Market Overview

The Street's Reaction To Pandora's Q3 Earnings

The Street's Reaction To Pandora's Q3 Earnings

Streaming music provider Pandora Media Inc (NYSE: P) reported Monday its third-quarter results and could impact the pending acquisition from Sirius XM Holdings Inc (NASDAQ: SIRI).

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Barrington Research's James Goss maintains an Outperform rating on Pandora with an unchanged $11 price target.
  • Wedbush's Michael Pachter maintains at Outperform, unchanged $10 price target.
  • Raymond James' Justin Patterson maintains at Market Perform, no assigned price target.
  • Credit Suisse's Stephen Ju maintains at Neutral, new $10.80 price target.

The stock traded around $9 per share, up 3.8 percent at time of publication.

Barrington: Improved Monetization

Pandora's third quarter showed a 16 percent year-over-year improvement in revenue to $417.6 million while total subscribers rose 784,000 from the prior quarter to 6.8 million, Goss said in a note. The third quarter also marks the first complete quarter of the new family plan pricing, which helped lift Premium subscribers by more than 1.75 million since the launch.

Pandora also showed improvements in ad-based monetization highlighted by a 10 percent growth in ad RPM (revenue per mille). Encouragingly, total ad-revenue was higher in the quarter despite lower ad deliveries and listener levels.

Wedbush: SiriusXM Needs To Offer More

As part of the already announced merger between Sirius XM and Pandora, Sirius will offer Pandora shareholders a fixed ratio, Pachter said in a note. As such, Pandora's early signs of turnaround success, most notably adjusted EBITDA coming in close to breakeven in the quarter, shareholders should reject the deal in its current form which implies a price tag of around $8.80 per share.

Pandora is also better positioned to renegotiate royalty deals with record labels, which Pachter said bodes well for its profit outlook. As such, a more reasonable price for Sirius XM to pay Pandora investors would be $10 per share if not higher.

Raymond James: More Improvements Needed

Pandora's quarter contains a mix of good and bad, Patterson said in a note.

On the positive front, revenue per 1,000 listeners hit an all-time high and subscriber growth remains in place. On the other hand, active users fell by 2.6 million users from the prior quarter versus expectations for roughly flat growth.

Patterson said Pandora will likely need to invest more dollars to marketing initiatives and partnerships to stabilize the platform and grow users and engagement. As such, the acquisition offer from Sirius XM in its current form as Pandora's turnaround progress "is not linear" and would be easier under Sirius XM's umbrella.

Credit Suisse: Pandora To Trade At Takeout Price

It's unlikely another bidder will present an offer to buy the company, Ju said in a note. As such, Pandora's stock should be valued at $10.80, which implies an exchange ratio of 1.44 times on Credit Suisse's Brian Russo's Sirius XM price target of $7.50 per share.

Related Links:

6 Music Stocks To Watch In 2019

Wedbush: Pandora Investor Reaction Suggests 'Sirius' Problem With M&A Deal

Latest Ratings for P

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

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