Why Pandora's fortunes could be poised to turn around in a big way

Tim WestergrenFlickr/David ShankbonePandora CEO Tim Westergren

Pandora’s fortunes could be poised for a turnaround, according to analysts at Piper Jaffray.

Pandora has had a rocky few months, with a CEO shuffle and pressure from activist investors to sell the company.

Part of the turmoil comes from the fact that Pandora is clearly a company in transition.

Pandora is readying an on-demand streaming service to compete with the likes of Spotify and Apple Music, and has indicated that it will be a big part of its future. The public is waiting to see whether it will be a hit or a flop.

But beyond how well-executed the product will be, Piper Jaffray analysts Stan Meyers and Michael Olson think it’s the perfect time for Pandora to jump into on-demand.

“We are continuing to see a major trend developing where the line between lean-back radio listenership and on-demand music consumption is blurring quickly,” they wrote in a note on Wednesday. “Radio-like products like Pandora are allowing for more customisation, less advertising and more control over stations, while on-demand products like Spotify are creating discovery stations and sharing playlists to allow for a more lean-back experience. This convergence opens a door for Pandora to be innovative and create a unique on-demand service.”

In other words: the time is right for Pandora to launch an on-demand product. The analysts expect Pandora to add 9.2 million more subscribers and over $750 million in revenue by 2019.

And those subscribers are valuable, as Pandora has an incredibly engaged user base. Here is a chart from Morgan Stanley that shows how it compares to Facebook and YouTube:

On-demand could also help Pandora snag a younger demographic, which it has historically lost out on a bit to Spotify. Here is a chart from Piper Jaffray that shows the demographic breakdown of the two services:

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