Has Pandora Beaten Apple and Sirius XM for Good?

Pandora Media will release its quarterly report on Thursday, and investors are convinced that the music streaming company will continue to enjoy lightning-fast growth rates well into the future. Even as Apple and its iTunes Radio join Sirius XM and other competitors in the Internet music space, Pandora continues to defy skeptics who seemed convinced that the company's days were numbered.

For more than a year after its 2011 IPO, Pandora convinced cynical investors that it had gone public at exactly the right time, as its shares slowly ground downward to lose half their value. Through quarter after quarter of unprofitable results, many believed that existing offerings from Sirius XM and the long-anticipated competition of Apple would eventually pound Pandora into the ground before it became profitable even on an adjusted basis. Yet now, Pandora seems poised to fend off competitors Apple and Sirius and continue on its upward path. Let's take an early look at what's been happening with Pandora Media over the past quarter and what we're likely to see in its report.

Stats on Pandora Media

Analyst EPS Estimate

$0.06

Change From Year-Ago EPS

20%

Revenue Estimate

$174.76 million

Change From Year-Ago Revenue

46%

Earnings Beats in Past 4 Quarters

3


Source: Yahoo! Finance.

Can Pandora keep coming in loud and clear?
In recent months, analysts have reined in their views on Pandora earnings, cutting their October-quarter estimates by $0.02 per share and their full-year fiscal 2015 projections by more than 20%. The stock, though, has just kept vaulting higher, rising 46% since mid-August.

Pandora came into the current quarter on a negative note, with shares plunging after its July-quarter earnings report. Even though revenue grew 58% on an adjusted basis, earnings topped expectations. But dour guidance for the October quarter made investors question whether Pandora would be able to answer the competitive call and keep growing fast enough to justify its valuation.

But the big moment for Pandora during the quarter was the release of Apple's iTunes Radio, which Pandora shareholders had dreaded for more than a year. Given the extent of the iTunes library and Apple's lower price point for commercial-free listening, Pandora investors have to be concerned that despite its huge first-mover advantage in gathering tens of millions of users, it could quickly lose its edge. Yet initial indications suggest that users like Pandora's music-selection algorithms better, with a long history of analytical expertise backing its choices. Moreover, with Pandora available on a wider array of devices, it maintains a reach beyond Apple's current ecosystem.

Moreover, early usage figures suggest that Pandora is holding on to its customers pretty well. Late last month, Apple said that 20 million users streamed more than 1 billion songs in the service's first five weeks. Yet with Pandora delivering almost 1.5 billion hours of music to its subscribers in October, iTunes Radio hasn't ramped up to anything close to Pandora's volume at this point. A drop in Pandora's unique-listener count is a bit troublesome, but it's too early to tell whether it will become a larger problem.

In the Pandora earnings report, look beyond the headline numbers to drill down on a couple of key metrics. First, look to see how many of Pandora's users become paid subscribers, as monetization will become an increasingly important key to Pandora's future success. Also, remember to look at the cost side of the equation to make sure that the company isn't paying too much to keep its customers happy. Problems on either front could jeopardize the early success that Pandora has had against both Apple and Sirius XM.

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The article Has Pandora Beaten Apple and Sirius XM for Good? originally appeared on Fool.com.

Fool contributor Dan Caplinger owns shares of Apple. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Pandora Media. It recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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