Key Areas to Watch With Pandora
Feb 12th 2013 6:52PM
Updated Feb 12th 2013 8:00PM
Pandora Media has been one of the more intensely debated stocks since its IPO in 2011. Many investors seem to think that the Internet radio company provides a popular service with its customizable radio stations, but that the business model is flawed. Pandora has struggled to turn a profit as its content costs have outpaced revenue growth, and it seems to be desperate for a way to control those royalties. But there are reasons to be optimistic about Pandora's potential. The online DJ continues to grow at a blistering pace, and is one of the few Internet companies well-positioned to monetize mobile advertising. In the following excerpt from our premium research report, we examine three key areas that will be most determinative to Pandora's success:
The three areas you must watch
The items mentioned above will be key for the company's success. In particular, investors will want to watch the following:
- Growth in listener hours: Listener hours are the company's bread and butter. It's the inventory it needs to sell advertising, and in order to make good on its promise to investors, those hours need to keep up their rapid growth rate. In the last seven months, year-over-year growth has slowed from 101% to 67%. If it falls to under 50% for consecutive months in the next year, that may be cause for concern. On the other hand, if Pandora is able to maintain the same growth rate, the stock price should start to rebound, as today's prices would be cheap on a P/S valuation basis in a year or two.
- Content costs: Of course, content costs are the other side of the financial equation. The easiest way the company can reassure investors is by beginning to bring down its content cost percentage. Even taking it down from 50% to 40% would make a big difference on the bottom line as well as helping the perception that management is working to control this. Similarly, the ongoing debate over the Internet Radio Fairness Act would also put a jolt in the stock if the bill passed.
- Innovation: Unlike some of its competitors, Pandora does not have the luxury of resting on its laurels and harvesting current cash cows. Despite a strong brand and popular product, the company is still in the red and competition is stepping up as we've seen with Apple's recent announcement to enter the field. Whether it's in the areas discussed above or in new directions, Pandora will need to find novel ways to make its product more accessible and desirable.
If you found the above information useful, I encourage to pick up a complete copy of the research report, which features in-depth analysis on Pandora's opportunities, risks, and leadership. As a free bonus, this analysis also comes with a year's worth of updates so you can stay on top of earnings releases and other breaking news. To get started with this informative package now, all you have to do is click right here.
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