Analyst upgrades help Pandora prior to 1Q results

Analysts, citing mobile ad growth, upbeat on Pandora; shares rise before Thursday's 1Q results

Associated Press

LOS ANGELES (AP) -- Shares of Internet radio company Pandora Media Inc. rose Monday after a couple of analysts issued positive notes ahead of the company's fiscal first-quarter results on Thursday.

THE SPARK: Barclays Capital analyst Anthony DiClemente on Monday raised his price target on Pandora shares to $17 from $10 and lifted his rating on the stock to "Equal Weight" from "Underweight," saying the company had made progress in making money from advertising on mobile devices.

Wedbush analyst Michael Pachter, who rates Pandora "Neutral," raised his price target to $15 from $11.50, also citing mobile ad growth.

THE BIG PICTURE: Pandora's app, a popular way to stream music on mobile devices, uses a format that limits the company's royalty payments. Users can listen to music along a certain genre, but selections are chosen randomly and users have a limited ability to skip tracks. Playing songs in this way means that Pandora can use a mandatory license to pay musicians, songwriters and labels. It still argues that the mandatory royalty rate set by the government is too high.

Pandora operates differently than other music streaming services like Spotify or Rhapsody, which offer premium paid tiers for $10 a month. Pandora offers free Internet radio listening with ads, or an ad-free version for $4 a month. It does not allow users to select individual songs or tracks.

In February, Pandora capped free listening on mobile devices to 40 hours per month. The cap actually helps a key metric that analysts are focusing on: Revenue per thousand listener hours. By limiting listener hour growth, mobile ad sales have a chance to catch up.

Still, competition in the digital music space is growing. Google Inc. last week unveiled its paid streaming plan called All Access, which incorporates an Internet radio function along with an on-demand selection of millions of songs. Apple Inc. is expected to unveil an Internet radio function that is tailored to drive more people to its popular iTunes music store later this year.

THE ANALYSIS: DiClemente said investor concerns about competition are likely reflected in the current share price and believes Pandora's focus on Internet radio streaming gives it an advantage. Pachter said these competing services could take listener hours away from Pandora if they are popular.

Analysts polled by FactSet expect the company to post a loss of 10 cents per share on revenue of $123.9 million. That would mean sales grew 53 percent from a year ago.

SHARE ACTION: Pandora shares rose 45 cents, or 2.8 percent, to $16.51 in afternoon trading Monday. Shares have more than doubled since hitting a low of $7.08 in mid-November. The company went public at $16 in June 2011.

Rates

View Comments (0)