JMP Initiates Coverage On Pandora Media, Lists Pros And Cons

JMP Securities on Wednesday initiated coverage of Pandora Media Inc P with a Market Perform rating. In the note, analysts highlighted some of the positives and negatives for the company going forward.

The Pros:

• With 81+ million monthly active listeners, Pandora is the leading U.S. pure-play streaming music service.
• Strong brand position as it continues to take share of U.S. radio listener hours.
• Pandora should continue to benefit from the secular growth of mobile, its strong brand positioning, pricing tailwinds from local market expansion, and the in-dash car opportunity.

The Cons:

• Decelerating active user growth and engagement.
• Uncertainty around content costs, which JMP expect to remain an overhang on shares.
• See Also: Pandora Reaches Highest Level Since Q4 Earnings Release

To become more constructive on Pandora shares, JMP would look for:

• Reacceleration of user growth and listener hours.
• International expansion.
• Direct deals with major record labels.

JMP believes Pandora is well positioned to continue to take share in the U.S. radio and U.S. online advertising markets. "At $15.47, Pandora shares trade at an enterprise value equal to 20.8x our 2016 EBITDA estimate of $150 million and 2.2x our 2016 revenue estimate of $1.43 billion. For 2015, we project revenue of $1.158 billion (up 28% Y/Y), Adjusted EBITDA of $73 million (up 26% Y/Y, 6.3% margin), and PF EPS of $0.22."

Shares of Pandora closed Tuesday at $15.47, up 3.8 percent.