Very frequently, firms maintain their official rating after pullbacks. What is not common is to still predict that a stock will almost double. Most of Oppenheimer’s predictions are based around the rates issued by Copyright Royalty Board (CRB). The key point is that Oppenheimer estimates that CRB rates will increase by 5% year-over-year, compared to Wall Street’s expectations of 15%. It uses this “over-evaluation” as the basis for its analysis among other things.
Oppenheimer noted that the iTunes Radio deal is not indicative of a market rate transaction for Pandora because Apple receives additional benefits from record companies and the deal would prohibit competition and innovation. Higher CRB rates benefit larger companies, which would also reduce the chance of another company developing an innovative product. Ultimately these higher rates are punitive to competition.
Sirius XM is required to pay SoundExchange 11% of its revenue in 2017, compared to Pandora’s floor of 25%. Considering in-car listening hours are growing, the CRB is likely to be hesitant to drastically raise rates that would give preferential treatment to one company over another.
Terrestrial radio companies are believed to argue for lower CRB rates as streaming radio becomes a larger part of their business. Previously, terrestrial radio companies argued for higher rates to negatively impact webcasters.
Despite Oppenheimer’s positive view, Pandora shares were trading down about 3.5% at $23.03 in the noon hour on Thursday. For a comparison, Pandora’s shares have a consensus analyst price target of $34.55 and a 52-week trading range of $21.47 to $40.44. The highest analyst price target shown by Thomson Reuters is $45. Pandora has a market cap of roughly $4.8 billion.
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