Why ATRN-Kazaa Is Still A Buy at $3.40
Our last update on ATRN-Kazaa included a laundry list of several “potential good news” items that we thought could be a catalyst for moving the shares higher upon release by the company. We received a number of messages from members asking the question of whether the move upward in the stock over the last few trading sessions would be a good time to take profits. We believe the answer is a resounding no and that the stock remains an attractive purchase opportunity at its current $3.40 range due to the potential upside that can occur upon confirmation by the company of any of these items and due to the actual value they can add for the company beyond gaining the attention of potential investors. Each of the original five items is listed below, with “the rest of the story” breaking down the actual value beyond the PR exposure:
1) Facebook Music Dashboard – this will bring on demand streaming music subscriptions to the mainstream, which will benefit Kazaa tremendously, maybe even more than any of the other FIVE companies that have the “on demand” licenses.
The Rest of the Story – this has the potential to make on demand streaming music a “must have” app and literally transform the music industry. Zynga started three years ago with an idea and $29 million in capital and they will be valued at close to $20 billion when they come public in a few weeks. Atrnisic has a current enterprise value of $27 million and we think more value will be created in the music industry by a deep integration with Facebook than what has been created in the gaming industry. Everyone loves some kind of music, but not everyone cares for online games. Facebook music will transform the industry and the only publicly traded on demand streaming company should benefit disproportionately – WHEN PEOPLE REALIZE THAT THERE IS A PUBLICLY TRADED ON DEMAND STREAMING MUSIC COMPANY.
2) iPhone App / Android App – should be coming very soon, maybe in days.
The Rest of the Story – Credible sources close to the company tell us that the app has been completed and in the App Store review process for a couple of weeks now. This could be a big channel for growth for Kazaa, as it has been the biggest growth channel for the other on demand players (Rhapsody, MOG, Rdio, etc.) and none of them has the name recognition of Kazaa. Also, consider that Pandora added hundreds of millions of new users over the 18 months that followed its introduction in the App Store.
3) Name change to Kazaa – finally we can use the name that 800 million people will recognize instead of the made up word Atrinsic.
The Rest of the Story – We cannot overstate the importance of this in getting the word out about the Kazaa service. We believe there are thousands and maybe tens of thousands of investors who would want to own shares of Kazaa and/or a stake in one of the “on demand” streaming music service companies IF THEY KNEW THEY COULD. This will only be significantly increased when Spotify launches in the US, something may sources suggest could occur as early as next week. Spotify will make a huge splash and you cannot buy stock in it, but you can buy stock in Spotify’s “on demand” streaming music subscriptions concept through one vehicle – Atrinsic. Atrinsic’s Kazaa will be the only game in town as far as on demand streaming company investment until Spotify’s IPO.
4) Kazaa Radio – OK, its been live for several weeks, but the company hasn’t announced it and its a big deal. Maybe they wanted to give Pandora their week in the sun before they announced that Kazaa Radio is the same thing, but with 5 million songs in the rotation instead of Pandora’s 800,000.
The Rest of the Story – Pandora’s current $3 billion range market cap has to be considered in the context of ATRN/Kazaa’s $22m market cap. Different companies, different models, but we believe that some of the exuberance of investors for Pandora stock might translate into the same for Kazaa/ATRN stock if investors knew that Kazaa had a “Pandora Killer” (ie streaming Radio feature that offers 5 million+ song options vs. Pandora’s much smaller catalog).
5) Industry News – won’t be long until Spotify launches in the US, which will bring a huge amount of media spotlight onto streaming music generally, but more importantly onto the distinction between the “radio streamers” like Pandora and the “on demand” streamers, like Kazaa. Since Kazaa is the ONLY PUBLICLY TRADED on demand streaming music play, this will surely bring more investors into the picture.
The Rest of the Story – its been all Pandora, all the time in the US media, but that will all change within weeks, maybe days as Spotify opens up to US consumers. Most commentators believe it will launch next week and they posted a sign up page yesterday to herald the launch and allow those interested to sign up for day one access. We believe this will be the biggest story of the year in the music industry, eclipsing even Pandora’s IPO and subsequent $3 billion valuation. The combination of Spotify’s US launch and the launch of Facebook Music will make “on demand” streaming what having an iTunes account was 10 years ago, bringing “on demand” subscription music accounts to the masses. The implications for Kazaa will be huge and we can envision its stock benefiting tremendously from both the eduction of US consumers on the value proposition of an on demand streaming music subscription and the relative valuations that will begin to occur as Spotify moves towards a multi-billion dollar IPO, one that should eclipse Pandora’s in size and media coverage. The last reported 12 months for the two companies puts Spotify at about 8-10x the size of Kazaa, so you can do the math and back into that one.
In summary, ATRN/Kazaa at $3.40 is a great opportunity to buy into a company with billion dollar market cap potential before most investors even realize what business they are in and while its trading at a market cap of $22m. This is not a good timeu to sell simply because the stock is up from where it traded a week ago, this is an opportunity to buy more while it is still cheap and relatively undiscovered.
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