Spotify continues to lead the streaming music market, splitting share in North America with its largest competitor, Apple Music. The company’s Q2 results and Q3 guidance raised our prospects on the stock slightly. More importantly, however, we have updated our valuation metrics on Spotify. Previously we had valued Spotify on only a trailing 12-month customer lifetime value basis. However, this valuation metric did not do an adequate job accounting for Spotify’s growth metrics. We now value Spotify on a combination of one year’s worth of gross margin dollars and one year’s worth of customer lifetime value added, accounting for guidance one […]
Relative Valuation
8 posts
We have updated our 19-slide Shopify Powerpoint Pitch in which we examine the major sticky points in Shopify’s product relative to peers, Shopify’s real TAM and market share, investor expectations, relative subscriber valuations, and other unique issues that are typically overlooked by brokers.
Shopify’s (SHOP-NYSE) share price continues to fluctuate as questions about future gross margins, churn, and valuation continue. We take a unique approach to Shopify’s subscription valuation in order to account for its Merchant business that accounted for 36% of gross margin dollars (TTM). What Moves SHOP’s Share Price and how has it Traded? Source: Perspectec Shopify’s gross margin profile, subscription churn (based on our survey) and operating expense put Shopify as a very expensive stock relative to its peer group. Getting a Clean Shopify SaaS Valuation We believe Shopify’s valuation should be based on its relative SaaS valuation. We do not see a path to a […]
Good visibility on Recurring Revenue Growth Tracking Streams – We have analyzed billions of streams across Spotify’s major markets. Streamed tracks on Spotify were increasing at compound monthly growth rates between 1.5% in the U.S.to over 13% in Japan (a U.K. market monthly compound growth rate at 0.2% was due coming off a high base from Ed Sheeran streaming). Streams are what drive growth in Spotify’s two pipelines to premium subscriber growth (i.e. recurring monthly subscriber fees). Free and discounted trial users – Users typically convert from discounted and free trials to paid within a 36-month. Free and discounted trials […]
Examining Paycom (PAYC-NYSE) taking a full ‘retrospective adoption approach’ to adopting the new ASC 606 standard, their restating of adjusted EBITDA has driven us to update our EV/EBITDA forecast model. The new standard allows Paycom to defer a materially larger than industry average portion of their sales commissions over the lifetime of its customers. This has caused adjusted EBITDA for 2017 to now be $186 million versus $137 million previously. Our new function involves seven public payroll SaaS companies that have produced an r-squared of 0.863 in forecasting the current EV/EBITDA multiple. The end result is our target EV/EBITDA multiple for Paycom has been reduced from 45x to 36x. Our […]
With Salesforce (CRM-NYSE) finally releasing company-wide dollar attrition last quarter, we can now launch coverage of CRM being more confident in our relative and historical valuation as well as our target price. This is the first in an ongoing series of research examining Salesforce’s business and share price. Salesforce has a number of diverging elements including: – Trading patterns – Relative valuation, growth – Profitability – Competitive position Over the last few years, there has been one steady method of valuation that has been a strong predictor of its share price: an enterprise value based on its trailing 12-month customer lifetime value added over […]
We have updated our net subscriber addition regression model based on Q3 results. Our forecast model now has an adjusted r-squared of 0.99 for tracking net subscriber additions using 18 degrees of freedom. We have applied this model to Q4 programming using data for the week ended November 25, 2017. Based primarily on the performance of it’s original content, we believe Netflix will add anywhere between 7.7 million to 8.2 million subscribers in Q4. This estimate is up from our estimate of 7.4 million net additions at the end of Q3 and would be a strong beat against management’s guidance of 6.4 million net adds. The findings […]
Paycom’s Q3 results and Q4 guidance was generally in-line with expectations, with revenue produced per sales person in a mature office increasing 2% Q/Q versus our expectations of 4% Q/Q after accounting for seasonality. EBITDA beat on a greater portion of R&D being capitalized than normal and lower than expected G&A expense due to improving efficiency. The company has joined the 30/30 party (30% Y/Y sales growth and 30% EBITDA margins) with an invitation list of one. Q3/17 Results and Q4/17, 2017 and 2018 Forecasts Source: Perspectec and Company Reports Conservative Guidance: As was the case in each of Paycom’s prior quarters since […]