Pandora's AdsWizz Acquisition Turns Raymond James Bullish

Pandora Media Inc P's $145-million acquisition of the digital audio ad technology company AdsWizz justifies a bullish stance on the stock, according to Raymond James

The Analyst

Raymond James' Justin Patterson upgraded Pandora Media from Market Perform to Strong Buy with a newly assigned $8 price target.

The Thesis

AdsWizz is a leader in digital audio advertising, with operations in 39 countries, Patterson said in the upgrade note.

Pandora was already using AdsWizz's products and services in its programmatic audio marketplace, so an outright acquisition should accelerate its ad tech roadmap, the analyst said.

The acquisition gives Pandora exposure to the $28-billion global audio advertising market and drastically expands its user reach from 69 million to 352 million listeners, including only iHeart and Sirius, Patterson said. 

Pandora's rivals in the streaming audio space could "potentially" replicate its newly acquired business, but it may not make sense to do so based on their existing strategies, the analyst said:

• Amazon is focusing on improving its Echo's skills and ecosystem instead of monetizing the platform through Alexa ads.
• Google and Facebook could be better off acquiring Pandora outright as a more cost-efficient path to monetization.
• Spotify and iHeart both have programmatic audio marketplaces, but these are likely "subscale today."

The acquisition translates to a $300-million revenue opportunity for the streaming music provider, which should equate to a $78-million EBITDA opportunity, according to Credit Suisse. 

Price Action

Shares of Pandora were trading higher by nearly 6 percent ahead of Thursday's market open.

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Photo courtesy of Pandora.