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Pandora Media Inc (P): Buy, Sell or Hold?

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Pandora Media (P)Barrington reiterated its Outperform rating on Pandora Media Inc (NYSE:P), and raised its price target from $15 to $18 on the stock. Barrington said in its report:

Revenue momentum improving; ad sales staff being increased: Pandora Media Inc (NYSE:P) is investing in its sales staff to further efforts to take advantage of increasing levels of listening coupled with rising levels of mobile pricing. Listening is now 75% mobile, and management is stepping up hires of top salespeople in local markets to more effectively lay out Pandora’s value proposition for targeted mobile listening audience to advertisers used to dealing with local broadcast radio.

Shares of Pandora Media Inc (NYSE:P) soared after the company released bullish fiscal fourth-quarter results. On March 7, 2013, the company reported a loss for the quarter of $14.6 million, or $0.09 per share, compared to a loss of $8.18 million, or $0.05 per share, in last year’s corresponding quarter. On an adjusted basis, the loss was $0.04 per share, which beat consensus estimates calling for a loss of $0.05.

Ad sales in the period were up 51% to $109 million, while royalty payments rose 59% to $77 million. Net revenue for the quarter climbed 54% to $125.1 million, beating Wall Street consensus expectations of $122.8 million. This post will focus on Pandora’s growth drivers, and fierce competition in the music streaming business.

Pandora’s growth drivers

Growing user base: Pandora Media Inc (NYSE:P)’s user base is still growing. It finished last month with 67.7 million active listeners, claiming roughly 8.5% of the domestic radio market. However, active listener growth has declined slightly, from 47% in the previous quarter to 38% at the end of January.

Mobile revenue growing fast: Pandora’s mobile revenues grew 105%, while listener hours rose 89% — increasing the average mobile RPM to $23.83 — up from $21.93 in the last fiscal. The improvement in mobile RPM is a result of increased investment in the sales team and the slowdown in growth of listener hours.

Overall revenue growth positive: Pandora registered a three year average revenue growth of 142.1% as against the industry average of 10.9%. Given the economic slowdown that persisted in the last few years, this is no easy feat.

FY 2014 guidance: Revenue guidance for fiscal year 2014 suggests strong revenue growth will continue. They’re looking for revenue of $600 million to $620 million, above consensus estimates. EPS guidance is also a bit above consensus estimates, with the company anticipating EPS of $(0.05) to $0.05, net of stock-based compensation expenses.

Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) looking into music streaming

The rumor that Apple would pursue its own music streaming service has been buzzing around for a while. Many observers feel that a streaming service would fit naturally alongside iTunes, which currently accounts for about 60% of all digital music sales. Recent developments in the relationship between iTunes and iCloud suggest that there is room in the Apple ecosystem for streaming media.

Rumors are doing the rounds that Google is also looking into the space. In February, the Financial Times reported that Google was in talks with major music labels over that possibility. The news stacks with the company’s plan to sell subscriptions to channels on YouTube. A person familiar with the matter told the publication that a subscription could cost between $1 and $5 per month.

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