Richard Greenfield at BTIG has never been a fan of Pandora Media, panning the streaming audio company even before its IPO. Now the bearish analyst has turned even more bearish on the stock.
“We view social as one of Pandora’s key problems,” Greenfield wrote in his latest analysis. He doesn’t think the latest redesign of Pandora’s website is up to snuff on the social media side and notes that Pandora was notably missing as Facebook announced new music partners.
So even as the BTIG analyst increased his short-term financial estimates for Pandora – notably, he’s now expecting the company to turn cash flow positive this year – he’s maintained his “sell” rating on the stock and lowered his target price to $3.75 from his previous $5.50. Pandora closed Friday (9/23) at $10.75.
The release of the new iHeartRadio personalized radio service by Clear Channel was one example of new competition that prompted Pandora to eliminate the usage cap on its free service. Greenfield figures that “evaporated” a key benefit of Pandora’s subscription service, so he expects a secular decline in that side of the business. So he’s pulled back on his revenue growth estimates over the next four years, but increased his listener hours estimates. That means higher music royalty payments and lower profits in the long run.
RBR-TVBR observation: Pandora’s boosters tend to be totally focused on top line growth, both in ad sales and listener sign-ups, ignoring the huge royalties that Pandora has to pay to SoundExchange, regardless of whether it manages to sell enough new ads to cover new listening. The bet seems to be that some larger company (Google or Microsoft, for example) will want to buy it because of its growth rate. But we’re pretty sure that those Internet giants have bean counters who know how to tally royalty payments as well as the metrics that Pandora executives prefer to focus on.
