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Morgan Stanley More Convinced Pandora Can Secure Broad Rights Without Giving Up Core Economics

Morgan Stanley More Convinced Pandora Can Secure Broad Rights Without Giving Up Core Economics - Pandora Media, Inc. NYSE:P

Morgan Stanley’s Benjamin Swinburne mentioned Pandora Media Inc P 3.83% reported a “mixed bag quarter,” with acceleration in listening hours that beat expectations but monetization coming in light. He reiterated an Overweight rating on the company, with a $15 price target.

The analyst stated Pandora struck its first on-demand deals with independent labels during the quarter, increasing confidence in the company’s ability to secure broad right without having to sacrifice its core economics.

Listening Hours

Swinburne pointed out that an important sign of progress was that listening hours grew to 5.66 billion during Q2, rising 8.6 percent year-on-year per active listener, making it a record quarter at 24 hours per month per listener.

This was also the highest absolute hours and highest growth per active listener since 3Q14, the analyst said.

According to the Morgan Stanley report, “Admittedly some of the acceleration is coming from lapping UI changes last year that slowed hours growth. However, we believe the majority of this engagement growth is coming from product improvements, including the success of Thumbprint radio, its new ad serving technology Chronos, and growing distribution in cars and key in-home consumer electronics.”

Monetization

However, monetization growth was disappointing during Q2, at only 15 percent, $7 million below the midpoint of the guidance, and representing the lowest growth since 2Q14.

“Pandora cited two specific national radio ad categories - entertainment and telecom - that came in below expectations during the quarter,” Swinburne added.

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DateFirmActionFromTo
Jul 2016Pacific CrestDowngradesSector WeightUnderweight
Jul 2016Piper JaffrayUpgradesNeutralOverweight
Jun 2016Morgan StanleyUpgradesEqualweightOverweight

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