Shares of Pandora Media Inc. rose Monday after an analyst upgraded the company, saying it will likely make more money from mobile advertising.
THE SPARK: Stifel Nicolaus analyst Jordan Rohan raised his rating for Pandora to "Buy" from "Hold" and set an $18 price target for the Oakland, Calif.-based company.
THE BIG PICTURE: Pandora streams music over the Internet. It is different from traditional broadcast radio because it uses computer formulas to learn each of its individual listeners' tastes in order to create personalized song lists.
Since Pandora's June IPO, some investors have questioned whether the company can generate enough advertising revenue to cover the royalties that it pays to play music.
Pandora was among a string of high-profile technology start-ups that went public last year, including jobs networking site LinkedIn Corp., online deals company Groupon Inc. and online games maker Zynga Inc.
THE ANALYSIS: Rohan said that Pandora has evolved into a "must-have" application for tablets and smartphones and is building a sales force to boost its money-making efforts. He also said he believes it has an audience bigger than that of a traditional radio station.
He predicts earnings of 1 cent per share on revenue of $86.5 million in the fourth quarter. Analysts polled by FactSet are expecting a loss of 2 cents per share on revenue of $83 million.
Stifel Nicolaus also increased its annual earnings expectations through 2013 because of expectations for more money from mobile ads.
THE SHARES: Up 88 cents, or 6.3 percent, to $14.78 in heavy midday trading. Pandora went public at $16 per share. Since the IPO, shares have traded between $9.15 and $26. They're up 39 percent in 2012.