Can Pandora Stock Keep Going After Last Week's 18% Pop?
Pandora (NYSE: P) kicked off the past week on a down note by hitting a new all-time low on Monday, but the digital-music pioneer bounced back with a hearty 18.45% return by the time the week was done. A bullish analyst initiation on Wednesday was followed by another Wall Street pro's encouraging update two days later.
Pandora's nearly 19% spike comes after plummeting 18% a week earlier, so the former dot-com darling is still trading lower over the past two weeks. The stock's been volatile since revealing that Sirius XM Radio (NASDAQ: SIRI) will be investing $480 million for a preferred-share stake in Pandora. Investors left smarting a week earlier will naturally welcome the upswing.
Picking up the beat
The first boost came on Wednesday when John Tinker at Gabelli initiated coverage of Pandora with a "buy" rating. He set a price target of $12, a move that may have seemed bearish a few months ago, when the stock was buzzing about in the low teens. Now it's a call for a big upside, with the shares trading in the single digits.
The second bullish nod came on Friday, when J.P. Morgan's Doug Anmuth reiterated his bullish "overweight" rating. He thinks Pandora has a strong strategic partner in Sirius XM now. Speculators betting on an outright buyout earlier this month aren't happy to see Sirius XM buy a convertible preferred stake in Pandora that amounts to less than a fifth of the company. The buyout premium is gone. However, Anmuth is right that Sirius XM will still have incentive to help Pandora succeed now.
Anmuth thinks the investment, along with Pandora's $200 million sale of Ticketfly, will allow it to focus on its flagship ad-supported music platform. He's lowering his EBITDA forecast and trimming his price target from $18 to $14, but it's certainly a lofty goal at today's levels.
Revenue growth is slowing, and user growth has stagnated. Pandora is seeing an uptick in premium subscriptions since rolling out its on-demand platform earlier this year, but it will be lucky to be a distant third in this niche. Last week's bullishness may seem misplaced at first, but there's merit in calling Monday's all-time low a bottom. Pandora still commands a huge audience, and Sirius XM will help it get better at marketing premium radio as well as selling radio advertising.
Pandora has a long way to go to get back to where it was when it was a growth-investing staple, but it took a good step in the right direction last week.
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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.