Tune Into Pandora Shares for a Big Gain, Analyst Says

Internet radio company Pandora is stealing share from the $15 billion terrestrial radio market, and that should open up an opportunity to sell more audio ads, according to one analyst.

Upgrading the Internet radio company to outperform, John Blackledge of Cowen told CNBC that while the stock has run up sharply already this year, rising audio ad revenue should be "a bigger impact sooner than we expected."

"They have been investing the last two years in building the infrastructure to take share from terrestrial radio," the analyst said. "It's here now, and it drove our numbers. We're expecting audio ad revenue of $293 million in fiscal 2014, going to $1.8 billion by fiscal 2019."

Blackledge cited three reasons for more optimism about ad revenue growth: rival listening hours, more frequent advertising spots and rising pricing.

In his research note, Blackledge forecast total Web-radio listening hours to rise to 19 percent of total U.S. listening hours by fiscal 2019 from 10 percent in fiscal 2014. Internet radio listening hours have climbed about 2 percentage points in the past two years, according to Cowen.

He is also not concerned about the impact Apple's iTunes radio may have on Pandora's business.

"We're assuming a successful launch for iTunes radio, and we're expecting an 8 percent shift in mobile listening hours in fiscal 2015 for Pandora," Blackledge said. The "shift really doesn't have much of an impact on top line, and actually it helps them with lower content costs ... than we had previously expected."

Up 90 percent already this year, Blackledge's $22 price target implies another 30 percent to come.

By CNBC's Justin Menza. Follow him on Twitter @JustinMenza.

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Cowen had no conflicts to report.