Pandora Media Buy Target $35

P : NYSE : US$28.40
BUY 
Target: US$35.00

COMPANY DESCRIPTION:
Pandora radio is the market leader in personalized Internet-based radio listening in the US. The company uses its proprietary algorithms as part of the Music Genome Project to generate playlists for users that are personalized and cater to the tastes of individual users

Technology — Internet
NOVEMBER AD LOAD: STABLE AUDIO
WITH IMPROVING DISPLAY QUALITY
Summary
Our November audio advertising load sampling indicates continued
stability. We observed an average of 5.4 audio ad spots per hour in
November, a slight increase from October’s 5.3 audio spots and
September’s 5.0 spots. The local mix remained healthy, despite a
stronger showing from large national retailers in the sampling this
month. The quality of display advertising also improved significantly,
potentially implying higher pricing power for the segment.
Key points
 Our November audio advertising sampling of 16 hours across four
geographies (New York, NY; Portland, OR; Austin, TX; Nashville,
TN) shows continued stability. Our sample suggests that the ad load
in November increased slightly to 5.4 spots per hour from 5.3 spots
in October and 5.0 spots in September. The split between 30- and
15-second spots was 84/16% in November, implying that the
average ad load across the tested geographies currently stands at
2.5 minutes, compared to the estimated 2.4 minutes in October.
 Local audio ads continued to be solidly represented in November
coming in at 45% of total compared to 48% and 32% of total in
October and September. Large retailers and Auto were the largest
categories in November, accounting for 40% and 23% of total audio
ad units, up from 18% and 19% in October.
 The quality of “pure” display ads (i.e., those not accompanying
audio ads) improved; we observed a pronounced shift from Tier III
advertisers (mostly app game downloads) to Tier I advertisers
(mostly large brands), driven by a heavier mix of Retailers and Auto
companies. This suggests large brands may be purchasing display
more intensively, rather than simply relying on audio-linked display.
Valuation
We maintain our BUY recommendation and $35 price target, which is based on 45x our FY17 EPS estimate of $1.20, discounted to present at
10.5%.

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