Analyst Holds 'Outperform' Rating on Pandora but Says Changes Necessary for Growth

Encouraged by Pandora’s recent management changes and a renewed focus on its core ad business and profitability, Wedbush Securities repeated an “outperform” rating on the streaming music service in a Friday investor note before a Wednesday earnings call. Revenue from Pandora's ad-supported service should continue to grow as users migrate to in-car listening, as the household penetration rate for connected devices increases and as ad loads and rates rise. But “meaningful changes are necessary to reinvigorate profitable growth,” said analyst Michael Pachter. Pandora’s current valuation “heavily discounts the size of Pandora's user base and the potential for an acquisition,” he said. Wedbush projects a Q4 ad revenue decline of 5.5 percent year on year on a 7.4 percent decline in active users and a 1 percent slip in listener hours, partially offset by the introductions of play-to-unlock premium video ads in late Q4 and programmatic video ads in Q3.