Pandora (P) Has Pricing and EPS Power, RBC Capital Says
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Price: $111.39 -0.54%
Rating Summary:
10 Buy, 24 Hold, 3 Sell
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Today's Overall Ratings:
Up: 9 | Down: 12 | New: 19
Rating Summary:
10 Buy, 24 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 9 | Down: 12 | New: 19
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RBC Capital analyst Mark Mahaney reiterated an Outperform rating and $38 price target on Pandora (NYSE: P) saying he views the recent price increase as a sign of pricing power and think that the company’s long-term EPS potential may be underappreciated.
Mahaney comments, "2014 has been a year of Internet price increases (Amazon Prime, Netflix price tiers), and Pandora has followed suit, announcing on March 18th that it would be increasing its monthly subscription from $3.99 to $4.99 and doing away with its $36 annual option. We believe that Pandora has an established value proposition with consumers, which gives it some measure of pricing power. Existing users will be grandfathered into the program, making them unlikely to churn off, and while Pandora is undoubtedly giving up some incremental subscribers, churn would have to be very high to have a negative impact on the P&L. In fact, we estimate that churn will be relatively modest and thus the price change is likely to lead to modest revenue and EPS accretion over time. Pandora still compares favorably to many of the leading streaming music options in terms of price."
The firm also views the company's long-term EBITDA/EPS potential as nderappreciated. "Our analysis suggests that Pandora can reach 15% of U.S. radio hours in 2020, at which point it could generate $840MM in EBITDA and $2.24 in Non-GAAP EPS," he said.
For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.
Shares of Pandora closed at $29.79 yesterday.
Mahaney comments, "2014 has been a year of Internet price increases (Amazon Prime, Netflix price tiers), and Pandora has followed suit, announcing on March 18th that it would be increasing its monthly subscription from $3.99 to $4.99 and doing away with its $36 annual option. We believe that Pandora has an established value proposition with consumers, which gives it some measure of pricing power. Existing users will be grandfathered into the program, making them unlikely to churn off, and while Pandora is undoubtedly giving up some incremental subscribers, churn would have to be very high to have a negative impact on the P&L. In fact, we estimate that churn will be relatively modest and thus the price change is likely to lead to modest revenue and EPS accretion over time. Pandora still compares favorably to many of the leading streaming music options in terms of price."
The firm also views the company's long-term EBITDA/EPS potential as nderappreciated. "Our analysis suggests that Pandora can reach 15% of U.S. radio hours in 2020, at which point it could generate $840MM in EBITDA and $2.24 in Non-GAAP EPS," he said.
For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.
Shares of Pandora closed at $29.79 yesterday.
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