Why Pandora Is Down in an Up Market

Is it seasonal or structural?

Mar 6, 2014 at 2:30PM

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 Amazon.com (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.


David Eller has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple, and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers