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Wall Street Reacts To Pandora's Federal Rate Court Loss

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Wall Street Reacts To Pandora's Federal Rate Court Loss

Shares of Pandora Media Inc (NYSE: P) continued trading in negative territory Monday morning after a Federal rate court Judge Louis L. Stanton ruled that the company should increase its publishing royalty rate to BMI from 1.75 percent of revenue of 2.5 percent.

JMP Securities: Unfavorable Ruling Results In Lower 2016 EBITDA Estimates

In a report published Monday, Ignatius Njoku of JMP Securities noted that Pandora plans on repealing the decision to the U.S. Second Circuit Court of Appeals, but if the ruling stands, the higher rate is estimated to negatively impact the company's 2016E EBITDA by 6 percent to $150 million.

Njoku also added that the BMI ruling follows a favorable court decision for Pandora over ASCAP, where the company's royalty fee remained unchanged at 1.85 percent. The contrasting results underscore the range of possible outcomes for the Web IV hearings – the final determination of which is expected in December.

Bottom line, the uncertainty around royalty rates and the ongoing competitive landscape leads to a "balanced" risk to reward profile at current valuation.

Shares remain Market Perform rated with no assigned price target.

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MKM Partners: ‘Significant' Growth Opportunity Overlooked

In a report published Monday, MKM Partners analyst Rob Sanderson argued that while investors remain focused on the ongoing CRB process, the "significant" growth opportunity for the company is being overlooked.

According to Sanderson, Pandora's growth opportunity is "largely driven by people," unlike other Internet advertising businesses. The company is attracting sales talent from incumbent radio because it is an "audience share gainer" and has a better value-proposition to offer advertisers.

Sanderson noted that his long-term forecast of becoming a $3 billion advertising business by 2020 remains unchanged despite recent negative headlines. As such, the stock "should work its way" back to the low-$20s heading into the CRB decision and regain the $30 level on a "non-disruptive" resolution.

Shares remain Buy rated with an unchanged (12 month) $23 price target.

Latest Ratings for P

DateFirmActionFromTo
Nov 2018Canaccord GenuityDowngradesBuyHold
Oct 2018Goldman SachsDowngradesBuyNeutral
Oct 2018BMO CapitalDowngradesOutperformMarket Perform

View More Analyst Ratings for P
View the Latest Analyst Ratings

 

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Posted-In: BMI CRB Federal Rate Court Ignatius Njoku JMP SecuritiesAnalyst Color Analyst Ratings Tech Best of Benzinga

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