Last month, Pandora announced its new paid-for music services, including a $4.99-a-month semi-interactive Pandora Plus tier, as well as a $9.99-a-month on-demand tier which will launch before the end of 2016 in the US.
Many observed at the time that, with around 78m monthly active listeners, Pandora can become a serious player in music streaming just by converting a minority of its existing audience into paying subscribers.
Bank Of America is skeptical about that outcome.
The financial institution this week (Oct 17) downgraded Pandora’s stock from ‘neutral’ to ‘under-perform’, pushing down the company’s share price by 3%. (It’s since recovered a little and currently sits at $12.83.)
But the pasting for Pandora by Bank Of America didn’t stop there.
“Even with pandora differentiating on auto playlist creation, we think it will be hard for them to attract 10-15m paying subs.”
Nat Schindler, Bank of America
BoA analyst Nat Schindler said in a report that the business’s arrival into on-demand music streaming was “five years too late”.
While reducing his price objective from $14 to $9 – effectively forecasting Pandora was going to lose another 30% of value in future – Schindler added: “Even with Pandora differentiating on auto playlist creation, we think it will be hard for Pandora to attract 10-15m paying subs, especially because switching users off other services that have invested time in building out their personal playlists will be extremely difficult.”
Apple Music is expected to surpass 20m subscribers this year, while Spotify recently topped the 40m mark.
Schindler surmised that Pandora’s shares were currently being propped up by acquisition rumors.
He added: “We expect the subscription service rollout will create near term pain in FY17 as Pandora markets their new low gross profit service and royalty costs increase pushing out profitability further.”
It should be said that another key financial group, Goldman Sachs, has Pandora locked in as a ‘buy’ – a sign it believes the company’s share price is going to escalate in the future.
Following the announcement of Amazon’s new streaming music platforms, Pandora’s stock price slumped 10.4% last weekMusic Business Worldwide