Pandora Sings the Blues

Pandora Sings the Blues

Pandora (NYSE: $P) stock took continues to take a beating. Although the stock is still up 18% year to date, shares have plummeted 22% since Pandora hit an intraday high of $40.44 on March 5. And things just may be getting worse.

Aside from the news that Apple ($AAPL) is reportedly in talks to bring National Public Radio to its competing iTunes Radio service, Pandora is now feeling the stress of high royalty payments that it must pay to artists. This is a result of its inability to monetize its traffic, even though the company commands close to 7% of the radio listening market.

[Become a Better Investor in 14 days: Click for Your Free Trial]

Pandora’s music genome platform allows listeners to customize their music and has turned Pandora into a sticky service. The company has grown despite stiff competition from Spotify and Sirius XM (NASDAQ: $SIRI). But its popularity is a double-edged sword. The more listeners Pandora attracts, the more it money it must pay to play the music.

Royalty fees have eaten up a significant portion of potential profit Pandora, and these fees are expected to grow by an additional 9% next year. (Rates are up by 53% in the last 5 years.) Accordingly, Pandora’s margins have been nowhere to be found, and management has had enough.


Latest Blogs

  • damion

    $P is unfortunately in “no man’s land”, stops will just keep getting taken out until the $27 area. Hopefully, it draws a line in the sand there. This stock is a fighter though, only problem being it appears to be getting tired in the 7th round. When it was last in the $32-$31 area in early February many people thought it was a downhill run to low 20′s and the stock rallied to reach new highs.

    • Richard Saintvilus

      damion –

      I agree. I just don’t see how Pandora survives without being acquired. The competition continues to grow while it pays a ransom in content costs. The model will never allow the company to make any money. You are right about the stock being a fighter. But the company needs to make some changes to avoid a knockout. Google or Facebook would make great use of Pandora’s reach. What do you think?

      • damion

        Google does not need $P, its own music offering does not rank in the charts but such an acquisition reeks more of desperation than confidence. $FB would be a better fit due to to the obvious data and commercial aspect. The one company that SHOULD buy Pandora is Yahoo!
        Yahoo has been an also ran for far too long, their purchases of Tumblr and all the other non memorable companies have brought little value. With Mayer’s momentum running out this would signal that the company wants to blah ball. Also the Alibaba IPO coupled with a serious purchase would definitely bring great delight to $YHOO shareholders.

        • http://wallstplaybook.com/ Richard Saintvilus

          I honestly can’t argue with anything you’ve just said! Yahoo! does appear to be a perfect match for Pandora. Why it hasn’t happened yet is a mystery to me. What do you think about Sirius XM buying Pandora? That, too, seems like a nice fit. It would complement Sirius’ strong subscription service while giving Sirius an ad-based platform that it lacks.

          • damion

            Liberty Media should of made this happen in the $7-$10 price range. After taking into account the premium, this is too expensive a play for Sirius XM. Sirius is on the decline (as evidenced by stock price), Sirius should just add channels that have commercials. Business model of Sirus XM and Pandora needs rejigging.

          • http://wallstplaybook.com/ Richard Saintvilus

            Pandora’s market cap is only $6 billion. Sirius XM’s is $22 billion. Pandora is not expensive, given the cash flow that Sirius is expected to produce. Sirius is buying back $2 billion worth of shares. If it wanted, it can redirect that money towards acquisitions. The question is, whether it sees enough value in Pandora to do a deal.

          • damion

            feel that it is expensive for a company like Sirius XM, debt is what got them in trouble last time and is it worth taking on more debt in a company that loses money?

          • http://wallstplaybook.com/ Richard Saintvilus

            Well, you’ve got a point there. But Sirius also needs growth. And growth costs money.