Piper Jaffray Says Pandora Is 'Approaching The Inflection Point', Upgrades To Overweight

Piper Jaffray's Stan Meyers upgraded Pandora Media Inc P from Neutral to Overweight, raising the price target from $12.00 to $18.00.

Meyers cited three major reasons for his upgrades, including:

1. A more positive outlook on the music label negotiations.
2. Increasing Margins across its core radio business.
3. Expected future release of Pandora's new On-Demand platform.

Upcoming Release: On-Demand Platform

"The upcoming release of the new innovative on-demand platform that should add an incremental 9.2 million subscribers, $750+ million in revenue and $120 million in EBITDA over the next three years," stated the Piper Jaffray analyst.

Related Link: Apple's Interest In Tidal Could Spark Added M&A Interest In Pandora

Due to this, Pandora is approaching an inflection point according to Meyers. The change should "resolve worries related to competitive forces, limited growth opportunities and sizable investments," stated the analyst.

Decline Of Radio Apps, Rise Of On-Demand

Meyers pointed out a major trend blurring the line between lean-back radio listenership and on-demand music consumption leaving an opportunity for Pandora to create a unique on-demand service.

For Pandora, Meyers "believe[s] its key features like offline listening, on-demand thumbed playlists, replays, unlimited skips at various price points will help convert existing active listeners and grow the market."

Continued Margin Expansion

After the stabilization of Pandora's royalty rates, Meyers expects the "company's ad sales productivity to become more pronounced."

"We expect gross profit margin per sales person to grow from 69 percent in 2015 to over 74 percent by 2019. We also see programmatic ad sales combined with reduced Apple/Google commission rates to drive margins higher," stated the analyst.

At time of writing, Pandora traded at $13.75, up 2.75 percent Wednesday.

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