Is a Bet on Pandora a Bet Against Sirius XM?

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Let's play a lightning round of Jeopardy!, shall we?

Question: This online sensation has nothing in common with Facebook, LinkedIn (NYSE: LNKD  ) , or Twitter, yet has a bigger user base than Groupon.

Answer: What is Pandora Radio?

Correct! One of the first movers of the freemium movement, Pandora has built on the early success of Napster, and avoided irrelevance a la RealNetworks' (Nasdaq: RNWK  ) Rhapsody, to create a customizable online radio service that now caters to 90 million. That's a smidge above Groupon's 85 million members, and more than four times Sirius XM Radio's (Nasdaq: SIRI  ) subscriber base.

The service could enjoy plenty more growth ahead. Pandora doubled revenue to more than $51 million in the quarter ended April 30, according to the company's latest filing with the SEC. Management plans to carry that momentum into a June IPO intended to raise $100 million in equity financing.

We don't yet know whether investors will flood trading desks with orders, as they did when LinkedIn went live. If so, it would make for an interesting contrast. Pandora is rising just as Sirius XM is surging. For years, investors have acted as if these two couldn't coexist, yet it looks increasingly like they can and will.

Have investors changed their tune when it comes to streaming and satellite delivery singing in harmony? Or are they waiting for Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) to disrupt the balance of power in streamed audio? You tell us. Please vote in the poll below, and then leave a comment to tell us whether you're interested in Pandora's public offering.

Now that the IPO market is hot again, what new offerings are you buying? Let us know using the comments box below. You can also add Sirius XM to your watchlist to get more Foolish analysis of this stock.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. 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.


Read/Post Comments (16) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2011, at 4:04 PM, 67vair wrote:

    Pandora is useless. Might just as well make a mixed cd of songs you like or load up a flash drive and listen to that.

  • Report this Comment On May 31, 2011, at 4:09 PM, dover1st wrote:

    I just upgraded to a smart phone a few weeks ago and I decided to try out Pandora on my new phone. What a disaster. The music was very choppy. They will have to fix that, if they want to beat Sirius

  • Report this Comment On May 31, 2011, at 4:45 PM, GregLoire wrote:

    @ 67vair

    One of the major selling points of Pandora is how it helps people find new music that they'll like, which people can't do with their own custom CD.

  • Report this Comment On May 31, 2011, at 4:52 PM, ItAintCool wrote:

    "online radio service that now caters to 90 million. That's a smidge above Groupon's 85 million members, and more than four times Sirius XM Radio's subscriber base."

    There's no truth in those numbers Tim! Pandora considers anyone to be "a subscriber" for life once they've downloaded the app and used it only once. If they've never used it again, they're still considered a subscriber. That number doesn't account for "active" users. If you're a teenager who sets up multiple Pandoa accounts to avoid paying their fees for extended use, then each one of those accounts is considered an individual "subscriber". Pandora refuses to share it's actual "active listener" numbers. Maybe once they become public, they'll be forced to.

    You avoided mentioning the most important number in Pandora accounting Tim, "Paid Subscribers". SIRI has more than 17 million paid subscribers and is ever increasing. Pandora, according to their CEO, has less than half a million (and that could be a number between 1 and 500,000), since he wouldn't actually give a real number.

    It's a business model that still doesn't make money and with the cost of streaming internet radio becoming very expensive for users, it will not be able to become profitable at all.

    A short-lived stock that will shoot up on IPO and then will be heavily shorted until it hits BK. That is what Pandora is. Buy it at your own risk. Short it if you got any sense.

  • Report this Comment On May 31, 2011, at 4:56 PM, LOS54 wrote:

    how can you even compare the two? Pandora no matter how good it is and you can get for free, it only offers 1/50 of what Sirius XM has to offer...so stop the hype...think about it

  • Report this Comment On May 31, 2011, at 5:01 PM, snowpol wrote:

    Pandora is terrible. I wish I knew how to delete my subscription. Its one of those first apps you have to have. Then after you've tried it, its useless. I've created channels and have no idea how they come up with music I like. Because I don't like what they pick. Then you click next 5 times and your done. Sirius show what songs are on every channel and I usually have a hard time picking which song I want to listen too.

    A lot of people are subscribed to Pandora, but very few use it. FACT.

  • Report this Comment On May 31, 2011, at 5:28 PM, SkippyJohnJones wrote:

    I'm surprised at all the negativity regarding Pandora's service. I understand qualms about the business plan, but I personally love the service. It took a little while to "teach" what I really like and don't like, but now the music mix is to my taste. I have several stations set up, and rarely skip a track. For those who hate the music selections, my tip would be to choose something a bit quirkier that you like. Everyone on the planet likes the Beatles, so you really aren't giving the computer anything to work with. Find something more specific to capture your taste. Or go to the Pandora website and add a few bands/songs to your station to really dial in your intended mix.

