Has The Pandora Thesis Changed In Light Of KKR Investment?

Pandora Media Inc P's stock peaked just shy of $40 per share in 2014 and steadily declined to a single-digit price in 2016. Much has changed in the streaming music, including the rapid growth of startup Spotify who stole market share away from Pandora over the years.

But on Tuesday many investors are now asking if KKR's $150 million investment in Pandora and changes to the company's board composition changes the narrative on Pandora's stock. Among some of Wall Street's top analysts, Wells Fargo's Peter Stabler doesn't believe Monday's announcement changes the investment thesis.

Stabler maintains a Market Perform rating and $12 price target on Pandora's stock as the company's earnings report was merely in-line with expectations. Specifically, expectations may have been higher for Pandora's report as the quarter was characterized by the launch of the company's premium on-demand product. Moreover, the quarter also confirmed "significant ongoing headwinds" to the advertising business.

Stabler added that Pandora's guidance looking forward implies "lingering" issues in ad performance, the company does expect a reversal to significant growth in the bottom half of 2017.

Cash Burn In Focus

Stabler further argued that Pandora's cash burn over the past six quarters remains an ongoing concern for investors but now the KKR's investment bolsters its balance sheet. The investment will also see the inclusion of KKR's head of media/communications Richard Sarnoff to Pandora's board of directors.

Bottom line, Pandora's new premium offering does offer consumers a compelling product the fact is it is late to the party in offering an on-demand offering. As such, the analyst believes this presents "significant sub growth uncertainty" and a return to significant growth also depends on a return to ad-supported hours growth.

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