Pandora radio is the market leader in personalized Internet-based radio listening in the US. The company uses its proprietary algorithms as part of the Music Genome Project to generate playlists for users that are personalized and cater to the tastes of individual users.
While competitive developments continue, we believe fundamentals at Pandora remain strong heading into Q1 earnings next week. Our proprietary analysis points to a growing audio ad load (driven by robust adoption of the STRATA integration) and higher quality of advertisers
(big national brands). In addition, the temporary 40-hour listener cap on mobile appears poised to dampen content costs. As such, several
positives are coming to a head at once. Given the timing, Q1 impact is hard to gauge but likely positive, while impact to Q2 and beyond should
be more positive. Our best estimate is that guidance should be somewhat bullish without being irresponsibly aggressive.
Our proprietary research (admittedly a small sample) indicates an audio ad load that has gone from 1.40 minutes per hour a month ago to 1.75 minutes currently. We believe this is being driven by sales force ramp, Triton measurement, and STRATA integration. This should drive higher RPMs.
We also believe subscription revenue and content costs could both show improvement in Q1 from the 40-hour mobile cap, with more impact in Q2 and beyond.
We believe Google’s newly announced $10/month “All Access” subscription service should have only a moderate competitive impact on Pandora’s listener base, which clearly likes free stuff.
Our $18 target is unchanged and is based on 32x our F2017 EPS estimate of $0.90, discounted to present at 12.1%.
- Google launches streaming music service ‘All Access’ ahead of Apple (ibnlive.in.com)
- Pandora Media Inc (P), Diamond Foods, Inc. (DMND): Who To Pick For The Beginner (insidermonkey.com)
- Is Pandora Really in Trouble? (dailyfinance.com)