Pandora Media BUY


P : NYSE : US$28.20

Target: US$43.00

Pandora radio is the market leader in personalized
Internet-based radio listening in the US. The company
uses its proprietary algorithms as part of the Music
Genome Project to generate playlists for users that are
personalized and cater to the tastes of individual users.

All amounts in US$ unless otherwise noted

Technology — Internet
We hosted a series of investor meetings in Europe with Pandora’s
investor relations team, Dominic Paschel and Palmira Farrow. We exit
the trip with a little jet-lag accompanied by renewed confidence in
Pandora’s ability to exceed our revenue targets over time, especially
when viewed through the lens of future local sales capacity. Pandora
stock is still down sharply from last year’s highs. Meanwhile, we believe
business momentum is strong. Given the stability of Pandora’s model,
we do not expect dramatic revenue upside (or downside) in any given
period. However, we continue to believe Pandora is early in attacking a
large opportunity. We note the European investor base has historically
had limited exposure to Pandora’s U.S.-centric music service (and
therefore the stock), but that interest appears to be growing especially in
the context of a potential listing for Spotify.
Key points
 We check our primary revenue forecast (driven by hours & RPM)
with a “sales capacity” forecast that projects Pandora will grow its
local sales force from 100 in Q1 to ~222 by the end of 2016. We
believe local audio ad revenue should grow by ~167% in 2014 and
68% in 2015. We believe the local sales force is ramping
productivity more quickly.
 We expect a steady but measured path towards profitability, with
management adhering to a philosophy of margin expansion each
We maintain our BUY recommendation and $43 price target. Our price
target is based on 45x our FY18 non-GAAP EPS estimate of $1.56,
discounted to present at 10.5%

Pandora Media Buy Target $35

P : NYSE : US$28.40
Target: US$35.00

Pandora radio is the market leader in personalized Internet-based radio listening in the US. The company uses its proprietary algorithms as part of the Music Genome Project to generate playlists for users that are personalized and cater to the tastes of individual users

Technology — Internet
Our November audio advertising load sampling indicates continued
stability. We observed an average of 5.4 audio ad spots per hour in
November, a slight increase from October’s 5.3 audio spots and
September’s 5.0 spots. The local mix remained healthy, despite a
stronger showing from large national retailers in the sampling this
month. The quality of display advertising also improved significantly,
potentially implying higher pricing power for the segment.
Key points
 Our November audio advertising sampling of 16 hours across four
geographies (New York, NY; Portland, OR; Austin, TX; Nashville,
TN) shows continued stability. Our sample suggests that the ad load
in November increased slightly to 5.4 spots per hour from 5.3 spots
in October and 5.0 spots in September. The split between 30- and
15-second spots was 84/16% in November, implying that the
average ad load across the tested geographies currently stands at
2.5 minutes, compared to the estimated 2.4 minutes in October.
 Local audio ads continued to be solidly represented in November
coming in at 45% of total compared to 48% and 32% of total in
October and September. Large retailers and Auto were the largest
categories in November, accounting for 40% and 23% of total audio
ad units, up from 18% and 19% in October.
 The quality of “pure” display ads (i.e., those not accompanying
audio ads) improved; we observed a pronounced shift from Tier III
advertisers (mostly app game downloads) to Tier I advertisers
(mostly large brands), driven by a heavier mix of Retailers and Auto
companies. This suggests large brands may be purchasing display
more intensively, rather than simply relying on audio-linked display.
We maintain our BUY recommendation and $35 price target, which is based on 45x our FY17 EPS estimate of $1.20, discounted to present at

IMAX Corporation Seeing The Big Picture

MAX : NYSE : US$27.00
Target: US$32.00

IMAX Corporation is one of the world’s leading entertainment technology companies, specializing in  motion picture technologies and large-format motion picture presentations. The company’s principal business is the design and manufacture of large-format digital and film-based theater systems and the sale or lease of IMAX theater systems or the contribution of IMAX theater systems under revenue-sharing arrangements to its customers.

All amounts in US$ unless otherwise noted

Media — Film and Entertainment
Investment recommendation
In light of the volatility in the stock last week, we wanted to provide a clearer view as to how we think IMAX is being valued in the market, in addition to our own fundamental valuations. The objective is to identify reasonable entry and exit points, and thereby perhaps take advantage of such periods of volatility. One of the challenges we have experienced is that IMAX does not have reliable comps. Albeit from a different sector, we think using names such as Starbucks, Michael Kors, and Nike as
valuation comps shed light on pricing. We believe they share the broad investment profile of IMAX in that they represent premium brands (affordable luxuries) with EBITDA projected to swing up sharply over the next four years (on average, doubling from 2012-2016E), and are primarily international expansion stories.

