Top Analysts Gauge Transition for Pandora Media Inc (P), See Even More Gains Ahead for Shopify Inc (US) (SHOP) Following Q2 Earnings
Pandora Not Quite a Phoenix Rising Just Yet
Pandora Media Inc (NYSE:P) shares are dashing 3%, despite the music streaming firm outclassing on revenue and EBITDA. The weakness of the second-quarter print lies in the company's key metrics, i.e. Listeners, Hours, and Paid Subscriptions. Meanwhile, the sale of Ticketfly coupled with a quarter that saw the withdrawal of operations in both New Zealand and Australia, and a pull-back of focus on subscription revenue all led to the Pandora team cutting its revenue expectations for the year.
Top analyst Mark Mahaney at RBC Capital cheekily notes "We Need More Cowebell…" from Pandora, surveying the platform's prospects from the sidelined land of neutrality.
On the heels of the print, the analyst maintains a Sector Perform target on the stock while slicing the price target from $15 to $10, which implies a 15% upside from current levels.
Furthermore, the analyst has cut his revenue estimate for the year 4% down to $1.48 billion, taking EBITDA from a loss of ($125 million) to a loss of ($114 million).
For the second quarter, Pandora brought in a 10% year-over-year boost in revenue of $377 million, beating both the Street's forecast of $368 million as the analyst's estimate of $371 million. This outperformance can be attributed to improved ad revenue, says Mahaney, who notes the 5% year-over-year rise this quarter certainly beat last quarter's slight 1% year-over-year bump- "but still the second-lowest growth we have tracked at Pandora," unfortunately. Additionally, the firm brought in adjusted EBITDA of a loss of ($48 million), not including a one-time charge, which came in ahead of the Street's ($55 million) as well as Mahaney's projection of ($61 million), benefiting from Sales & Marketing expenses that were not as high as predicted.
Not fostering much confidence among investors, the Pandora team decreased its revenue range from $1.5 to $1.65 billion down to $1.45 to $1.5 billion. Outlook for EBITDA for the third quarter mostly mirrored both the Street's and the analyst's expectations.
Another glaring issue for Pandora this past quarter was that its performance in Active Users was "light," with the firm closing the quarter with 76 million Active Users, a 700,000 quarter-over-quarter dip that also underperformed both the analyst's as well as the Street's projections. Momentum here has been suffering lately, with Mahaney pointing out, "This marked the sixth of P’s seven recent quarters in which its Active User based declined Y/Y."
Another "light" metric for P lies in its Total Listener Hours, falling 8% year-over-year this quarter and likewise coming up short of both Mahaney's and the Street's forecasts. "This was the steepest decline we have seen in some time. Pandora did report, however, that average days per month per listener reached an ATH of 26," notes the analyst.
Paid Subscribers also hit "light," with 4.86 million indicating merely 150,000 net adds were added this quarter, hitting under the Street and the analyst's estimates. For the analyst, the meaningful takeaway is the new management team has shifted its Paid Subscription offerings perspective, focusing more on customer retention instead of growth. Pandora closed the second quarter with $228 million in cash.
Mahaney spells out a phoenix who has not quite evolved out of the ashes at this time, writing, "We see P in midst of a major product, management, and strategy transition."
"In our view, this precludes having a strong investment opinion about P shares. What are constants are that Pandora has a well-established brand (as documented in our latest Annual Online Music Survey), a very large user base (76MM users, though declining), arguably significant strategic value, and an undemanding public market valuation (1.5x P/Sales). Probably the most important fundamental factors we would look for to consider an Outperform rating would be: a) stabilization in its Active User base; b) consistent double-digit growth in its Advertising Revenue segment; and c) a clear path to sustained profitability," concludes the analyst.
According to TipRanks, which measures analysts' and bloggers' success rate based on how their calls perform, top five-star analyst Mark Mahaney has achieved a high ranking of #15 out of 4,627 analysts. Mahaney has a 73% success rate and realizes 23.3% in his yearly returns. However, when recommending P, Mahaney loses 30.1% in average profits on the stock.
TipRanks analytics showcase P as a Buy. Based on 25 analysts polled by TipRanks in the last 3 months, 13 rate a Buy on Pandora stock, 11 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $11.39, marking a 28% upside from where the stock is currently trading.
Shopify's Cream of the Small-to-Medium Crop
Shopify Inc (US) (NYSE:SHOP) shares are rocking almost 10% after the Canadian e-commerce platform strode through with one more robust quarter under its belt, delivering a beat that has all on the Street raving today.
One reason for Shopify's success stems from enticing big brand momentum, with over 500,000 merchants turning to the platform, from leading names like Visa to BuzzFeed to Tesla, to name just a few. Just this last quarter alone, the platform added a boost of 70,000 merchants to its name, with merchants intrigued by SHOP's ability to design, establish, and regulate stores. Moreover, Shopify does not just limit stores to brick-and-mortar locales, offering portals to the web, mobile sale opportunities, as well as through various social media channels, diversifying its intrigue factor to the merchant eye. It is no wonder then that Shop is striking new chords of excitement in the investor world, soaring to new peaks in trading after the strength of its second-quarter earnings triumph.
For the second quarter, SHOP outclassed consensus revenue expectations calling for $143.9 million as well as the high end of its own outlook ranging between $142 to $144 million with a 75% year-over-year surge to $151.7 million. Subscription Services revenue climbed 64% year-over-year to $71.6 million, 4% higher than last quarter, outclassing consensus expectations of $67.7 million thanks to MRR of $23.7 million that grew 64% year-over-year.
Also on track for Shopify was its Merchant Solutions segment, with revenues roaring 86% year-over-year to $80.1 million, bringing in another beat compared to the consensus forecast of $76.1 million. GMV saw an 81% year-over-year incline to 81%, securing $5.81 billion for the platform. Though the company still posted a loss this quarter, it's 1.9% margin and loss of $2.9 million outperformed consensus of -$6.8 million and guidance between ($8 million) and ($6 million).
Top analyst Colin Sebastian at Baird for one is cheering this "beat and raise," even more enthused considering the Shopify team has lifted guidance for the rest of the year. This further proves to Sebastian that "strong merchant adoption" is at play for the platform, with a one-two uppercut of Subscription and Merchant solutions performing impressively for the company. Stellar merchant engagement trends carried Shopify's beat, argues Sebastian, who likewise praises the rampant revenue growth in Subscription Solutions. Additionally, the analyst points to the advantage of a steeper gross margin (57.3%) that helped cut back on the company's non-GAAP operating loss.
"At first glance, no change to our positive thesis (top SMID-cap pick) as Shopify reported another strong quarter, ahead of consensus on top and bottom lines, driven by accelerating growth in Subscription Solutions, a record number of merchant additions, and ongoing momentum for Shopify Plus. Adjusted operating loss also beat expectations (Q4 expected to be profitable), even as the company invests to expand addressable market opportunities," opines Sebastian.
As such, Sebastian reiterates an Outperform rating on SHOP, while raising the price target to $110.
Colin Sebastian has a very good TipRanks score with a 79% success rate and a high ranking of #12 out of 4,627 analysts. Sebastian yields 24.6% in his annual returns. When suggesting SHOP, Sebastian garners 115.1% in average profits on the stock.
TipRanks analytics demonstrate SHOP as a Buy. Out of 16 analysts polled by TipRanks in the last 3 months, 8 are bullish on Shopify stock while 8 remain sidelined. With a loss potential of 9%, the stock's consensus target price stands at $91.73.
