Pandora Blowing Up The Music Streaming Model Could Be Brilliant, Says MKM

MKM Partners' Rob Sanderson maintained a Neutral rating on Pandora Media Inc P, while lowering the fair value estimate from $18.00 to $11.50.

Sanderson believes that "there is a large opportunity for P to become the next-generation platform to connect fans, artists and marketers on multiple levels," although there could also be "see high execution risk, competitive forces and potential friction from industry participants."

While noting that the transition to the digital era has adversely impacted the music industry, the analyst pointed out that despite growth in digital downloads, music retail sales were still $16 billion below their peak levels.

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"However, interest in music has never been greater and consumption growth is unusually strong (up 15% in 2015). We see an ongoing reformation of industry structure," Sanderson mentioned, while adding that monetization was "shifting away from retail toward licensing and performance."

Pandora Media has robust core assets, Sanderson said, counting among them the more than 80 million "highly engaged MAUs, more than 10 percent share of ad-supported radio listening, an advertising business with an above $1 billion run rate and "the most comprehensive music taxonomy and database of listener preferences."

The company has also acquired and developed analytics for artists, while it still has the ability to fill concert seats and has acquired an emerging ticketing platform. In addition, heavy promotion of on-demand music services has been driving growth in listener hours for the company.