As we have shown in this note, there are some interesting valuation comparisons, particularly as we extend to the outer years (2015E, 2016E). On this basis, we consider 11-12x 2014E EV/EBITDA to be very compelling entry points for IMAX;
this represents a range of $23.80 to $25.75. It is well below IMAX’s longer term forward year average of 15x and at the low end of the above listed comps.

Whenever IMAX’s share price hits these levels, we advise aggressive overweighting of the stock. On the other hand, if the trading multiples rise to Starbucks’ levels, which reside in the high end of the range, we would see the stock as being fully valued. At SBUX’s 14.9x EV/EBITDA 2014E, IMAX would be trading at $31.25, and at its 12.5x 2015E, IMAX would be trading at $34.70 per share. We value IMAX by using a DCF analysis, to arrive at our 12-month target of US$32.00 per share. We use a discount factor of 8.5%.

Q3/13 preview: We have been warning of an anticipated light film slate in Q3/13 as far back as September of last year, and we have not been disappointed; it likely ended even weaker than expected. We are looking for $12.8 million in adjusted EBITDA in Q3/13E, down 62% y/y, with revenue of $51.2 million, down 37% y/y. EPS (ops) is forecast to swing to negative territory at -$0.003, down from $0.22 in the prior year.

DHX Media Ltd. Teletubbies Franchise Joins Inspector Gadget WOW

Teletubbies of the world unite ~!

DHX : TSX : C$3.30
Target: C$4.25

DHX Media is a leading supplier, distributor and licensor of television and film productions. The company had its IPO in May 2006. Following the recent acquisition of Cookie Jar, DHX now has the largest independent library of kids TV content.
All amounts in C$ unless otherwise noted.

Investment recommendation
We see DHX as an opportunity to capitalise on the growing value of content, spurred on by the emergence and proliferation of new digital platforms (mainly OTT). We believe the recent transformational acquisition of Cookie Jar goes a long way to equip DHX to exploit these secular tailwinds. Cookie Jar already has a head start in terms of digital distribution, and the combination creates the largest independent library of kids content. The advent of Cookie Jar has also shaped a more
palatable investment thesis with greater and more tangible growth potential in revenue and EBITDA, along with higher FCF conversion.
Investment highlights
 Acquisition of Ragdoll Worldwide for C$28.4 million: DHX Media Ltd. announced the acquisition of Ragdoll Worldwide for C$28.4 million. We understand that the purchase price represents approximately 7.5x EV/EBITDA on a run rate basis. DHX Media will acquire 1,353 episodes in 12 properties, which includes international hits, Teletubbies and In the Night Garden.
 A strategy that plays to its strength: The broader strategy of buying historically popular titles and revitalizing them through SVOD distribution and potentially new content (i.e., producing new seasons) is similar to DHX’s ongoing efforts to rebuild Cookie Jar’s hit shows such as Calliou and Inspector Gadget.
 Q4/F13 results likely next week: We are expecting strong y/y growth led by the increase in digital distribution and production revenues. We expect adjusted EBITDA (mgmt. definition) to grow 26.1% y/y $6.6 million.
Raising target from C$3.50 to C$4.25: We are raising our 12-month target price due to the inclusion of the Ragdoll acquisition and an increase in our valuation multiple from 11x to 12x EV/EBITDA F2015E. The increase in the valuation multiple was prompted by elevated valuations in the media space, as well as the strengthening outlook for DHX Media.

Rubicon Technology

De :fr:Image:SaphirSynthetique.jpg Categoría:M...

De :fr:Image:SaphirSynthetique.jpg Categoría:Minería (imagen) (Photo credit: Wikipedia)

Target: US$12.00

Based outside of Chicago, IL, Rubicon Technology is a materials company specializing in growing monocrystalline sapphire products mainly for the LED and RFIC markets. It supplies 2″, 3″, 4″ and 6″ sapphire cores and wafers as well as sapphire optical products for the aerospace and defense market.

Investment recommendation

We maintain our BUY rating on RBCN shares as we believe sapphire trends are improving and valuation is favorable.
Investment highlights
Rubicon’s Q2 was largely in-line but Q3 guidance disappointed as a gradual ramp in volumes is still limiting the positive pricing effects we have been talking about in 2” and 4” products, plus 6” sales remain slow.

