Pandora Media Inc (P): A Falling Star

Friday turned out to be a nightmare for shareholders of Pandora Media Inc (NYSE:P), after the music streaming giant reported generally in-line third-quarter results, but awful fourth-quarter guidance. In reaction, Pandora shares are crashing nearly 26% to $5.48, as of this writing.

Specifically, revenue of $379 million was slightly below the Street’s $380 million expectation but within guidance. In addition, the company guided to Q4 revenue of $365-380 million, below Street estimates of $413 million and Adjusted EBITDA of ($15)-($5) million, below Street estimates of $23 million.

After reviewing the earnings report, at least one Wall Street analyst has had enough. B.Riley’s Barton Crockett downgrades Pandora shares to Neutral, while slashing the price target to $8.00 (from $11.00). However, the new price target still implies an upside of 43% from current levels. (To watch Crockett’s track record, click here)

Crockett commented, “With ad loads light, and share of ad revenues well below share of listenership, we don’t think that Pandora needs to grow hours to grow ad revenues. We don’t think the 5% dip in total hours streamed in 3Q17 (which included big growth in subscription but a 17% decline in ad-based hours) is the main problem now, although clearly hours need to stabilize at some point in the future. The main issue right now appears to be lagging ad tech. Pandora is losing ad buys from clients seeking programmatic, seeking better ROI reporting, and seeking better integration into traditional media audience target planning tools, as well as inclusion in traditional radio Nielsen/Arbitron rating systems. Pandora’s new CEO, Roger Lynch, intends to lay out next year in more detail on plans to improve ad tech. This might be funded with cost cuts, or not, suggesting risk to next year that costs step up as ad revenue flattens.”

“So next year we can no longer argue for EBITDA profits, and instead switch to lessened losses. Our $8 SOTP PT discounts the assumed value of segment profits in 2021 back to today,” the analyst concluded.

This music streaming giant certainly has the Street divided. Based on 14 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on Pandora stock, while 9 recommend a Hold. The 12-month average price target stands at $10.00, marking a nearly 80% upside from where the stock is currently trading.


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