Canaccord Genuity analysts Michael Graham and Maria Ripps give Buy ratings to Pandora Media Inc (NYSE:P).

Pandora

Pandora’s key points

  • Pandora Media Inc (NYSE:P)’s active listeners grew by a robust 3.8 million sequentially from 72.4 million in November to 76.2 million in December, up 14% y/y and the highest monthly additions since Dec 2012. Total number of listener hours was solid at 1.58 billion compared to 1.49 billion last month. Pandora’s share of U.S. radio listening increased noticeably to 8.60% in December from 8.44% in November. Monthly hours per listener increased to 21.3 from a strong 20.8 in November.
  • We are encouraged by this strong showing, especially in light of the recent launches of competitive services from Apple Inc. (NASDAQ:AAPL) and Spotify. While y/y growth in listener hours decelerated to 14% growth from 17% growth in November, we note that 1) December 2012 was a very tough comparison; and 2) many of the new listeners likely joined Pandora Media Inc (NYSE:P) in the days following Christmas, as gift-receivers activated new devices and likely only listened for a few days during the month. As these listeners roll their activity into January and have a longer opportunity to listen, we believe there should be a positive impact on hours.
  • We are encouraged that the number of hours in the quarter is tracking slightly above our model (4.540 billion vs. our 4.526 billion) while our ad load sampling points to ~ $1 of upside to our mobile ad RPM estimate of $37. We believe this suggest some moderate upside to our Q4 revenue forecast.
  • Additionally, Pandora Media Inc (NYSE:P) announced that it will begin rolling out in-car advertising solutions in January. The company announced that over 4 million listeners have activated Pandora through a native auto integration.

Pandora’s valuation

Our price target remains unchanged at $35, and is based on 45x our FY17 EPS estimate of $1.20, discounted to present at 10.5%.