Pandora (P) Long-Term Thesis Intact Despite Hiccup on Some Metrics - RBC Capital

RBC Capital Mark Mahaney reiterated an Outperform rating and $35 price target on Pandora (NYSE: P) following Q2 results which he notes were slightly above expectations, but disappointed a tad with metrics, especially Mobile monetization. Mahaney said the long-term thesis is still a “Thumbs Up.”

Mahaney highlights the keys – Positives: 1. Ad. Listening Hours Accelerated – up 31% Y/Y to 4.4B hours, with Mobile Listening Hours growing 40%...Pandora continues to gain share of U.S. Radio Listening Hours; 2. Improved Profitability – 5.8% Adj. EBITDA margins beat RBC/Street est. of 4.5%/4.4% driven in part by modest top-line upside & G&A leverage; and 3. Raised FY14 Guidance – Revenue guide goes from $880-900MM to $895-915MM and Non-GAAP EPS goes from $0.14-$0.18 to $0.16-$0.19. Negatives: 1. Content Cost Deleverage – Q2:14 Content Cost of 50.9% of Rev was 50bps higher Y/Y; it’s the tradeoff given the rapid growth in Listener Hours; 2. Opex Lines Delever – Product Development and Sales & Marketing increased by 130bps as a % of Rev (though we are generally in favor of this type of “elective” investments); and 3. Slowing Monetization – Ad. RPM slowed to 6% Y/Y growth in Q2.

The firm is raising FY14 Revenue, Adj. EBITDA and Non-GAAP EPS to $911MM/$71.3MM/$0.19 from $899MM/$69.2MM/$0.17.

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 $28.72 yesterday.

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