn reduces content, thereby making the business model ineffective.
The alternative free information model (which Yelp is based on) relies on advertising generated by local businesses. Unfortunately, if a company doesn't monitor the content of the reviews, it leads to what Anthony Bourdain has dubbed the "bathroom wall" effect. Moreover careful monitoring of reviews is expensive since it requires a person to actually read and think about the content. Rather than hire an army of reviewers (which would put Yelp even deeper in the red) Yelp has essentially become the "bathroom wall" of online review (it has tried to "crack down" on bad content and also created an algorithm that "hides" low quality reviews, but each of these "fixes" comes with another set of associated problems). Yelp has essentially sacrificed the quality of its review content in order to generate quantity, which has lead to the significant deterioration of quality. This in turn seems to have placed Yelp at complete odds with a large segment of its "customer" base. What local business wants a ton of nasty notes written by a handful of disgruntled customers highlighted for the world to see?
Rather than dealing with the headache of both of these types of online review models FB did the smart thing and came up with "Graph Search." Now individuals can simply search for places that their friends frequent...and who better to trust than the people who are your friends!
Looks like Yelp's response to FB's announcement was to announce that Yelp would be releasing health code ratings to restaurants on the website. Hopefully a new article discussing this move will be posted by SA shortly.
Thanks Trainer, appreciate the feedback. At least one analyst had the foresight to drop their outlook on Yelp...
YELP is not on the table as an acquisition target. Yahoo already indicated it will be looking for tech and talent, not content. Also, Yelp's overpriced shares makes it very very unattractive.
If you don't believe me, just read what Marissa Mayer had to say about the subject in the link below. Your article would've been more accurate if it replaced "YELP" with Open Table, since that's more along the lines of what Yahoo is looking at these days.
http://on.wsj.com/WpM42o
@Windsun - competition is GOOG, FB, YHOO, ANGI, TRIP, UrbanSpoon, Opentable, Restaurant.com, foursquare, and every other Tom, Dick, & Harry with a website that lets folks vent about local businesses. Not to mention that AMZN, GRPN, and Living Social are each in the exact same space and could let users "review" businesses by simply tweaking their websites...
Not sure how the Street let Yelp get to $1B valuation. Even ANGI is way overvalued and its currently trading in the $10 range.
Traffic on Yelp is starting to plummet. Expect a Q4 miss and then watch as the company's stock price hits single digits.
@ Trainer
Yeah, I saw your comment and shared your confusion. When I think of a good company, most of them actually make more money than they spend.
Such a minor point, that its easy for investors and SA contributors to overlook the fact that Yelp is actually supposed to be a publically listed company on the NYSE rather than a non-profit organization.
To piggyback on doomonyou's comment, not only is FB a major thorn, but YELP had nothing to address concerns about its inability to monetize mobile (see http://bit.ly/TYQyq6).
As more eyeballs shift to mobile, YELP is ill-prepared to deal with upstarts like FourSquare who are clearly the dominant player in mobile and ill-prepared to deal with more developed tech players like FB, GOOG, and YHOO.
YELP's problem is that it is a mid-sized player that needs to be acquired in order to survive, but it just hasn't realized that yet. Its too big to be nimble (like FourSquare) and its lack of resources prevents it from competing with the likes of GOOG, YHOO, and FB for talent and technology (smaller upstarts have no reason to want to be acquired by YELP when they have better options).
Of course, because only key advantage it has is content, if it doesn't get acquired in the next year, it will become worthless as other players start getting users to shift production of content onto their sites.
YELP either gets acquired at $5 - $10 a share within the next year or so, or it dies a gruesome death.
Be careful not to confuse a service that you like (i.e. free information available online) with a good company/business model.
I love my local shelter and the work that it does to save stray animals, but I'd never invest money in it if it tried to convince me that it would be a profitable business...
I use Yelp as one of many resources before spending money in a restaurant or before I buy a service, but the business model is horrible (for too many reasons to list in a comment) and has no prospect of ever making money.
"Good" companies normally turn a profit every now and then. YELP has had five consecutive quarters of no profit. The only shot it had of ever making money was with its integration into APPL maps last quarter and we all just saw how that turned out.
Now that we know that APPL maps is a complete bust, and now that we know that the business space YELP occupies is about to get a whole lot more crowded (GOOG, YHOO, FB, Foursquare, UrbanSpoon, OpenTable, Restaurant.com, etc.) explain to me how YELP has any potential of becoming profitable (it has already conceded that the European Qype acquisition won't be contributing towards profitability anytime soon).
So if investor expectation is for a public company to turn a profit every now and then (we'll agree to disagree on whether that such an expectation should be labeled "high") explain how "good" companies are unable to do this? Alternatively, explain to me again, why YELP is a "good" company?
@MO,
Thanks for the feedback. A lot of hype over the past two quarters was over the iOS 6 integration. I bought a few hundred shares myself in the $18 range before the lock up expiration and before Apple maps was released. I sold Oct. $23 covered calls and they were exercised by the buyer in late Sept.
I didn't bother rebuying since its clear that Apple Maps was a flop.
If Yelp doesn't change its business model or isn't acquired in 2 years, the content will become stale as other companies enter into its business space with better business models and better technology. Users will start to rapidly switch to those sites which will contain updated reviews and newer information. Yelp will be another distant memory like Myspace.
The company's founders are guys who are living the dream. International parties in the US, Asia and Eastern Europe. Total compensation packages that are in the millions of dollars annually.
And despite the fact that the company hasn't turned a penny of profit in over 5 consecutive quarters since it was founded, investors are still shoving money in their faces.
If no-one in a crowd watching a naked emperor walk down the street has the sensibility to tell one another that the emperor threads aren't as nice as everyone is making them out to be, then who is "conning" who?
If you ask me, I'm not so sure that the founders are really the ones to blame...