Pandora's Turnaround Could Take Some Time; Stifel Downgrades

Pandora Media Inc P's earnings and outlook portrayed to investors a "sound" turnaround strategy, but it will take time before any signs of success are seen.

Accordingly, Stifel's John Egbert downgraded Pandora's stock from Buy to Hold with a price target lowered from $12 to $8.

Pandora's third-quarter revenue grew 8 percent from a year ago to $379 million, which was just shy of the Street's consensus estimate of $380, Egbert commented in a note. But over the same time period, advertising revenue rose just 1 percent which was notably short of the 6 percent the Street was looking for. The ad revenue miss can be attributed to various factor, including a decline in the total number of ads sold, a soft macro environment, declining listener hours, hurricane related factors, and limitations in technologies made available to marketers.

Looking forward, Pandora's management team has a game plan to address its woes, including:

A focus on non-music content like traditional radio or podcasts;

An emphasis on new methods of distribution;

Introduce new competitive features to users who pay the monthly fee, and

A revamp of marketing to focus on creativity with discipline in mind.

The multiple initiatives identified by management are "the right ones" and the streaming music company is very much "more focused and forward-thinking" than it has been in the past, the analyst said. But it will be several quarters until the initiatives are showing signs of success and comes at a time when management will face negative organic year-over-year advertising growth as soon as next quarter.

Bottom line, identifying a sold turnaround strategy is a good start but executing on the strategy is certainly "Another story," the analyst said. As such, investors are "unlikely to come back to Pandora's story en masse until its core audience and advertising trends improve."

Related Links:

Can Pandora's New Management Team Change Analysts' Tune?

5 Biggest Price Target Changes For Friday