Pandora Is Still A Show-Me Story

MKM Partners’ Rob Sanderson sees Pandora Media Inc P as a “show me story with a fairly long road to restoring investor confidence.”

Sanderson maintains a Neutral rating on the company, while lowering the price target from $13 to $12.

Pandora Premium

The analyst believes there could be potential for upside to the ramp of Pandora Premium subscribers, as well as potential for downside to advertising revenue growth. Pandora Premium is scheduled to be launched at an event in New York City on December 6.

“We do see room in the market for a more personalized music service and think that P has a strong data position to deliver against this opportunity,” Sanderson mentioned.

The analyst also believes that 2017 would be another difficult year for the company’s financial model, as its new efforts ramp.

Subscriber Additions

Pandora has about 3.9 million on-demand music subscribers, who will automatically convert to the revamped Plus product.

In addition, the company is expected to add 2.4 million subscribers to Premium in each of the first two years of its launch, cannibalizing 900,000 subscribers each year from Plus.

“Management believes it can conservatively convert 10 percent of their expected 110 million users and attract over 11 million subscribers at a 35 percent contribution margin by 2020,” Sanderson stated.

The analyst expects continued decline in ad-supported listeners, with a significant increase in RPM, which is expected to increase by more than $5 in 2017 and nearly $6 in 2018.