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.
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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.