Analyst: Pandora's Potential For User Growth Makes It A Buy

In a report rolled out Thursday morning, MKM Partners' Managing Director Rob Sanderson reiterated a Buy rating and a $23 price target on Pandora Media Inc (NYSE: P).

Sanderson declared he is "incrementally bullish" on the company following its investor day hosted last week.

"While the stock story remains overhung by content cost uncertainty," the firm's analysts think "views are lopsidedly negative and expect objectivity will return as the CRB decision draws nearer.

"The pathways to listener/audience growth and value of the platform to music-makers are under-appreciated opportunities," they added.

Related Link: Pandora Analyst Asks: What's Different Now?

Opportunity For Audience Growth

The report highlighted two main points in this field:

• More than 100 million -- of the more than 250 million registered -- accounts used the service in the past three months. However, the firm believes that the company "can drive millions of semi-active listeners into the monthly count with simple notifications."
• Although Pandora's overall share of radio listening is high, its share in the car isn't. With OEMs increasingly integrating the service "the car replacement cycle will drive deeper penetration (and share) in the car. There are 120mn FM-radio listeners that are not on Internet radio."

Value To Music Makers

• According to recent studies conducted by Pandora, the service can drive significant growth in concert ticket sales and album sales.
• "On a Skrillex/ Diplo promotion, P generated 60k station additions in 10-days with a 12% click-through to Ticketmaster. This drove over 7,200 ticket sales to MSG, a venue with 18,200 seating capacity. This is a huge market at $6.1Bn in 2014. Incremental ticket sales are 100% margin."
• "On a Jack White promotion, P generated 720k station adds in one-week, half that artist's global base of Facebook followers. After this promotion and a MSG concert, SoundScan reported a 41% wk/wk increase in album purchase intent. Similar artists saw 7-12% increase in intent after playing the same venue, but without marketing on P. We estimate that U.S. music sales (downloads and physical) were about $4.7Bn in 2014."