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TheStreet Open House

What's Making Pandora (P) Dance?

Stocks in this article: PAAPL

NEW YORK (TheStreet) -- JPMorgan has thrown its weight behind Pandora (P), reiterating an "overweight" rating and raising its price target to $35 from $25. Shares of the leading radio streaming service soared 6.7% to $31.43, after the investment firm said advertising growth and the company's strength in the face of Apple's (AAPL) iTunes Radio threat were encouraging. 

"We believe Pandora is approaching an inflection point in monetization, driven by the combined benefits of its growing market share, buy-side platform integration, and expanding salesforce," analyst Doug Anmuth wrote in the research report. The big driver, he says, is ad revenue growth, expected to accelerate 51% year-over-year over 2014.

TheStreet's Rocco Pendola, a long-time supporter of the brand, called it four days ago after predicting shares were headed north of $30

"Given the company's superiority (and technological head start) as a personalized radio and music discovery platform, there's no way even fine products from Apple, Rdio and others can touch Pandora," he said in his column Monday.

What sets the leading radio streaming service apart from your iTunes Radio or Rdio, he argues, is the Music Genome Project, a music mapping tool which isolates sounds and styles to recommend music. Rdio and iHeart music discovery engines are powered by Echo Nest, which groups by artist or genre, making for a less-intuitive, more-generic experience.

Though Apple has stayed mum on its music discovery engine, iTunes Radio doesn't have the brand loyalty of Pandora. While investors had jitters when Apple stomped into the space, Pandora has already made fingerprints on users' iPhones and iPads, its app ready to launch and easy to use.

TheStreet Ratings team strikes a more pessimistic tone, however, rating Pandora as a "sell" with a ratings score of D. The team has this to say about their recommendation:

"We rate Pandora Media INC (P) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 43.8% when compared to the same quarter one year ago, falling from -$5.42 million to -$7.79 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, Pandora Media INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$2.32 million or 181.48% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Pandora Media INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Pandora Media INC reported poor results of -23 cents a share vs. -10 cents a share in the prior year. This year, the market expects an improvement in earnings (3 cents vs. -23 cents).
  • 42.71% is the gross profit margin for Pandora Media INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -4.94% is in-line with the industry average.

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