SunTrust's Peck Sees $90 Million Settlement For Pandora As 'Very Reasonable'

Shares of Pandora Media have surged more than 40 percent over the past three months, as investors appear to be more confident that ongoing concerns related to royalties rates and obligations aren't as negative as initially thought.

Media sources on Friday reported that Pandora is close to settling pre-1972 royalties' claims for a total of $90 million (covering 2013 through 2016). The media report prompted SunTrust Robinson Humphrey's Bob Peck to comment in a note on Monday that this figure is "very reasonable."

Related Link: Pandora's Pre-1972 Settlement Could Be Notable For Balance

Amount Makes Sense

According to Peck, an eventual settlement has been expected for some time, as Sirius XM Holdings Inc. (NASDAQ: SIRI) reached a similar settlement in June for $210 million.

At that time, Peck noted that Pandora's settlement will ultimately be for an amount less than $210 million, as Pandora's pre-1972 tracks represent just 5 percent total spins.

Peck continued that a $90 million settlement would equate to a blended (ad-supported and subscription) rate per track of $0.0015. The analyst added that the company's blended rate for 2013, 2014 and 2015 has been $0.0013, $0.0014 and $0.0015, respectively. As such, a $90 million figure appears to be "very reasonable" and would be a "positive benchmark."

'Involuntary Churn' Ahead For Pandora?

Separately, Peck noted that Pandora is unlikely to see a similar "involuntary churn" in its third-quarter print compared to what Netflix, Inc. (NASDAQ: NFLX) reported in its third quarter.

The analyst suggested that by applying a similar impact to Pandora, he arrived at a 0.1 percent impact to total revenue if all else held constant. In fact, Pandora's $0.99 "One Day Pass" that went live on 9/10 could "more than offset" any "involuntary churn."

Peck maintained a Buy rating and unchanged $25 price target on shares of Pandora.

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