Shares of Pandora Media P rose 3.5% in pre-market trading following an analyst upgrade and reports that its co-founder and CEO Tim Westergren will step down as CEO. The company is up 1% in morning trading.
Westergren plans to step down as CEO once a replacement is found. He returned to being CEO in 2016 after leaving the position in July 2004. Between 2004 and 2016, Pandora was run by professional managers.
Additionally, Pacific Crest Securities Inc. has upgraded Pandora from Underperform to Sector Weight in reaction to a recent investment from SiriusXM SIRI . Earlier this month, Sirius paid $480 million for a stake of 19% of Pandora's outstanding stock and three Pandora board seats, including the chairman.
"We expect the Sirius-appointed board members to push for a moderated cash burn rate, in part to protect Sirius' $480 million of principal. Lowering the burn rate may also lower subscription growth forecasts, but we would view this trade-off positively as it would reduce the odds of insolvency and extend Pandora's time frame to try to find a sustainable model," said analyst Andy Hargreaves.
Analyst Barton Crockett, from FBR Capital, maintained Pandora's Outperform rating, but added the company to its Alpha Generator list. He also outlined three ways for Pandora to generate additional growth as Sirius takes on more leadership roles.
According to Crockett, Pandora must close the spending gap in local radio advertising, create on-demand subscriptions, and boost free cash flow with expense cuts. These actions will allow Pandora to successfully challenge other streaming services like Spotify and Apple AAPL Music.
P remains a Zacks Rank #3 (Hold). While the company has some growing pains ahead of it, Pandora has positive year-over-year earnings growth for the current year.
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