Pandora Shares Flirt With $15 Level As Goldman Adds To 'Conviction Buy' List

Goldman Sachs’ Heath P. Terry believes that following Pandora Media Inc (NYSE: P) shares having underperformed the median SMid-cap internet peers over the past 12 months, the potential upside to the stock more than offsets the risks.

Terry maintained a Buy rating on the company, while raising the price target from $17 to $19.

The stock was up about 3.5 percent at $14.65 in the pre-market session.

Upside Offsets Risks

Adding Pandora to the Americas Conviction List, the analyst mentioned that the company faces significant execution and competitive risks “as it launches its new subscription models and transitions its ad-supported business to direct label relationships.”

However, Terry also believes there is meaningful upside potential in the out-years, driven by premium radio and on-demand subscriptions.

Related Link: Improved Monetization Could Offset Cost Increases For Pandora, Bob Peck Says

Multiple Growth Avenues

The company has guided to revenues of $4 billion by 2020, at a five-year CAGR of 28 percent, as compared to the 20 percent growth in Q3.

“With premium radio, on demand, ad supported listening, ticketing, and growth in auto and home listening, we see multiple avenues to get there,” Terry mentioned.

The analyst expects competition to ease for the company in the online music space, with a slowing down of growth of new entrants, labels limiting “free models” and existing providers focusing more on profitability.

Estimates Revised

“We have revised our estimates to reflect potential new revenues and fully reflect the additional costs,” Terry added.

The 2017 and 2018 revenue estimates have been raised 11 percent and 31 percent, respectively, while the EBITDA estimate for 2018 has been raised 115 percent.