Analyst Takes 'Plunge' On Pandora

• Pandora Media Inc P shares are down 30 percent year-to-date, even after hitting a high of $22 on October 5.
• Macquarie’s Amy Young upgraded the rating on the company from Neutral to Outperform, while maintaining the price target at $19.
• Pandora can monetize its user base to leverage newer growth options, Young pointed out.

Analyst Amy Young mentioned that the markets seem to have overreacted to competitive threats and a potentially unfavorable CRB decision. Pandora has several growth options that can be used to monetize its user base and maintain its dominance in audio entertainment, Young believes.

The company is capable of holding on its own versus competition, while also improving its user metrics. The impact of the foray of Apple Inc. AAPL into the field of music was felt with all leading players expanding their marketing during the latest quarter.

Despite stiffening competition, Pandora’s total listenership hours in 3Q grew 3 percent y/y, while its monthly active users were up 2 percent y/y at the end of September, the Macquarie report stated.

Pandora continues to focus on consumer branding and innovation. Young added that the company’s mid-market ticketing business can be leveraged.

“Ahead of the mid-December CRB decision, we are now assuming a more modest performance fee rate of US$0.18/100 songs vs. US$0.1975 previously,” the analyst commented, while adding that independent label Merlin may now be a factor in setting the ’16-’20 rate.

This opens up the possibility of tiered rates, Young said. He added that the US$90m settlement of pre-1972 recordings will actually reduce the uncertainty.