Why This Top-Rated Pandora Analyst Believes Purchase Of Ticketfly 'Makes No Strategic Sense'

• Shares of Pandora Media Inc (NYSE: P) have risen 40.24 percent over the past three months, reaching a high of $21.98 on October 6.
• Wedbush’s Michael Pachter has reiterated an Outperform rating on the company, while lowering the price target from $27 to $26.
• Pachter believes that the Ticketfly acquisition could prove “exceedingly expensive,” given that Pandora Media would not only need to invest in integration but also in technology enhancement for the first year.

According to the Wedbush report, “On Wednesday morning, Pandora announced that it will purchase Ticketfly for $450 million in cash and stock. Pandora will pay $225 million in cash and 11.6 million shares of the company’s common stock for all Ticketfly’s outstanding shares.”

Analyst Michael Pachter believes that the acquisition does not make strategic sense, given that Pandora Media could have received most of the benefits from partnering with Ticketfly and sharing the revenue.

“We see little value added for Pandora beyond promoting artists, and note that Pandora has limited experience or aptitude in promoting or hosting concerts,” Pachter stated.

Given that Ticketfly’s revenue is only $55 million, Pandora Media is paying a meaningful premium for the acquisition. Even if Pandora Media succeeds in doubling the revenue, it would not add more than 20 percent to the EBITDA. The acquisition is unlikely to contribute anything in 2016.

“Investors remain focused on the CRB rate determination, expected late this year,” Pachter said, adding that Pandora Media “has the better case in its royalty hearing.”