Canaccord’s Michael Graham looks at Pandora Media Inc (NYSE:P) and is unwavering in his analysis, maintaining both Pandora’s price target as well as a Buy recommendation.
Our proprietary sampling of Pandora Radio listening hours in February points to a continued steady increase in advertising load both for audio and display. In February we observed an average of 5.9 audio spots per hour, compared to 5.8 and 5.3 audio spots observed in January and December. When taken together, our January and February data suggest stability so far in Q1 relative to Q4. While it is too early to draw conclusions regarding the Q1 advertising revenue outlook, we feel comfortable saying our data compares favorably with the $8 sequential decline we have modeled (from $36 to $28) for Q1 mobile ad RPM.
Investment highlights
- Our February advertising sampling of 16 hours across four geographies (New York, NY; Portland, OR; Austin, TX; Nashville, TN) suggests 5.9 audio spots per hour, up sequentially from 5.8 and 5.3 spots in January and December. We estimate that the average ad load across the tested geographies currently stands at 2.64 minutes compared to 2.8 minutes last month, as the split between 15-second and 30-second spots stood at 20-80% (vs. 4-96% last month). Local mix remained solid at 46% of total audio spots, in line with prior months.
- Display ad volume also showed modest sequential growth. “Pure-display” ad load increased to 8.1 per hour from 8.0 last month, and the stable level of 7.3 we’ve consistently observed since April 2013.
- Based on our data, we continue to believe Pandora Media Inc (NYSE:P)’s advertising sales effort is progressing favorably.
Valuation
We maintain our BUY recommendation and $43 price target. Our price target is based on 45x our 2018 non-GAAP EPS estimate of $1.55, discounted to present at 10.5%.
