Credit Suisse Cuts Price Target On Pandora Media

Credit Suisse cut its price target on Pandora Media Inc P Wednesday from $30 to $24 and maintained a Neutral rating.

Analysts led by Stephen Ju noted that “during its 3Q14 conference call, Pandora announced its intent to spend on consumer marketing for the first time in its history. We believe this and the negative advertising vs. subscription revenue mix triggered a sell-off in P shares.”

“The move to spend on consumer marketing is possible as Pandora's monetization has reached such a level to make the ROI compelling, and with this step the company can increase its revenue growth trajectory. Our calculations suggest that the ROI should range from ~130 percent up to ~400 percent, depending on whether the user chooses the free service or the subscription service”, according to Ju.

The analyst note concluded, “Given the nature of this spend (LTV-based model), this augurs softer profitability guidance for 1H15 followed by stronger top and bottom line performance for 2H15. We hence remain on the sidelines for the moment to await further development on this new initiative.”

Ju maintained his revenue forecasts, increased his LT per-spin fees “and more explicitly included the platform fees paid out to Google and Apple for Pandora One. As a result, the FY15 and FY16 Adj. EPS estimates decreased to $0.52 and $0.98 respectively (from $0.67 and $1.17 prior).

Pandora Media traded at $18.30 in the premarket, down 0.16 percent.