JPMorgan Downgrades Pandora, Says Turnaround Will Take Patience

Analysts at JPMorgan aren't sticking around to wait for Pandora Media Inc P's turnaround. The firm's Doug Anmuth downgraded Pandora's stock rating from Overweight to Neutral and slashed its price target from $14 to $9.

Pandora's third-quarter earnings report sent shares tumbling lower amid a poor outlook. While the company's management team has a plan to turn around the business, it will nevertheless take many years before any impact is seen, Anmuth said in a note. (See Anmuth's track record here.) 

Pandora's advertising trends continue to deteriorate, and JPMorgan lowered its 2018 revenue estimate by 7 percent to $1.55 billion. Pandora is no longer expected to be EBITDA-positive next year, as estimates were lowered by more than $85 million to a loss of $40 million, Anmuth said. 

The Right Strategy

Pandora's strategy heading into next year is to boost its monthly active users and keep existing users happy with new content and product improvements, Anmuth said. Pandora's initiatives include leveraging existing partnerships with outside media firms to increase consumption of its premium offerings, the analyst said.

Pandora's investments on the ad tech front will give advertisers better ability to track key metrics and improve their required ROI, according to JPMorgan.

"We like management's focus on stabilizing active users and the plan to better monetize the user base," Anmuth said. 

While Pandora's focus on stabilizing active users may prove to be the right strategy, the payoff isn't near, according to JPMorgan. Pandora also lacks near-term catalysts to support the stock, Anmuth said.

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