SunTrust's Bob Peck Offers Scenarios For Pandora's Copyright Royalty Board Ruling

In a report published Tuesday, SunTrust Robinson Humphrey analyst Bob Peck detailed how Pandora Media Inc P could preserve $100 million in profit even in an unfavorable Copyright Royalty Board (CRB) ruling that is expected by year- end. According to Peck's proprietary analysis, market fundamentals support a royalty per track of less than $0.0016. This ruling would be a positive for Pandora's stock as the market is discounting a CRB rate of less than $0.0020. On the other hand, Pandora could preserve $100 million in profit (sacrificing around 1 percent of revenue) in an unfavorable CRB outcome by restricting least-profitable hours, migrating some restricted users to the subscription tier and lowering marketing spend. Moreover, in the event of an unfavorable ruling, Pandora would benefit as the barrier to entry is raised for new competitors looking to enter the space. Shares remain Buy rated with an unchanged $25 price target.