Pandora (P): New Product Pushes Profitability Farther Out - Needham
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Needham & Company analyst, Laura Martin, reiterated her Buy rating on shares of Pandora (NYSE: P) but cut profit estimates for 2017 due to the additional dilution from the new agreements with record labels and the impact of incremental trial subscriptions.
The two key points about the model revision are:
1) 4Q16 will see a step-up in costs of ad-driven revenue from about $31/1000 listening hours to $33, totaling about $25mm of extra costs in 4Q16
2) in 2017 revenue drops on the ad-driven service as there will be a 90-day free trial period for the new $10/month on-demand service (with zero ads), which should lower listening hours and available ad units on the free service in an effort to convert some of these hours into higher revenue customers during 2017.
No change to the price target of $16.
Shares of Pandora closed at $13.31 yesterday.
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