Analyst Upgrade Boosts Pandora Shares Day Before Earnings Release
-- An upgrade from a Stifel Nicolaus & Co. analyst a day prior to Pandora's earnings call helped push the company's stock up 5.5% Monday and gave the company a market value of $2.37 billion.
Shares in the Internet radio company closed at $14.66, the highest closing price since November, on heavy trading volume after the upgrade to "buy" from "hold" and set a price target of $18. Pandora shares are up 46.5% in 2012 but are still below the $16 opening price of the company's June 15 initial public offering.
An increase in a target price does not imply something has suddenly and dramatically changed within the company. The analyst's report is merely an updated opinion on the company.
The factors that drove the upgrade are nothing new. For example, the analyst believes Pandora is a "must-have" app for tablets and smartphones. This is true, but Pandora had a killer app years ago and its popularity for tablets is well known. He notes that Pandora is building a sales force to boost its revenue-generating capabilities. Again, this is true, but Pandora has spoken publicly in the past about efforts to grow and improve its internal sales force. Local sales forces will allow Pandora to better capture local advertising.
Another factor in the upgrade is the Stifel Nicolaus analyst's belief that Pandora's audience is bigger than that of any terrestrial radio broadcaster. (The AP article on the upgrade misinterprets the analyst's note as meaning Pandora has a bigger audience than all terrestrial broadcasters combined.) That depends on how you define broadcaster. As of the last earnings release, Pandora had 40 million active users (people who listening in the last 30 days), up from 36 million the prior quarter. But that's still far below the 238 million monthly listeners claimed by Clear Channel across its 850 owned stations in 150 cities. Regardless, Pandora is able to attract a high number of listeners with an operation that's relatively small compared to big radio companies.
Something analysts and investors should be listening for in Tuesday's earnings call is evidence that mobile ad revenue is improving. They just might get it: Stifel Nicolaus raised its earnings projections in part because of improved expectations for mobile ad revenue. Pandora needs to improve the revenue it gets from mobile advertising because about 70% of its listening hours come from mobile and non-traditional listening platforms while mobile commands a lower CPM than display advertising.
If history is any guide, Pandora's earnings will provide some fodder for both the bears and the bulls. If you want evidence that Pandora is solidifying its position as a market leader, the earnings release will show plenty of growth in listener hours, registered users and active users. If you want confirmation that Pandora is not a $2.4 billion company, you will hear that strong penetration of the auto market is many years away. Either way, you're going to see a company with a smart growth strategy and a huge footprint in the U.S. radio business.
Emmis Facing Stock Problems
-- While Pandora's stock soars, Emmis Communications' stock is mired in problems. Emmis is again facing a delisting from the Nasdaq stock exchange. The company received another notice from Nasdaq on Feb. 28 that it had not regained compliance with the exchange's listing requirements. Emmis has requested an appeal and intends to present to Nasdaq "a viable plan to regain compliance," according to an Emmis SEC filing.
Shares of Emmis ( Nasdaq: EMMS) were trading at 69.9 cents at midday Monday. Its peak of 2012 was 84 cents reached on both Feb. 9-10, and its highest close was 84 cents on Feb. 9. A company traded on the Nasdaq will get a notice if its stock trades below $1 for 30 consecutive business days.
One acceptable way to increase a stock price is a reverse stock split, which halves the number of shares and doubles each share's market value without changing the company's market value. The reverse stock split is far easier and faster a solution than changing the underlying fundamentals of a company that drive its share price. Emmis has tried before to change its fundamentals. After Emmis last received a delisting notice on Aug. 31, the company's CEO said an impending sale of three stations and a retirement of some of the company's debt would help lift the stock price. But since then the company's shares have not closed above 92 cents.
Slacker To Get Sports Content Injection
-- Listeners of Slacker Internet radio will start getting even more content when the NCAA Division I Men's Basketball Championship starts next week. Slacker announced on Monday a deal with Dial Global that will provide its listeners with select sports content. The deal begins with the men's basketball tournament and will provide all Slacker listeners -- both free and paying -- with live streams of all 67 games. The deal will also give Slacker listeners live streams of the college tournaments for women's basketball, men's hockey, baseball, softball and men's lacrosse. Slacker Radio is best known as a Pandora-like personalized Internet radio service, but it continues to act more like a hybrid between Internet and satellite radio. It has content from ABC News and ESPN. In January Slacker offered a live stream of the BCS Championship football game between LSU and Alabama.
( Press release)