Canaccord analyst Michael Graham weighted in yesterday on Pandora Media Inc (NYSE:P), after the internet radio giant announced that it is acquiring on-demand music service Rdio for $75 million. Rdio will shut down its service and file for bankruptcy, and Pandora will offer Rdio’s on-demand streaming platform alongside its radio-style service. Pandora shares reacted to the news, dropping 7.15% to $12.46 Thursday.
Graham commented: “Following fairly quickly on the heels of its Ticketfly acquisition, Pandora announced its intention to purchase certain technology from Rdio for $75M in cash. Pandora will use these assets (along with key Rdio employees) to build a Pandorabranded on-demand music service targeted for a late-2016 launch. While we have been expecting Pandora to enter the on-demand market for some time, this transaction should significantly shrink the time required to do so. While Pandora is spending a good bit of cash lately, we believe it will exit the transaction in Q1/16 with ~$100M in cash and will generate over $100M in additional cash in 2016.”
The analyst concluded, “It has been a bumpy ride for Pandora stock, especially on the heels of a difficult Q3 report. We continue to believe the most likely CRB outcome is benign, and that Pandora is putting in place the building blocks to become a much bigger company.”
Graham reiterated a Buy rating on Pandora Media shares, with a price target of $24, which implies an upside of 93% from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Graham has a total average return of 9.8% and a 50.6% success rate. Graham has a 9.7% average return when recommending P, and is ranked #252 out of 3847 analysts.