Stocks

Pandora Media May See Headwinds From Apple Music

Pandora Music continues to show signs of growth but could experience a bit of a hiccup in the third quarter due to Apple’s free three-month trial of its streaming music service. The question now is just how much of a long term impact Pandora will see from Apple Music and whether it will be significant.

Pandora

Pandora investors expecting the worst?

In a report dated June 24, analysts Canaccord Genuity Michael Graham, Austin Moldow and Ryan Wallace said they think Pandora’s current stock price suggests that Wall Street is expecting a negative outcome for the company. They noted several issues that are giving some investors pause, like the negotiations over royalty rates as the Copyright Royalty Board decides how high of a rate Pandora should have to pay.

They point out that Pandora did see a setback in the Broadcast Media Inc. rate court, although the company is currently going through an appeals process, which they think should help. Closing arguments in front of the CRB are scheduled for July 21, so that will either remove an overhang on Pandora shares or make sentiment shift further to the negative.

Pandora seeing modest listener hour growth

The Canaccord Genuity team also reported that enthusiasm among advertisers for Pandora remains high, and they believe the company will keep improving its ability to monetize. They think the full launch of mobile programmatic for display ads will boost the company’s results starting in the third quarter.

They continue to expect modest growth in listener hours, as they’re looking for a 9% increase in the current quarter and a 12% increase in the third quarter.

Warning about Apple Music

Also in the third quarter, the analysts note that Pandora will likely start seeing some impact from Apple Music, which is being rolled out at the end of this month. Apple is offering a three-month free trial, which could impact Pandora in the third quarter as consumers try out the new service.

In the long term though, the Canaccord Genuity team thinks Pandora, Apple and Spotify will split the vast majority of the streaming music market. Overall, they’re not worried about Apple Music and its long term effect on Pandora.

They maintained their Buy rating and $26 per share price target on the company. They’re certainly much more positive than the majority of firms, as many downgraded Pandora after the last earnings miss.

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