Tullo: Pandora Has 70% Upside

Albert Fried’s Rich Tullo maintained an Overweight rating for Pandora Media Inc P the company, with a price target of $16. Tullo believes that Pandora offers revenue growth potential.

According to NY Times, Pandora has hired Morgan Stanley to pursue a company sale. Tullo said that the likely buyers could be CBS Corporation CBS, Apple Inc. AAPL, Alphabet Inc GOOG, Amazon.com, Inc. AMZN, Time Warner Inc TWX and Netflix, Inc. NFLX.

Pandora projected revenue growing to $3 billion by 2020. “Owing to the new CRB rate agreement, Pandora expect gross radio margin to expand to 60% as revenue grows faster than the CRB rate escalations which after a step up in 2016 decline to about 2% annually from 8% annually,” the analyst wrote.

Pandora had reported 4Q15 revenue at $336 million, ahead of Albert Fried estimate of $317 million, with the outperformance being driven by Ticket Fly and Pandora Radio sales.

“While we expect costs to escalate, we view the new CRB rate as favorable. Given the upside to our $16 Target we think Pandora shares are attractive and fluctuations could provide even better entry points,” Tullo commented, while adding that in case the economy gets weaker, a free service has advantages over subscription services.