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Pandora Media (P) Q4 Earnings: Will it Surpass Estimates?

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We expect Pandora Media, Inc. to beat expectations when it reports fourth-quarter 2016 results on Feb 9. Last quarter, it posted a 9.52% positive earnings surprise. It is noteworthy that Pandora has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive earnings surprise of 5.03%.

Why a Likely Positive Surprise?

Our proven model shows that Pandora is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Pandora has the right combination of the two key components. 

Zacks ESP: The company has an Earnings ESP of +10.81%. This is because the Most Accurate estimate stands at a loss of 33 cents while the Zacks Consensus Estimate is pegged at loss at 37 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Pandora carries a Zacks Rank #3, which when combined with a positive ESP make us reasonably confident of a positive surprise.

Conversely, the Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.

What is Driving the Better-than-Expected Earnings?

Pandora has taken strategic measures to post a turnaround. In the past few months, the company announced Pandora Plus and Pandora Premium services. While Plus is a “one-of-a-kind, ad-free radio experience” available for $4.99 per month, Premium creates a playlist for users based on their playlist history. It will be ad free and will enable users to save songs for offline listening. Premium carries a price tag of $10. At the end of December, Pandora Plus had 375,000 users.

Also, as part of its strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting label deals to reduce dependence on CRB rates and better manage its content costs. It has struck several licensing deals with Sony Music, Warner Brothers, a unit of Time Warner and Universal Music Group.

Recently, to lower costs, Pandora announced a 7% cut in its workforce. Ticketfly will reportedly not be affected by the workforce trimming. It also added that it is on track to better its revenue guidance for the fourth quarter of 2016. Revenues are expected in a range of $362 million to $374 million for the fourth quarter.

The company expects adjusted EBITDA loss (exclusive of stock-based compensation expense of about $35 million, depreciation and amortization expense of $18 million, provision for income taxes of $0.4 million and other expenses) to be in a band of $39 million to $51 million.

Stocks to Consider

Here are a  couple of stocks that as per our model have the right combination of elements to post an earnings beat this quarter:

Applied Optoelectronics Inc. (AAOI - Free Report) with an Earnings ESP of +15.87% and a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard, Inc. with an Earnings ESP of +2.78% and a Zacks Rank #3.

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