Pandora Media’s Strong Financials Means Upgrade at Barrington

Pandora Media’s (P) revenue and earnings beat earned it an upgrade at Barrington Research as ad-monetization trends continue to be “robust.”

The company last week reported second-quarter revenue of $384.8 million, up from $376.8 million a year earlier and ahead of consensus from Capital IQ for $373.5 million. Non-GAAP loss was $0.15 a share, narrower than the year-ago loss of $0.21 and topping the Street view for a loss of $0.17 a share.

Barrington upgraded its rating to outperform and put an $11 price target on the company.

“Pandora has amassed a huge listener base and expanded its audio services to encompass two levels of pay products,” Barrington analysts James Goss and Patrick Sholl said in a note to clients on Monday. “Royalty costs are higher, but management is targeting both ad-supported and subscriber users while also pursuing partnerships and programmatic ad sales.”

Ad monetization continues to be strong as Pandora has the ability to serve high-value impressions through premium access, which feature video ads instead of audio. The “robust” resources the company brings with its ad-supported subscriber base can be of value to advertisers as high-value listeners migrate to subscriptions, Barrington said.

Pandora’s partnership with Snapchat (SNAP) can “greatly” complement premium access features and help keep the company connected with younger audiences, the firm said. Its partnership with AT&T (T) should help with distribution.

“The company views its ability to attract customers as a bolt-on to other services as helping to derive high value and more stable relationships with consumers at better acquisition cost levels,” Barrington said. “While the company would face a headwind on subscription ARPU as partnerships like the one with AT&T become a greater share of subscriber figures, the margins would not be impacted as significantly. Similar partnership and co-marketing agreements should help the company better allocate its resources regarding customer acquisition.”

Integrating podcasts may enhance product offerings as Pandora would be able to deliver “vastly” greater effectiveness and data versus other forms of podcast listening, the firm said.

“(That) makes up a meaningful share of consumer non-music audio entertainment consumption,” Barrington said. “This data can be utilized for better information surrounding effectiveness and attribution.”