Pandora Media BUY


P : NYSE : US$28.20

Target: US$43.00

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.

All amounts in US$ unless otherwise noted

Technology — Internet
We hosted a series of investor meetings in Europe with Pandora’s
investor relations team, Dominic Paschel and Palmira Farrow. We exit
the trip with a little jet-lag accompanied by renewed confidence in
Pandora’s ability to exceed our revenue targets over time, especially
when viewed through the lens of future local sales capacity. Pandora
stock is still down sharply from last year’s highs. Meanwhile, we believe
business momentum is strong. Given the stability of Pandora’s model,
we do not expect dramatic revenue upside (or downside) in any given
period. However, we continue to believe Pandora is early in attacking a
large opportunity. We note the European investor base has historically
had limited exposure to Pandora’s U.S.-centric music service (and
therefore the stock), but that interest appears to be growing especially in
the context of a potential listing for Spotify.
Key points
 We check our primary revenue forecast (driven by hours & RPM)
with a “sales capacity” forecast that projects Pandora will grow its
local sales force from 100 in Q1 to ~222 by the end of 2016. We
believe local audio ad revenue should grow by ~167% in 2014 and
68% in 2015. We believe the local sales force is ramping
productivity more quickly.
 We expect a steady but measured path towards profitability, with
management adhering to a philosophy of margin expansion each
We maintain our BUY recommendation and $43 price target. Our price
target is based on 45x our FY18 non-GAAP EPS estimate of $1.56,
discounted to present at 10.5%


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