Shares of online music purveyor Pandora Media (P) are down $3.37, or almost 24%, at $10.90, improving slightly from a low of $10.53 after the company last night missed fiscal Q4 estimates and said this quarter’s results would miss as well.
The stock gets two downgrades this morning, one from Raymond James’s Aaron Kessler, and one from Citigroup‘s Mark Mahaney.
Kessler cut his rating on the shares from Outperform to Market Perform, and removed his $15 price target, writing that “we believe the shares are likely to be range-bound until we see greater traction with mobile monetization particularly local radio advertising) and improved operating margins.”
Kessler cut his EPS estimate for this year to a net loss of 28 cents from a prior estimate for a net loss of 8 cents. He also cut his 2014 estimate to negative 23 cents a share from a prior 3-cent loss estimate.
Citi’s Mahaney is a bit more blunt in downgrading the shares to Neutral from Buy, and cutting his price target to $17 from $25, writing, “We initiated on P with a Buy/High Risk last July with the stock at $18. That call clearly hasn’t worked.”
Adds Mahaney, “with no profitability track record and no near-term profitable outlook – P always carried very little margin for error. And now there’s error.”
Mahaney cut his EPS estimate for this year to a net loss of 16 cents from a prior 13-cent loss estimate. Mahaney cut his 2014 estimate to a loss of 20 cents from a prior estimate for negative 9 cents.
Still, the stock has its defenders. JP Morgan‘s Doug Anmuth reiterates an Overweight rating on the shares while cutting his price target to $17 from $22, writing that “our long-term fundamental view on Pandora is unchanged,” with listener hours of 2.7 billion in the quarter almost double the total a year earlier.
Opines Anmuth, “monetization will follow as Pandora accelerates its sales force build out and third-party audience measurement improves.”
Anmuth also notes that some of the weakness in the quarter was from weak pricing on display ads, a result of January being “seasonally weak” for so-called remnant inventory on mobile devices that run the Pandora software:
January tends to have a seasonally higher proportion of remnant mobile inventory and ad network pricing during the month was lower than anticipated.
Anmuth cut his 2013 EPS estimate to a loss of 16 cents from a prior expectation for a 2-cent per share profit.
And Needham & Co.‘s Laura Martin reiterates a Buy rating on the shares, and reiterates her $13 price target, writing that the company can eventually benefit as mobile advertising prices catch up with those for display ads on desktop browsers:
From 2009 to 2011, P raised its prices from $20 to $60-70 on the desk top. P calls its pricing metric “revenue per thousand listening hours,” or RPM. (RPMs are similar to CPMs.) Mobile RPMs have risen from $13 to $20 over the past 12 months. P’s mobile pricing power appears to be following a trajectory similar to the desktop’s, implying that the pricing gap between $20 today and $60 eventually should close over the next 3 years. Based on this metric’s momentum alone, we feel confident about P’s revenue trajectory over the next 3 years.
Martin maintains her 11-cents net loss per share for this fiscal year, but she raised her revenue estimate to $419 million from a prior $416 million.