    As far as the business, it does have some selling points. There are no commercial breaks as on Siri, and they don't have absurd talent contracts to contend with. As more cars begin to get mobile hot-spot features built in (many luxury models do today), Pandora will become a viable in-dash option to replace satellite radio. I'm still not totally convinced that they can make much money on freemium, but they may be enough to put a wet blanket on the expensive SIRI service.

  • Report this Comment On May 31, 2011, at 6:28 PM, 67vair wrote:

    gregloire

    Pandora doesn't know what new music I would like. It may think it knows, but it doesn't

  • Report this Comment On May 31, 2011, at 6:38 PM, GregLoire wrote:

    "Pandora doesn't know what new music I would like. It may think it knows, but it doesn't"

    So the service isn't for you. Use your CD.

    But the service works great for a lot of other people, which is why the growth of the company has been so phenomenal.

    Part of investing is understanding that not every product is going to appeal to every individual. Dismissing an entire company because its product doesn't suit your personal taste is foolish.

  • Report this Comment On May 31, 2011, at 8:20 PM, 67vair wrote:

    gregloire

    What is more foolish is actually believing that the growth of the company is so phenomenal. Watch the stock sink like a lead balloon about 1 week after it goes public.

  • Report this Comment On June 01, 2011, at 1:31 AM, sonnydelite wrote:

    If I did not have Sirius I would be using Pandora. Stop bashing Pandora. It's a legit service that sure it streams but it works! My sirius streaming is so unreliable. Most people I know uses Pandora and they have never heard of Sirius. People are not used to paying for "Radio" they were brought up thinking all those types of things are for free with or without the commercials. Once they become smart, investors, business people or just people who need information they will get Sirius for talk shows, news shows, DJ's spinning unpredictable music, cbnc, etc... I own Sirius Stock and when P comes out on IPO I will own that too. The fact and point is Pandora WORKS and it works for a lot of people. It is simple to use and it will only get better once more money flows in.

  • Report this Comment On June 01, 2011, at 1:36 AM, sonnydelite wrote:

    BTW. ADVERTISERS want to advertise to the Pandora crowd because they actually listen to them and go buy the products. They do NOT want to advertise to the SIRIUS crowd because they know the Sirius listeners do not like commercials. That is why they have Sirius! So why the heck would they want to hit a non-like commercial listening audience?

    Buy the P if you like money. Remember don't get personal or emotional with stocks. You will get killed. Then again most are retail investors. The breed that is made to get killed at some point. Be God my Friends, Be God.

  • Report this Comment On June 01, 2011, at 6:21 AM, snowpol wrote:

    I found how to delete your Pandora Sub. Here it is:

    How to Delete Pandora Account

    To cancel a free account, contact Pandora Listener Support at pandora-support@pandora.com from the email address associated with that account with the request to delete the account. If you do not have access to that email account, you may email Pandora from another email account requesting to delete the Pandora account, but you must include the birth year and zip code of the subscriber.

    I just sent an email to delete mine.

  • Report this Comment On June 01, 2011, at 12:04 PM, Fredlee009 wrote:

    No, because Pandora is not competition for Sirius xm. There is NOTHING pandora can do to catch us. No, there is no connection with the two companies, so your article title is illogical to begin wtih.

    Your basically saying tap water is competition for coke. No its not. Pepsi is. Free is never competition for paid quality content. Pandora is a terrible service, in my opinion, with too many ads, same songs, and its NOT RADIO. Please stop saying Pandora radio, and learn what radio is.

  • Report this Comment On June 01, 2011, at 3:58 PM, radioexpert wrote:

    While satellite radio is definitely on a downward trend, Pandora is not the replacement. Pandora is rushing to IPO before the rest of the wireless carriers announce the end of unlimited data.

    Pandora is one of several services whose growth model _totally_ depends on unlimited or very low cost mobile data. Once people have to watch their mobile data consumption, Pandora will be one of the first services they stop using.

    Pandora also suffers from a lack of paid subscriptions and high costs paid to record studios. They are counting on an ad-based model, just like regular radio.

    In the short term, the future of in-car audio is streaming audio from an iPod, smart phone, or USB stick. HD Radio is also finding increasing acceptance by automakers and consumers alike.

  • Report this Comment On June 07, 2011, at 1:15 PM, QuickClickSell wrote:

    As an outsider (I own neither service), I was skeptical of XM-Sirius making money for paid radio service. But after researching and reading comments from Sirius listeners, the light bulb came on.

    Guys, its the quality of the reception and content that sets Sirius apart. Think of all the travelers who are on the road constantly, day in day out. Truck drivers, frequent travelers, and commuters, these guys get bored while on the road. They absolutely love Sirius because instead of the same bland channels, they have a big list of choices......and there's no fuzz or bad reception. Great quality everywhere. That's worth the 15 and change every month.

    If Pandora can match that with a variety of "exclusive" content which stays clear throughout your whole ride wherever you go, then they have a chance of being profitable like Sirius.

    But right now, that doesn't look likely. My opinion? Pandora is like an RC Cola trying to be a Coke with lower prices.

    Don't hold your breathe or this stock too long. Too many ifs in the business model.

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