Pandora Still Has 17% More Upside

“We expect losses to persist into early 2017 as Pandora Media Inc P invests in on-demand music and transitions to a three-tiered subscription model,” Wedbush’s Michael Pachter said in a note, while maintaining an Outperform rating on the company and a price target of $15.

Along with its new live events initiative, the analyst expects the on-demand services and raising ad pricing to be strategic priorities for Pandora Media.

Growing Subscribers

Pachter believes the company will be able to convert at least 1 million Pandora Plus subscribers to its on-demand service, while attracting 1 million –2 million new U.S. on-demand subscribers in 2017.

Pandora Media is also expected to upsell ad-supported customers to its Pandora Plus service, while international expansion could be on the cards in 2018.

The company pre-announced positive results for Q4 on January 12, which resulted in a raise in the revenue and EBITDA estimates.

Driving Growth

Pachter now believes the company will be able to beat the ad revenue estimates for 2017, with Pandora Media’s more aggressive advertising strategy driving growth.

The analyst noted, “The company’s ability to inexpensively transition 375,000 ad-supported users in Q4 to Pandora Plus underscores its ability to do the same with on-demand once it rolls out the service by the end of Q1.”

Pandora Media has also announced its intent to reduce headcount and return to EBITDA profitability in 2017.