Cowen Highlights Positives/Negatives from Pandora's (P) Q2 Report; Cuts PT to $38

Cowen and Compnay maintains Pandora Media (NYSE: P) at Outperform and moves its price target target from $41 down to $38 following Q2 results.

Analyst John Blackledge noted the following positives and negatives:

Positives (bulls cheer)

1. FY14 revenue guidance raised to $895-$915MM, up $15MM (~2%) given strong 2H14 pipeline, the biggest revenue guidance raise in P's history.

2. Engagement rising - P listening hours were 5BN in 2Q14, up 29% y/y and up 5% q/q, as P benefits from absence of mobile listening cap and organic growth. In 2Q14, listening hours/user/month (avg) was 22, up 20% y/y and up vs. 16 in 2Q11.

3. What competition? - P accounted for 78% of internet radio listening in 2Q14 vs, 72% prior year, that implies P's share is rising.

4. Local Oppty - P accounted for ~9% of total US radio listening vs. 7% last year, again share rising, while local ad revenue was $35MM vs. $15MM last year, 20% of total ad revenue. The local ad oppty is $15BN, currently we estimate P will account for 1% of local radio ad in '14. Given rising listening share, local sales ramp, modest audio spot loads, plus early stages of auto, there is a lot of runway for share gains.

Neutral/Negative (bears growl)

1. Active users were 76MM, up 7.5% y/y and flat q/q. User growth is decelerating, though 2Q is seasonally slower and we expect actives to pick up in 2H14 to 82MM by Y/E. If hours were not growing so quickly and P wasn't gaining share and was just touching the surface of the auto oppty, we would be more concerned.

2. RPM (ad monetization/hour) slowing - Total ad RPM was $40, up 6% y/y, a deceleration from 29% y/y growth in 2Q13. We do not think its a monetization problem, its a function of P having the mobile listening cap in place last year, somewhat limiting the listener hour growth (or the denominator), while the reverse situation was in play in 2Q14 (P added 1.1BN ad supported listening hours on a y/y basis). We expect ad RPM growth to accelerate in 2H14 (+12% y/y in 3Q14 and +19% y/y in 4Q14), with help from local and political.

For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.

Pandora closed at $28.72 yesterday.

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