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CRB Decision Hands Pandora (P) a 'Hat Trick' - Needham & Company Reiterates Buy

December 17, 2015 7:28 AM

Needham & Company reiterated a Buy rating and $24.00 price target on Pandora (NYSE: P) following a CRB decision that handed the company a series of wins. The CRB raised P’s total costs by 15% to a blended rate of $0.176/100 songs, made up by 20% higher advertising music costs to $0.17/100 songs in 2016, partially offset by lower subscription music costs of $0.22 in 2016.

Analyst Laura Martin commented, "The CRB decision handed Pandora a hat trick of wins, including: 1) P can now be acquired by a strategic buyer because the CRB deleted historical language that de facto prevented this; 2) although P’s blended cost of music rises 15% in 2016, annual increases fall to CPI (i.e., 2-3% annually vs 7% historically) suggesting higher FCF’s over the next 5 years; and 3) after 2 years of wondering whether the CRB would set P’s music costs at a level that would put Pandora out of business (since music costs represent about 50% of P’s revenue), certainty for the next 5 years allows P to maximize profits, which implies a shift toward subscription revenues, which should expand valuation multiples. We expect P to launch an on-demand service, and to expand offshore in 2016, suggesting accelerating growth and an expanding valuation multiple."

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 $13.44 yesterday.


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