Needham Admits Mistake On Pandora Media Inc.; Reiterates Buy

With shares of Pandora Media Inc.

down more than 36 percent in the past 12 months, an analyst on Tuesday admitted to being wrong in the past about endorsing the investment. But the analyst, Laura Martin of Needham, reiterated a Buy rating and $20 target on the streaming music company ahead of its quarterly earnings report expected Thursday. The Oakland, California-based company closed Tuesday at $17.23 a share. Pandora's profits are getting hurt by the hiring of local advertising sales representatives as the company tries to get a piece of the $14 billion local radio market, according to Martin. But Martin said the return on that investment will eventually be higher than Pandora's core business. Local ads are three times more profitable than national ads, while the market is also three times as large, according to Martin. Pandora's core national radio advertising business is "healthy" in Martin's view, while the so-called Internet of things, including automobiles, offers largely untapped growth potential. Martin boosted her first-quarter advertising revenue estimate 6 percent to $172.3 million, up 20 percent from a year earlier. But the analyst cut her subscription revenue estimate by 16 percent to $50.7 million, flat compared with year-ago results. Key results expected to be released Thursday include listener growth, average time spent, mobile hours and an update on content costs, Martin said. Wall Street expects an adjusted first-quarter loss of $0.16 cents a share on revenue of $224.6 million. Analysts on average maintain an Overweight rating and $22.25 target on Pandora. according to FactSet.