Why Pandora Is at All-Time Highs

Pandora  (NYSE: P  ) sits at all-time highs as analysts and institutional investors are turning bullish. JPMorgan just boosted its price target to $35 while reiterating an overweight rating, expecting Pandora to begin improving monetization as its market share grows and selling efforts accelerate. That follows another bullish analyst note from earlier this week from Needham & Co., which assigned a $33 price target on Pandora, in part due to opportunities in cars. Hedge funds have also started to increase positions in the third quarter. Pandora reports earnings next week, so investors are optimistic about what the online music streamer has in store. 

One of Pandora's challenges has always been its ability to scale, since it lacks operating leverage. Companies with high variable costs do not see margins scale with revenue in the same way that companies with high fixed costs do. In Pandora's case, its primary costs are content costs and royalties. However, Pandora may be able to scale ad revenue faster than costs as it focuses on growing its salesforce.

In this segment of Tech Teardown , Erin Kennedy discusses analysts' enthusiasm for Pandora with Evan Niu, CFA, our tech and telecom bureau chief.

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  • Report this Comment On November 16, 2013, at 9:47 AM, RC12345 wrote:

    The impending fall of several internet companies hinges on when someone produces a report showing extremely low conversion rates for the advertisers that pay them money. I surveyed 100 people who are Pandora and Facebook users (not exactly a statistically valid study I know) and found that only 1 said that they ever listen to or click on ads that they see or hear. Some would argue that 1% of millions of people is still a good revenue stream for the company, but is it really? Ask yourself the same question. Do you ever really pay attention to ads anymore or does it just pass you buy with no real desire to hear/see what is being presented? I just personally believe that the conversion rate and advertising costs will catch up to this method. It may take years or at least until when the next big thing takes off, but if 99% of the population isn't paying attention to you that is a huge problem and I'm not sure over the long haul it's a sustainable marketing strategy.

  • Report this Comment On November 17, 2013, at 12:28 AM, BillFromNY wrote:

    One percent is probably the number I would assign to myself, but it does seem awfully low. Some people might not want to admit that they click on dating or sex related ads.

    I've also seen advertisers post that a successful ad does not just depend on the click-through. It comes also from increasing brand awareness.

    Anyway, the advertiser knows what the click-through is and, if it is really one percent and they see no increase in business, then it shouldn't take the advertiser long to become a non-advertiser.

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