Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Can Pandora Stock Double From Here?

By Rick Munarriz - Apr 13, 2016 at 9:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Citigroup initiates coverage of the leading streaming-music platform with a bullish opinion and a fat price target.

Shares of Pandora Media ( 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.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.