An acquisition of Pandora Media is unlikely due to problems with its business model and declining future profit potential, said Pacific Crest, which downgraded the radio streaming service's shares to underweight from sector weight.
"Pandora's core operating leverage has deteriorated and we see little prospect for meaningful profits in on-demand. While M&A is possible, we do not view it as likely at the current valuation. We believe economics in Pandora's core radio business have been impaired and we do not see meaningful potential for profitability in its push to on demand. We do not recommend owning P," said Pacific Crest's Andy Hargreaves in a Thursday note to clients.
Pandora rejected Liberty Media's roughly $15-per-share bid in recent months because its board believed the company's value was around $20 per share and it also shopped itself to Apple and Amazon earlier this year, according to a Wall Street Journal report Thursday.