Pandora posted Q2 sales of $343 million, up 20% year over year.
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Shares of Pandora (P) closed up by 2.33% to $12.28 on Friday, despite Pacific Crest downgrading the stock to “underweight” from “sector weight” this morning. The company now has a Return on Equity of -37.70% and Return on Investment of -17.20%. Wall Street’s target of $378.2 million.
Yet for the music business, there’s a more alarming stat to digest: Pandora’s active monthly listener count fell in the three months to end of June, down 1.3m to 78.1m, compared to 79.4m in the same period of 2015.
IBD’S TAKE: Pandora Media carries an IBD Composite Rating of 40, meaning it has been outperformed by 60% of other stocks in key metrics over the past 12 months. Look for more information on Pandora in the IBD Stock Checkup. Though at the same time, the royalties that Sirius, as a radio service, has to pay to the music rights owners are significantly lower than those paid by streaming services like Pandora.
Pacific Crest analysts noted that the stock’s operating leverage has deteriorated and that there’s little likelihood that the company will produce meaningful profits in on-demand. “We do not recommend owning Pandora”. More an internet radio platform than a true streaming service, Pandora has struggled to play catch-up with on-demand streaming services such as Spotify and Apple Music, although it is rumoured to be launching its own on-demand music streaming feature in the near future. Pandora reportedly rejected the informal offer.
Any talk of Liberty acquiring Pandora inevitably leads to speculation of some kind of merger between the streaming service and satellite radio firm Sirius XM, in which Liberty has a 64% stake. For the second quarter of 2016, adjusted EBITDA differs from GAAP net loss in that it excludes $32.4 million in expense from stock-based compensation, $14.4 million of depreciation and amortization expense, $6.0 million of other expense and $1.5 million of benefit from income taxes.
“Pandora is burning a significant amount of cash and the challenges to its business model do not appear changeable through scale or a change of ownership”, the firm continued in an analyst note.
Credit Suisse analyst Stephen Ju maintained his neutral rating on Pandora stock, but he cut his price target to 16 from 17.
“Pandora’s long-term future hangs on the on-demand product that remains sight unseen, so we find it hard to weigh its prospects with its numerous competitors already in-market”, Ju said in a report.
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“We are making strong progress on Pandora’s transformation into a complete music marketplace”, said Pandora founder and CEOTim Westergren said the company was making “strong progress on Pandora’s transformation into a complete music marketplace”, with “considerable progress” on product development plans and higher margins sequentially in Q2.
