Brian Nowak of SIG Susquehanna Financial Group, LLP in a report from Monday, November 18 increased his price target on the music streaming service Pandora Media Inc (NYSE:P) from $30 to $36. His downside number remains $25. As of 1:30 p.m. EST, Pandora is trading at $28.43 down just over 1.1% on the day.


Pandora earnings

Tomorrow will see Pandora release its Q3 numbers and Nowak is optimistic. The basis for his optimism lies in faster than expected traction gains into local radio advertising. Local advertising on radio is a $12 billion dollar pie that Pandora has been slicing further into over the last year. Nowak is calling for Pandora Media Inc (NYSE:P) to bring in $70 million in local ad dollars in fiscal 2014, and he expects that number to double to $140 million in fiscal 2015. That said, he’s expecting this rise in local ad revenue to lower Pandora’s national advertising revenues.

Nowark and Susquehanna are now calling for fiscal 2014 total revenue to reach $656 million, up 1% from their last call for revenues of $650 million, a variance of 1%. For fiscal 2015, their increase calls for total revenues to reach $909 million versus their prior call for $897 million in total revenue.

Slow advertising growth

Nowak also cites a number of factors that could keep Pandora Media Inc (NYSE:P) from reaching the levels that he is predicting, a slower than expected growth in local advertising dollars being the chief concern. Pandora has enjoyed steady growth in both users and user engagement numbers. If these were to fall back, it would certainly hamper Nowak’s call for a price target of $36.

Unfortunately for Pandora, it’s also regularly forced to renegotiation content and royalty fees. If these negotiations are held hostage by content creators it’s Pandora that will pay the price. Lastly, there is some concern that Apple’s iTunes Radio could take away from Pandora’s growth. In addition to Apple Inc. (NASDAQ:AAPL), other deep-pocket tech players such as Google Inc (NASDAQ:GOOG) could also enter the arena and hinder Pandora’s growth or even take away present users.

Audio streamers are a notoriously fickle lot and these numbers could change rapidly. On the other hand, Pandora Media Inc (NYSE:P) has a very high approval rating from its users who view the company favorably.