Pandora Listener Growth Significantly Slowed In October And November -Canaccord Genuity

Pandora Media Inc P has struggled to increase its listener figures in the fourth quarter of 2016, according to a note from Canaccord Genuity.

October listener hours as measured by Triton were essentially flat year-over-year after growing 4.8 percent in the third quarter. Triton data show October hours grew 0.1 percent and November hours grew 0.9 percent from 5.8 percent in August and 2.4 percent in September.

The considerable decline in listening hours would aggravate investor concerns after early 2016 showed some bright spots.

“We think the month of December will likely be better due to seasonality, but don't expect hours growth to ramp meaningfully enough to allow Pandora to meet our Q4 growth estimate of 4.6%,” analyst Michael Graham wrote in a note.

Rating And Justification

However, Graham maintained his Buy rating on the stock following the company’s recent pre-announcement that showed revenue and EBITDA exceeded the high ends of previous guidance.

Pandora noted that higher RPM reflects an increase in audio ad load for core demographics and better yields on other ad units (programmatic display). Graham pointed out that the slowing listener hour growth is being offset by better-than-expected ad RPMs and growth in subscription listening hours.

The analyst said Triton is measuring only ad-supported listener hours growth and potentially not picking up subscription listening hours, which indeed generates revenue and contributes to Pandora-reported listening hours.

“Our current estimate is for 6 percent y/y expansion in Q4 ad RPM, but based on this hours data, the updated Q4 revenue outlook implies ~10 percent y/y RPM expansion,” Graham added.

Graham has a price target of $18 on the Pandora shares, which closed Tuesday’s trading at $12.75.