Why Pandora Is Poised to Underperform

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online radio company Pandora Media (NYSE: P  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Pandora and see what CAPS investors are saying about the stock right now.

Pandora facts

Headquarters (founded)

Oakland, Calif. (2000)

Market Cap

$1.4 billion

Industry

Broadcasting

Trailing-12-Month Revenue

$338.4 million

Management

Chairman/CEO Joseph Kennedy

Founder/Chief Strategy Officer Timothy Westergren

Trailing-12-Month Return on Equity

(33.4%)

Cash/Debt

$82.3 million / $0

Competitors

CBS Radio

Clear Channel Communications

Sirius XM Radio (NASDAQ: SIRI  )

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 64% of the 574 members who have rated Pandora believe the stock will underperform the S&P 500 going forward.

Earlier this month, one of those Fools, All-Star MrOneHundred, succinctly summed up the bear case for our community:

Pandora has an impossible time making sustainable profit. The company currently pays 50% of its revenues to musicians in the form of royalties enforced by government legislation. ...

While the "Internet Radio Fairness Act" is on the table, several influential musicians (according to an article) including Billy Joel, Rihanna, and some 125 other musicians are calling it unfair to take away what the musicians are relying on as a source of income. Whether that assertion is a fair one or not is beside the point; having those sorts of popular opponents will make it very difficult for Pandora to secure the legislation. Also, consider Pandora's opponents who are beginning to mimic its style, and the company's chances of turning around seem to be very slim indeed!

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