Why Pandora Is Poised to Pull Back

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

$2.4 billion

Industry

Broadcasting

Trailing-12-Month Revenue

$427.1 million

Management

Chairman/CEO Joseph Kennedy

Founder/Chief Strategy Officer Timothy Westergren

Return on Equity (average, past 3 years)

(21.6%)

Cash/Debt

$89.0 million/$0

Competitors

Sirius XM 

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

On CAPS, 66% of the 626 members who have rated Pandora believe the stock will underperform the S&P 500 going forward.

Just yesterday, one of those Fools, joshmessages, succinctly summed up the Pandora bear case for our community:

High royalty fees along with new competition on an almost monthly basis makes the 'mostly free' business almost impossible to profit from.

On the free side there is IHeartRadio with seemingly less [ads], HD listening, and straight forward free listening with limited skips.

On the pay side there is Rdio and Spotify which dominate the space and are both growing surprisingly fast.

In the middle there is Pandora which doesn't seem to know whether it wants to be a free service or pay service. ...

There is no road to profit for Pandora.

Pandora has won millions of devotees among music fans but few supporters on Wall Street. The online jukebox 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 the company. 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. All you have to do is click here now to subscribe to this invaluable investor's resource.


Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On May 02, 2013, at 11:36 AM, smallormidcapman wrote:

    Your CAPS community giving Pandora a 1 star rating is typical of the insightful research done by the fools at Motley. Poised for a pullback? New 52 week high today."There is no road to profit for Pandora." Really? They FORECAST a profit for next year I think it could happen as soon as this quarter based on mobile ad revs from FB and others.

    You guys just don't get complex tech stocks and your antiquated models used to rank companies are laughable. The fools at Motley are exactly that...FOOLS. Do exactly the opposite of what Motley recommends and you WILL make money.

  • Report this Comment On May 02, 2013, at 12:33 PM, kkfallston wrote:

    A one-star rating & "POISED FOR A PULLBACK"

    It is up up overt 8%, from your 2 DAY old article.

    Take a look at their 2 YEAR chart.

  • Report this Comment On May 02, 2013, at 6:24 PM, blake303 wrote:

    This is not a complex tech stock. P simply has a horrible business model that is convenient for freeloaders, but terrible at turning a profit. Furthermore, if/when it does generate a profit (because forecasts are never wrong), it may not warrant a $2.4B valuation with a growing list of competitors offering superior services.

  • Report this Comment On May 02, 2013, at 9:44 PM, smallormidcapman wrote:

    This isn't hard to understand...market cap valuations and traditional models of valuing companies don't work well with Pandora and others. Here is what I can tell you and the other FOOLs at Motley:

    ~ Pandora has zero debt

    ~ Mobile is king

    ~ Pandora is top 3 in mobile ad revs

    ~ ALL media companies value mobile above any other format

    ~ A strong mobile presence gains you not only revenue but INFLUENCE

    ~ Those media companies with a strong mobile footprint and...wait for it...INCREASING mobile rpms deserve a premium in both P/E and any other valuation metric

    ~ Those who don't understand this should buy PG or XOM

    While Pandora climbs to $20, keep spewing the same antiquated valuation rationale and see where it gets you. I will be trading, holding, and raking in the cash and using the FOOLs at Motley as my #1 contrarian indicator.

  • Report this Comment On May 03, 2013, at 1:06 PM, blake303 wrote:

    I have some pets.com shares to sell you

  • Report this Comment On May 10, 2013, at 3:13 PM, smallormidcapman wrote:

    Another typically FOOLish call by the FOOLS at Motley. Up $1.50 or about 12% in just 10 days since this "article" *cough* was published. I know the business model is complex to some to understand and they throw stones comparing it to a failed .com...typical FOOLish behavior. Stick with the dinosaurs you know like MSFT and INTC. Leave the cutting edge to those with the ability to see profits before they materialize...i.e. BIG money.

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