Canaccord Upbeat on Pandora Media Inc (P) on Back of Guidance Beat

Pandora Media Inc (NYSE:P) shares are climbing almost 9% today in pre-market trading after the music streaming firm pre-announced an outclass of its previous fourth-quarter guidance on both revenue as well as EBITDA. Attributed largely to robust advertising performance this past quarter, the firm also highlighted a surge in ad load and programmatic success as key catalysts for P’s success.

Canaccord analyst Michael Graham sees “several positives” within the firm’s announcements and accordingly reiterates a Buy rating on P with a price target of $18, which represents a 38% increase from current levels.

For the analyst, “These are consistent with our recent ad load study which indicated higher ad load for key demographics along with better premium display sell-through.”

Graham underscores four crucial points to his bullish perspective on P stock:

First, the analyst finds that P management has a new “tightening grip” on back of the departure of two of CEO Brian McAndrews’ hires and assesses fourth-quarter RPM strength to be a result of display improvements. Moreover, Graham adds, “Pandora may be ushering in a more efficient, scalable ad model. We worry about the impact of higher audio ad load on listenership, but also note that it may drive more subscription conversion.”

Secondly, the analyst expects updated ownership filings from activist investors await on February 14th, believing, “We suspect these moves may indicate that a takeout is less likely in the short term and will not be surprised if activist holdings have not increased.”

Thirdly, Graham asserts, “Profitability guidance is a major positive – We believe many investors have been bracing for worse consensus EBITDA loss estimates in 2017, and management stating an ambition for EBITDA profitability in 2017 is bullish.”

Fourth, the analyst commends “Significant positives in subscriber conversion disclosures,” concluding that in the rise to 4.3 million Pandora Plus subscribers, i.e. 375,000 new subscribers, the most important aspect is that the free trial period is merely a week. This will be valuable for investors apprehensive on prospective profit drag from the forthcoming Pandora Premium launch’s free trial periods, as the one week time frame “dissipates” any potential negative consequences of content costs.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Michael Graham is ranked #134 out of 4,342 analysts. Graham has a 57% success rate and earns 10.5% in his yearly returns. When recommending P, Graham garners 11.1% in average profits on the stock.

TipRanks analytics exhibit P as a Buy. Based on 19 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on P, 9 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $14.56, marking a 21% upside from where the shares last closed.

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