Revenues were $10.6M and EPS were ($0.25), compared to our estimates of $9.9M/($0.23) and consensus of $10.8M/($0.21). Guidance was for revenues to be similar to Q2 while we and the Street were looking for a ~$5M sequential uptick.
 $3.7M of the losses were due to underutilization, and the company was able to work down inventory and AR collections, resulting in $5M in cash generation in the quarter. Overall inventory levels still remain high and idle crystal growth capacity is not expected to come back online until next year. These effects may contribute to losses on the income statement, but
at least cash burn will be muted going forward.
The soft Q3 results were deeper than we expected; however, we remain convinced that overall trends in sapphire are improving driven by increased lighting adoption and new possible handset applications.
Cash burn is slowing/reversing, plus Rubicon can generate a meaningful amount of operating leverage once both pricing and volumes increase.
Furthermore, as a volume play to two exciting secular trends we continue to believe the company will see multiple expansion over the 2014/2015
timeframe. We would therefore use pullbacks on near-term quarterly
weakness to add to positions.

Sirius XM Canada

Yahoo! Widget

Yahoo! Widget (Photo credit: Wikipedia)

Sirius XM Canada Holdings

(XSR : TSX : $7.30)
Cash flow machine? The Globe and Mail published a bullish article on Sirius XM Canada over the long weekend, highlighting that investors and analysts are expecting good things from the company when it reports its third quarter fiscal 2013 results on Wednesday July 10.

Included in the Globe article, one of the believers in XSR, a fund manager in Montreal that specializes invalue investing, stated, ―We look at the company as being sort of a monopoly cable company into the car.‖ Adding that XSR is poised to become a free cash flow machine that should reward investors over the long haul. ―I just view this thing as gushing with cash for years and years to come and paying it out to shareholders.

Following XSR‘s latest quarterly results, released in April, Canaccord Media Analyst e highlighted that for the remainder of fiscal 2013 and 2014, he continues to look for strong growth in self pay subscribers and an improvement in ARPU. Also stating that he feels fairly confident that there is meaningful upside to the current dividend. XSR, with over 2.2 million subscribers, is Canada‘s leading audio entertainment company and broadcasts more than 120 satellite radio channels featuring premier sports, news, talk,
entertainment and commercial-free music

NEWS Corp – because Murdoch Means Money

English: Rupert Murdoch at the Vanity Fair par...

English: Rupert Murdoch at the Vanity Fair party celebrating the 10th anniversary of the Tribeca Film Festival. (Photo credit: Wikipedia)

News Corp.

NWSA : NASDAQ : US$25.49
BUY Target: US$30.00

News Corp is one of the world’s largest media companies. The company’s operations include the production and distribution of motion pictures and television programming. The company also manages direct broadcast satellite operations in the UK, Italy and Asia. News Corp also publishes newspapers in the UK, Australia and the US.

NWSA has benefited from a systematic rehab of its investments, operations and capital allocation practices over the past 18 months. Last year, NWSA sold MySpace and initiated a $5bn share repurchase plan, which was repeated this year. More recently, NWSA consolidated
several investments (Fox Pan American Sports, ESPN Star Sports and CMH) which will make them easier to value. NWSA’s next move, spinning off the Publishing division this spring, will be the next major step in this metamorphosis. While NWSA has already appreciated to the spin news, we wanted to reflect it (and other changes) in our valuation.
 Increasing target from $25 to $30. As NWSA prepares to spin out the Publishing division, we are updating our valuation to reflect slightly revised multiples, revised estimates and several investments. The two largest components of our higher valuation  are a higher Cable Network segment value (driven by a 1x higher multiple turn) and CMH, which, now that it’s consolidated, should benefit from a higher multiple as well.
 Revising lower FY13 est. We are revising lower several of our FY13 revenue and OI est. All told, our revenue est. decline from $35.3bn to $34.7bn and our OI est. decline from $6.19bn to $5.98bn


Groupon Forecast to Fall To $ 2


groupon (Photo credit: Sean MacEntee)

Nov 10


Groupon  : No Deal To Analysts

In the wake of yet another disappointing quarter, Groupon’s stock has crashed to a new all-time low below $3 a share.The stock is now down more than 85% from its $20 IPO price a year ago.

The latest stumble has caused some Wall Street analysts to finally cut their “Buy” ratings.

One skeptical Groupon analyst, meanwhile, has taken this opportunity to reiterate his CONVICTION SELL rating and slash his price target from $3 to $2.

Ken Sena of Evercore, who has been on the right side of Groupon since this summer, cites a litany of discouraging data.

Sena also points out that the bullish “value” story about Groupon down here–that the company has $1.2 billion in cash–is based on a false premise. The company does have that cash balance, but it also has ~$600 million in payables and accrued expenses. So the net cash balance is far lower than it might seem.

The good news is that, at least for now, Groupon is still profitable. So there should be a bottom here somewhere.

Here are Sena’s bullets:

Flat q/q revenue growth was 5% below expectation at $569 mm. Daily Deals revenue of $424 (75% of business) was down -16% q/q, 17% below our $506 mm estimate. EBIT was $25 mm, $5 mm higher than our $20 million estimate (3.3% of rev), but 40% below the Street at $35 mm. However, EPS of $0.03 was in-line with EVR / Street estimates of $0.02 / $0.04 on lower than expected taxes.

