Albert Fried Sees Rate Increases Ahead For Pandora

Albert Fried & Company issued a research note on Tuesday commenting on Pandora Media Inc (NYSE: P) and its negotiations with the CRB. The firm reiterated a Market Perform rating and $20 price target.

Analyst Rich Tullo explained his investment thesis on Pandora by stating it "offers a great service and revenue growth potential. However, great Companies do not always offer attractive returns for equity investors."

Tullo went on to make the point that the argument for CRB rate relief on the basis that Pandora has not been profitable is not valid.

Tullo predicted that "music rights holders including artists and record labels will argue Pandora is in control of its own expenses such as leasing mega yachts in Cannes France for the creativity festival. Thus profitability is only partly influenced by CRB rates."

"We think the IP rights holders will also argue in the absence of a high rate there are limited incentives for Streamers to innovate and promote. Thus a high rate card, in excess of $0.002 per performance, is necessary to maintain suitable economics for more artists," according to Tullo.

SunTrust also recently commented on the rate issues and offered its own perspective on future rate increases.

The report forecasted "a loss from operations of $24 million in 3Q14E as compared to $11.2 million in the prior quarter and a loss of $$3.9 million in 3Q13A. On a GAAP EPS basis, we forecast the loss per share to expand to $0.11 per share in 3Q14E from a LPS of $0.06 in the prior quarter and EPS of $0.04 per share in 3Q13A."

Pandora Media Inc recently traded at $22.88, up 3.02 percent.