Albert Fried Upgrades Pandora (P) to Buy on Solid Results, Fading 'Fair Pay' Momentum

Albert Fried & Company upgraded Pandora (NYSE: P) from Market Perform to Buy with a price target of $19. Analyst Rich Tullo noted solid Q2 results and said momentum behind artist’s fair pay is fading.

"We give Pandora a BB+ for 2Q15A results. While total revenue $286.6 million beat our estimate $279.5 million; Ad revenue in 2Q15A, $230.7 million, missed our estimate, $237.5 million. Owing to much higher non cash stock compensation and D&A costs when compared to our model, AOCF was $6.3 million vs. our $1.3 million forecast ... We thought Pandora’s 2Q listener hours were very strong at 5.3 billion as compared to our 5.16 billion 2Q15E estimate," said Tullo.

"While we respect Taylor Swift, we think momentum behind artist’s fair pay is fading and subverted by NY Congressman Jerry Nadler’s radio bill which is just a plagiarized reiteration of the old IRFA. We think Artists will get a rate escalation however, now think the Armageddon scenario 30 to 40 micro pennies is off the table. Higher content costs is a risk for Pandora but if Pandora can benefit from programmatic and if Pandora can increase ad load we think gross margins can stabilize at a long term profitable level," continued the analyst.

Tullo added, "We think most of the negative Pandora story is baked into the cake, and while we may be a little half cocked, we are upgrading Pandora to Overweight from Market Perform. We like its market share position in IP Radio and its potential to add new content and expand internationally once the CRB rate hearings are resolved."

For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.

Shares of Pandora closed at $13.88 yesterday.

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