Although Pandora is a popular Internet radio company, will it prove a good investment? In the following video, Jeremy Bowman and Isaac Pino examine three reasons to steer clear or sell.
First, Pandora's revenues aren't translating well into profits. The company uses advertising for revenue, but more than half of its revenue is spent on content costs. Unless revenue rises or expenses fall, Pandora may struggle in a fast-changing, competitive market.
Second, radio is a mature industry, and traditional FM radio has advantages over Pandora in royalty costs. Further, Pandora has to overcome significant industry red tape that further hampers profitability. In fact, Pandora had to leave the Canadian market because of royalty payments and other issues.
Finally, Pandora faces significant competition -- among them, Apple, which sent Padora's stock down when it announced its intentions to enter the Internet radio market.
Pandora has won millions of devotees among music fans but few supporters on Wall Street. The online jukebox has put up dramatic growth numbers in its listenership and seems to be redefining the way we consume music, a transformation that's only likely to grow. But high royalty rates and competition from all corners threatens to silence this upstart before it ever grabs the microphone. Can Pandora translate success with its listeners into a prosperous business model that will deliver for investors? Learn about the key opportunities and potential pitfalls facing the upstart radio streamer in The Motley Fool's new premium research report. Not only will you get the kind of insight normally found from high-priced Wall Street brokerages, but you'll also receive a year's worth of free updates. All you have to do is click here now to activate your subscription to this invaluable investor's resource.