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Morgan Stanley: Watch Pandora's 'Hours Growth' Going Forward

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In a report published Friday, Morgan Stanley analysts maintained an Equal-Weight rating on Pandora Media Inc. (NYSE: P), with a price target of $18.

Pandora Media reported robust 1Q revenue growth, as monetization more-than-offset lower listening hours user growth. The company reported 1Q listener growth of 5.2 percent, in-line with analyst expectation.

The company's hour per listener growth of 5 percent was lower than the Morgan Stanley estimate and below the 4Q level of 7.1 percent. Pandora Media expects its hours growth to be in the mid-teens for the full year.

The RPM growth estimates for the full year have been raised from 17 percent to 18 percent and the hours listener growth estimates have been reduced from about 6 percent to about 5 percent. The EPS estimates for FY15 and FY16 have been reduced from $0.25 to $0.18 and from $0.35 to $0.23, respectively.

The company's growth prospects are expected to be driven by internet radio's ability to disrupt the US broadcast radio market and growth in car listening. CRB uncertainty, full launch of Pandora's programmatic ad platform and marketing efforts by the company to accelerate its hours growth are expected to be the key drivers in the current year.

The analysts commented, "We see P shares at current valuations as tempting given 1) the potential for direct-deals with labels post the rate setting process (CRB) later this year, which have the potential to solidify the cost base / domestic business model as well as open up international opportunities and (2) the potential strategic value of Pandora's brand and mobile time spent."

The report added, however, that the "range of cost outcomes is quite wide, and we continue to be more cautious than consensus on the ability to accelerate listener hours.

The analysts believe that " longer-term, the stock would benefit more from volume rather than RPM growths as ad load and pricing levers should ultimately meet some resistance from users and advertisers."

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