Pandora's (P) 'Underweight' Rating Maintained Pacific Crest as Q3 Could Lead to Sharp Decline in Estimates
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Pacific Crest maintained an Underperform rating on Pandora (NYSE: P) into Q3 results. Analyst Andy Hargreaves said he expects Q3 results to prompt a sharp decline in near-term estimates. He also thinks current M&A speculation as "overdone."
"We do not recommend owning P. We expect Q3 earnings to provide detail around the economic impact of the new on-demand service. This is likely to prompt a sharp reduction in medium-term profit expectations and reduced confidence in an acquisition, both of which could be negative for the stock," said Hargreaves.
"We expect Q3 revenue to be roughly in line with the high end of the company's guided range of $360 million to $370 million. Beyond Q3, we have made significant updates to our model to account for the new content cost structure and estimated revenue from the ondemand service. This drives our 2017 revenue and adjusted EBITDA estimates to $1.85 billion and ($81) million from $1.53 billion and ($38) million. Our 2017 adjusted EBITDA is now $120 million below the current consensus estimate of $39 million," continued the analyst.
Discussing M&A, the analyst said, "The most speculated potential acquirer of Pandora has expressed its view, which we agree with, that the lack of statutory rates makes on-demand an inferior business model to Internet radio. As a result, we believe Pandora's commitment to the on-demand model could repel potential acquirers that might be interested in purchasing the core radio business at a reasonable price."
Shares of Pandora closed at $13.17 yesterday.
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