Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Pandora Is Down in an Up Market

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Pandora Media (NYSE: P  ) released its February user metrics on Thursday, and the stock is trading off, despite the S&P being up. On Tuesday, "Pandora's Upcoming Catalyst" discussed the notion that the Street is probably looking for a number confirming iTunes Radio is not having an impact on listener growth. Apparently, 75.2 million (Pandora's active listeners) isn't a good enough number to quell those fears. Could this be seasonal or structural, as Apple (NASDAQ: AAPL  ) and (NASDAQ: AMZN  ) enter the market?

Blame the weather
Pandora has seen a shift from desktop to mobile listening hours, so it is very possible that an increasing number of listening takes place in the car. Over the last 45 days, the entire east coast has been blanketed by snow, and Baltimore even saw its lowest temperature in 140 years. A decrease in the amount of driving in some of Pandora's core markets could, at least partially, be explained by the weather.

Seasonal or structural?
In January 2013, active listening hours dropped by 2% from December 2012, then accelerated by 3% in February, indicating there may be seasonality to the streaming Internet radio business. In January 2014, there was a larger seasonal drop of 4%, but this time the pickup in February wasn't enough to offset the decline. February's 3% growth is the same as last year's, but Active Monthly Listeners of 75.2 million was still below December's level of 76.2 million. This may leave investors wondering if the slower acceleration in February is seasonal or structural.

iTunes Radio threat
In September 2013, Apple launched iTunes radio, which seemed to cause a disruption in Pandora's Active Listener growth in October, which saw a 2% decline in listeners from September. Since the growth rebounded in November, most investors were willing to write it off as a temporary phenomenon. Now, that conclusion may have to be reevaluated.

Big advertisers seem happy with iTunes Radio
Apple has not released listener metrics for its service, but Ben Winkler, the chief digital officer at OMD, said in an Ad Age article that he is reaching more people on mobile devices than originally expected. OMD represents industry heavyweights, including Nissan and Pepsi, which could be a good proxy for large advertiser sentiment.

Amazon may be getting into the market
According to Re/code, Amazon has a desire to launch a new music service that will be bundled with Amazon Prime by the end of the year. However, the company isn't close to closing a deal. Amazon is reportedly trying to get sweetheart deals from labels to reduce its cost below Pandora's. This is not likely to happen because adding Amazon into the mix doesn't get music companies improved economies of scale; instead, it just erodes a label's pricing power.

Valuation is even higher than WhatsApp
purchased WhatsApp for $42 per average monthly user, yet Pandora is priced even higher. Even without factoring in a premium, it would cost $98 per user for the month of February. Granted, Pandora's business model is very different than WhatsApp's, as advertising contributes to the company's top line and subscribers pay more than just $1 per year. If growth does indeed slow when March user metrics are released, there could be significant volatility for Pandora.

More compelling ideas from The Motley Fool
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2866888, ~/Articles/ArticleHandler.aspx, 9/2/2015 6:38:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

David Eller

I started contributing to the Motley Fool in 2013. I have held research positions at two investment banks and two hedge funds before trying more entrepreneurial ventures. I'm passionate about helping people find freedom in financial independence. Feel free to add comments and start a discussion. I hope to use these articles as forums to learn from you as well as share my opinion.

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 4:02 PM
P $17.46 Down -0.48 -2.68%
Pandora Media CAPS Rating: *
AAPL $107.72 Down -5.04 -4.47%
Apple CAPS Rating: ****
AMZN $496.54 Down -16.35 -3.19% CAPS Rating: ***