There was no shortage of analysts lowering their price targets on Pandora (NYSE:P) last week following a disappointing quarterly report. With its listener base shrinking, premium subscriptions growing too slowly, and Sirius XM Radio (NASDAQ:SIRI) settling for a minority stake instead of an outright buyout, it's easy to see why so many Wall Street pros have soured on the streaming-music service.
- Piper Jaffray went from $18 to $13.
- Stifel took its price target from $14 to $12.
- Canaccord decreased its goal from $15 to $14.
Analysts seem to be hovering around the low teens and pre-teens as the new normal for Pandora, but that's not always the case. Nat Schindler at BofA/Merrill lowered his price target from $9 all the way down to $7.50 last week. Schindler has been bearish on the stock -- the right call, to be fair -- and now he sees the stock continuing to move lower.
Pandora stock has been trading in the single digits since March, so it's probably not a surprise to see a single-digit price target. Schindler has a bearish underperform rating on the shares, and as the stock hit his $9 price target and proceeded to tumble south of that last week, the revised goal isn't a shocking development.
Schindler's concern is that there's no easy fix to Pandora's structural problems, given its high expenses. Pandora has done a decent job of milking more money out of its gradually shrinking base of eyeballs -- or eardrums, in this case. Ad and subscription revenue rose 5% and 24%, respectively, with overall revenue inching 10% higher. However, Wall Street was still holding out for more. This was the third quarter in a row in which Pandora posted a narrower loss than analysts were expecting, but it fell short on the top line.
Pandora's revenue forecast is also problematic. It's lowering its full-year outlook, going from $1.5 billion to $1.65 billion three months ago to now just targeting revenue of $1.45 billion to $1.5 billion. The guidance it initiated for the current quarter -- $370 million to $385 million in revenue -- is well short of the $407.5 million Wall Street pros were holding out for. It's a return to single-digit top-line growth when the market was expecting double-digit growth in light of the springtime introduction of its first on-demand streaming service.
Pandora Premium was supposed to be a game changer, but that game is apparently Go Fish. Spotify is the top dog in the on-demand niche, and it has grown its base of paying subscribers by 10 million over just the past five months. Pandora's total paying subscriber base grew by just 150,000 premium during the past three months and just 470,000 through the first six months of 2017. Pandora Premium isn't getting the job done, as Spotify pads its lead.
It's becoming clear why Sirius XM chose to take a minority position in Pandora instead of buying it all last summer. Pandora's clinging to a model that's struggling to turn a profit as it unsuccessfully tries to migrate into a more lucrative streaming model. New leadership and Sirius XM's insight may help, but Pandora has a long road ahead on the path to impressing the market again.