Bank Of America Tuning Its Rating On Pandora Down To Underperform

While Pandora Media Inc’s (NYSE: P) 2020 revenue target appears “difficult to achieve,” the company’s on-demand product seems to be “five years too late,” Bank of America’s Nat Schindler said in a report.

He downgraded the rating on Pandora from Neutral to Underperform, while reducing the price objective from $14 to $9.

Pandora is targeting $4 billion in revenue by 2020. This represents almost a doubling of revenue in five years and looks tough to achieve without being backed by both listening hour and advertising monetization acceleration, Schindler commented.

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

Intensifying Competition In On-Demand

Several players have entered the on-demand subscription market this year. Competing products are being offered by Spotify, Apple Music, Google Play, Tidal and Amazon.

“Even with Pandora differentiating on auto playlist creation, we think it will be hard for Pandora to attract 10-15mn paying subs, especially because switching users off other services that have invested time in building out their personal playlists will be extremely difficult,” Schindler wrote.

Valuation

Pandora’s shares are currently being supported by acquisition speculation rather than by fundamentals, the analyst commented. He added, “We expect the subscription service rollout will create near term pain in FY17 as Pandora markets their new low gross profit service and royalty costs increase pushing out profitability further.”

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