Pandora (P): Cutting Estimates But Substantially Improved Product - Needham
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Needham & Company analyst, Laura Martin, reiterated her Buy rating on shares of Pandora (NYSE: P) after the company demonstrated three new features and products last night after the close. Each should drive longer listening hours, higher average ARPUs and a shift from free toward paid subscription subs.
However, profitability expectations need to come down for 4Q16 as the cost of music will step up to $33 from about $31.50 starting now and for all of 4Q16 and 2017. P announced that it had signed deals with the 3 major music labels (Warner, Sony and Universal) and announced that their content costs in their core historical ad-supported business would rise from $31.50 per thousand songs to $33 as soon as they launched on-demand features.
The new features convinced the analyst that P is getting its money’s worth. P's 78mm ad-fee listeners will now be able to replay songs and skip more songs AS LONG AS they watch a video ad first. Replays and profligate skipping were not allowed 2 weeks ago. More video ads suggest rising ARPUs because video ads are full screen takeovers at much higher prices than P's historical audio ads.
No change to the price target of $16.
Shares of Pandora closed at $13.65 yesterday.
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