It's been a difficult ride for Pandora (NYSE:P) investors, as shares of the out-of-favor streaming music pioneer seem to lose steam with every passing quarter. Now Pandora is out of one of its most vocal bulls. Morgan Stanley analyst Benjamin Swinburne downgraded the stock on Monday, lowering his rating from overweight to equal weight. 

He's also cutting his price target in half, going from an analyst high of $12 to near the bottom of the pack at $6. One of the saving graces at Pandora is that it has been able to grow its ad revenue despite its gradually fading usage, but Swinburne feels that growth on that front is no longer a given this year. The engagement challenges at Pandora are well known, but suggesting that monetization will run into obstacles could be scary news in a climate of rising music licensing costs. 

Pandora app running on a car's dashboard.

Image source: Pandora.

Pandora's music discovery platform was a novelty during the early years of media streaming, and it seemed to take off during the beginning stages of the mobile revolution. However, now that folks are paying up for Sirius XM Radio or Spotify and other on-demand services, it's getting hard for Pandora to stand out. 

Swinburne is worried about recent trends. Pandora is getting more of its subscribers to pay up as premium subscribers for the Spotify-like service it rolled out last year, but the total audience keeps dwindling. The retreating Wall Street pro points out that a double-digit decline in listener hours in 2017 and a 5% slide in ad-supported active users will make it a difficult sell for marketers. Ad revenue managed to grow 1% in its latest quarter despite the negative consumption trends, but those gains aren't sustainable if engagement and active users keep shrinking. 

Pandora is trying to beef up the interactivity of its free service. It also recently introduced a video ad component to give a taste of its on-demand platform to its majority of freeloaders. Swinburne feels that expanding into non-music podcast content could result in more sustainable engagement growth, but thinks that Pandora will ultimately be landlocked as it tries to squeeze more ad revenue out of its non-paying base. 

The fourth quarter will be ugly, as the sale of Ticketfly and a $10 million spike in political advertising in late 2016 will likely result in declining revenue. Organic results will look better, but we're still eyeing a company that clearly should've sold itself to Sirius XM Radio when it was reportedly offering a buyout in the mid-teens two summers ago.

How far Pandora's user base will slip sequentially from the 73.7 million active listeners taking in 5.15 billion hours of content during the third quarter will be key to whether the stock bounces back in 2018.

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