Pandora Media shares are starting the first full week of 2018 by flirting with a record low, sending shares to nearly half of its one-year target estimate set by Wall Street financial analysts.
The downward action for “P” comes on the heels of a blistering report from Morgan Stanley analyst Benjamin Swinburne, who believes growing ad revenue is 2018 “is no longer a given” for Pandora. His comments come just two days before Pandora’s appearance at an important investment community conference.
As of 12:20pm Eastern, Pandora shares were down 7.4%, to $4.79—more than $3 a share since mid-October 2017.
Furthermore, Pandora shares hadn’t closed below $8 a share, aside from one $7.99 finish in mid-August, until Sept. 27, 2017.
As investors ponder how to proceed with Pandora stock, Swinburne clearly fell out of favor with the streaming audio company. First, he trimmed his rating to “equal weight,” from “overweight.” Then, Swinburne lowered his price target to $6 a share, from a lofty $12.
Swinburne had been generous—the 1-year consensus price target for Pandora is $8.42.
Key reasons for his downgrade on Pandora center on “engagement and monetization challenges.” In an investor note, Swinburne said, “We thought Pandora could potentially reach 10% advertising growth in 2018. However, we now expect 2017 to show a nearly 15% decline in listening hours, an over 5% decline in ad supported monthly active users, and slower growth in advertising average revenue per unit (ARPU). This leads us to lower our outlook for ’18 ad growth, now forecasting flat to up modestly.”
Further, Swinburne said the dip in ad revenue growth “meaningfully reduces the company’s ability to drive any operating leverage.”
Is Pandora’s weak performance of late tied to a long-term decline? Luis Baughman of Simply Wall St. asks this question, and in an analysis released today examined data from the most recent 12 months to examine Pandora against its peers on a relative basis.
“For Pandora Media, its most recent bottom-line (trailing twelve month) is negative $596.5 million, which, relative to the prior year’s level, has become more negative,” Baughman says. “Given that these figures may be fairly short-term, I’ve estimated an annualized five-year figure for Pandora Media’s earnings, which stands at negative $124.3 million. This doesn’t seem to paint a better picture, since earnings seem to have steadily been getting more and more negative over time.”
At the same time, Baughman says Pandora Media is in “a high-growth phase,” with expenses shooting ahead of elevated top-line growth rates, leading to yearly losses.
“Inspecting growth from a sector-level, the U.S. internet industry has been growing, albeit, at a unexciting single-digit rate of 7.42% in the past 12 months, and a substantial 15.52% over the past five,” notes Baughman. “This suggests that whatever tailwind the industry is profiting from, Pandora Media has not been able to leverage it as much as its average peer.”
The assessments may put a damper on Pandora CFO Naveen Chopra‘s appearance Wednesday (1/10) at the 2018 Global TMT West Conference, held in conjunction with CES 2018 at the Bellagio Hotel & Casino in Las Vegas.
Chopra is scheduled to present at 10:15am Pacific.
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