COGS [Cost Of Goods Sold] soar on higher first-party Goods transactions. Direct revenue (where first party Goods sales are booked) increased 122% q/q to $145.0 million in 3Q12, vs. our $90 mm est., driving COGS as a percentage of revenue from 23.8% in 2Q12 to 32.0% vs. our 26.6% estimate.

International story worsens. International revenues were up 3.1% y/y (+13% y/y x-FX) to $277 mm, or down 10% q/q, which missed our $314 mm estimate by 12%. This miss was despite an $18.5 million one-time true-up of unredeemed voucher revenues related to a tax ruling in Germany. Moreover, while Groupon cited improving EMEA signs in September, the comment unfortunately suggests that their 3Q12 guidance was potentially knowingly aggressive when provided in August.

FCF down 46% q/q to $26.1 mm driven by 60% reduction in adjusted net income to $24.1 mm.

Reducing Estimates. We are reducing our 2013 EBITDA estimate for Groupon from $260 million to $176 million on the expectation for higher COGS from 1P Goods and slower growth from higher margin Daily Deals. Given the stronger growth from Goods, we now see Goods contributing $1.4 billion in revenue (~48% of billings) in 2013, vs. our previous estimate of $678 million. Meanwhile, we now expect $3.9 billion in Daily Deal Gross Billings versus $5.4 bn previously (-17% y/y vs. +3.7% y/y).

Reducing Target. Groupon currently trades at 52.3x our 2013 EBITDA estimate of $19 mm (inclusive of $157 mm in SBE), or 6x our $176 mm estimate x-SBE. Although the company has $1.2 billion in cash on its balance sheet, ~$600 mm is in accrued payables and expenses, suggesting less cash valuation support than it would seem. Our newly lowered target of $2.00 (from $3.00) implies that Groupon should trade at 6x our EBITDA estimate (inclusive of SBE), or 1x EBITDA x-SBE. Therefore, we see further risk and maintain our Conviction Underweight rating.

Virgin Media BUY Target $41

Virgin Media

Virgin Media (Photo credit: Wikipedia)

Oct. 25

Virgin Media

VMED : NASDAQ : US$32.94  BUY  Target $41


Virgin Media is one of the largest UK providers of broadband, television, mobile telephone, and fixed line telephone services. The company distributes the video and data services via its hybrid-fiber cable network and its phone through its copper-pair infra-structure.


We believe investors should take advantage of VMED’s 3.5% pullback Wednesday as the company’s 3Q12 results indicate materially improving fundamentals. Pointedly, we saw significantly higher y/y video and broadband net adds despite increased competition in the marketplace (from BT Infinity and YouView). Importantly, the sub growth was driven by lower churn, not greater gross adds, reflecting increased consumer loyalty. We expect this sub growth to continue into 4Q12 and FY13.

At the same time, we are increasing our 4Q12 and FY12 OCF estimates, which demonstrate VMED’s ability to grow market share as well as margin. And as we roll our valuation forward to reflect FY13, our target increases from $33 to $41.

Increasing the target to $ 41 we capitalize our FY13 OCF estimates at 7x. Backing out net debt, we arrive at a $41 target. Notably, our FCF DCF calculation, which indicates a $50 valuation (based on 0% terminal growth rate and 8.5% WACC), suggests a 8x FY13 OCF multiple. To be  conservative, we utilize our lower valuation.

Increasing the Q4 subscriber net adds estimate because we expect the steady  improvement in churn to continue. Most notably, we are increasing our broadband estimate from 29k to 45k, nearly double the pre- 3Q12 report consensus estimate. That said, we would not be surprised if all subscriber consensus estimates increase.


Facebook Head High On Results

Image representing Facebook as depicted in Cru...

Image via CrunchBase

Oct. 25

Facebook (FB : NASDAQ : US$23.21)


Shares of Facebook got a much needed lift Wednesday after its most recent quarterly results showed improvement in its mobile ad revenue, a key area for the company’s growth. Recurring earnings in the quarter were $0.12 per share which revenue increased 32% to $1.26 billion (or just over $1.24 per active Facebook user.) Analysts were expecting earnings of $0.11 on revenue of $1.23 billion. Fourteen percent, or roughly $150 million, of the company’s ad revenue in the quarter came from mobile ads, roughly “two and a half times the number” that one Wall Street analyst though the company would post.

COO Sheryl Sandberg noted that as of earlier this year, the company was making no revenue from mobile devices, and many analysts and investors have questioned the company’s ability to monetize its mobile service. Active users in the quarter rose 26% from the prior year to 1.01 billion while mobile monthly active users were 604 million, up 61% from the prior year.




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