A Better Entry Point For Pandora Is Almost Here, Victor Anthony Says

Victor Anthony of Axiom said due to competitive headlines of late, an entry point is emerging for Pandora Media Inc P. The analyst maintains his position that Pandora is an acquisition target, and he feels a sale price above $20 seems reasonable.

Noise In The Space

The expansion of on-demand music streaming market should benefit Pandora, which is set to launch its own on-demand music streaming service later this year. But, shares of Pandora have been hit recently due to potential competition from the likes of Apple Inc. AAPL, Amazon.com, Inc. AMZN and SoundCloud.

Related Link: Google, Apple Are Doing Something New That Could Be A Positive For Pandora

Amazon plans to initiate its own on-demand music streaming service, while Apple announced a re-design of its on-demand music streaming service Apple Music.

In addition, Twitter Inc TWTR is apparently investing roughly $70 million in SoundCloud, which is also planning to launch its own on-demand music streaming service later this year.

"While this level of competition at first glance appears daunting, particularly as Pandora is gearing up to launch its on-demand music streaming service later this year, we believe the market for on-demand music streaming is only now opening up, with the help of Apple, which is expanding awareness of the category," Anthony wrote in a note.

Therefore, Anthony believes that when Pandora finally launches its service, it has a great opportunity to convert its 4 million active users to paying subscribers in the first year in a cost-effective manner.

Anthony also noted that the upcoming Pandora's on-demand music streaming service would be "fairly differentiated from existing services on the market."

Acquisition Target

On the M&A front, the analyst said the Microsoft Corporation MSFT-LinkedIn Corp LNKD deal is just the tip of the consolidation iceberg within the Internet space, and Pandora. Anthony highlighted Pandora, along with Twitter, "primary acquisition target(s)."

Related Link: Victor Anthony Upgrades Pandora To Buy, Take-Out Price Above $20 "Seems Reasonable"

Anthony, who has a Buy rating on Pandora, said the company's rich technology, the UI, and the large user base make it attractive to companies such as Sirius XM Holdings Inc. SIRI and Live Nation Entertainment, Inc. LYV.

Anthony added that Pandora shares trade at 1.9x 2016 EV/Sales and 1.5x 2017 EV/Sales on Axiom estimates.

"These multiples are at a discount to the group of Internet media stocks," Anthony said.

According to TipRanks, Anthony has a success rate of 59 percent with an average return per recommendation of +11.4 percent. The analyst is ranked 94 out of 3,974 analysts.

At the time of writing, shares of Pandora rose 2.8 percent to $11.38. Anthony has a price target of $16 on the stock.