SunTrust's Bob Peck Nudges Out Year Estimates For Pandora Higher

Robert S. Peck of SunTrust Robinson Humphrey maintained a Neutral rating on Pandora Media Inc (NYSE: P), with a price target of $12.

Revenue Estimate Raised

Peck mentioned that based on SunTrust’s deep-dive analysis, the out-year estimates for the company have been raised.

While the 2016 revenue estimate continues to be in line with the consensus and guidance, at $1.4 billion, the 2017 revenue estimate has been raised to $1.79 billion, 7 percent above consensus.

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Peck explained that the 2017 estimate assumes ad supported revenue growth of 11 percent, a decline from the 17 percent expected in 2016.

Pandora One’s revenue growth is expected at 1 percent, as compared to 6 percent for 2016, while Ticketfly’s revenue growth is expected to accelerate to 47 percent or $126 million, from $86 million in 2016.

The estimate also assumes $216 in revenue from the new subscription tiers, with expectations of 4 million subscriptions by the end of 2017.

EBITDA Estimate Raised

The 2016 and 2017 EBITDA estimates have been raised, with the former in line with the guidance and consensus and the latter still significantly below the consensus, despite the above consensus revenue estimate.

Peck believes that “after factoring in 1) the incremental content costs and commissions to mobile app platforms from new subscription tiers, 2) Ticketfly expenses, and 3) other variable costs, we have to assume very significant expense leverage across marketing, product development, and salesforce to get to consensus EBITDA.”