Shares of Pandora Media (NYSE:P) had more tempo shifts than Queen's "Bohemian Rhapsody" yesterday. The stock opened 4% higher, fueled by Citigroup's initiating coverage of the digital-music pioneer with a buy rating.
The pop didn't last, as the stock was briefly in negative territory an hour into the trading day. The sell-off didn't stick, either. Pandora stock began to climb after that, ultimately closing nearly 6% higher.
Any way the wind blows? Indeed.
Citigroup's bullish initiation comes at a time of need. Its price target of $16 is ambitious, suggesting that the stock could nearly double -- up 96% as of Monday's close, when the call was initiated -- from here.
It's a rare case of bullish love for Pandora, a market laggard that has shed nearly two-thirds of its value since peaking seven months ago. Citigroup becomes the third analyst to initiate coverage of Pandora in 2016, but it's the first one that did so with a bullish rating.
It's easy to see why many Wall Street pros have soured on Pandora. Listener growth has stalled as competitive pressures mount, and the surprising departure of its CEO has rattled confidence. There's no shortage of buyout speculation, but the company's problematic model -- where the vast majority of its 81.1 million listeners are freeloaders -- is forcing analysts to weigh Pandora's growing content costs as royalty rates climb.
It's not all bad. That user base of 81.1 million is nothing to scoff at, even if Pandora was entertaining 81.5 million active users a year earlier. Pandora's subscription revenue continues to grow, even if it's still just a sliver of its audience paying for ad-free streams.
There's even something to be said about freeloaders. Advertisers are paying more to reach Pandora's audience. The former dot-com darling's active listener base has stalled, but users are averaging more time spent on the platform.
The return of co-founder Tim Westergren as CEO -- a move the market panned -- also isn't as bad as it seems. He obviously knows the company well, and his return doesn't necessarily mean that a buyout at a premium is off the table.
If Citigroup is right, it's a fair bet that the road to $16 won't be smooth. There will be more shots from tech giants that are getting smarter about streaming music. Losses should continue through at least the next couple of quarters. Pandora isn't perfect, but at these prices in the single digits, it doesn't have to be.