Here's How Pandora Could Return To Profitability This Year

Pandora Media Inc P is scheduled to report its Q4 2016 results on Thursday. The company will likely announce broadly in-line results for the quarter, and could return to profitability in 2017 and generate strong growth in 2018.

Wedbush’s Michael Pachter maintained an Outperform rating on Pandora, with a price target of $15.

Q4 Preview

Pachter expects Pandora to report Q4 revenue, adjusted EBITDA and EPS of $385 million, $(30) million and $(0.23), versus consensus forecasts of $374 million, $(39) million, and $(0.21), respectively. He estimated listener hours to be down 3.1 percent year-over-year and ad revenue growth of 10.2 percent, driven by the company’s more aggressive advertising strategy.

Performance In 2017

Pandora may record losses in the first half of 2017, due to investments in on-demand music and its transitions to a three-tiered subscription model. Pachter added, however, that the company was able to “inexpensively transition” 375,000 ad-supported users to Pandora Plus in Q4. This highlights Pandora’s ability to achieve the same when it rolls out the on-demand service by the end of Q1.

“We believe that Pandora can convert at least 1 million Pandora Plus subscribers to on-demand and can attract 1 – 2 million net new U.S. on-demand subscribers in 2017, while up-selling ad-supported customers to its Pandora Plus service,” the analyst wrote.

Pandora could easily exceed 2017 revenue estimates and this, along with its commitment to reduce headcount by 7 percent, would likely enable the company to reach “just above break-even EBITDA in 2017,” Pachter pointed out.