Is Pandora Bottoming Out?

An analyst upgrade fails to lift Pandora's spirits.

Apr 7, 2014 at 2:30PM

Investors have been tuning out of Pandora (NYSE:P) lately. The stock has shed 30% of its value since peaking last month at $40.44.

It's hard to feel sorry for Pandora investors. The stock nearly tripled last year, and even the sharp sell-off in recent weeks finds Pandora still trading in positive territory for 2014. That's not too shabby when one considers the various challenges posed by everything from Apple's arrival on the scene with the similar iTunes Radio in September and Spotify relaxing some of the terms of its on demand platform. 

However, investors figuring that Pandora would finally catch a break when an analyst upgraded his rating on the stock this morning were instead dealing with another case of the stock selling off on encouraging news. Wedbush's Michael Pachter upgraded Pandora from neutral to outperform, slapping a $35 price target on the stock.

Pachter's change of heart should have been a game changer. After all, Pachter had the misfortune of downgrading the stock early last year when the stock was trading in the pre-teens. His valuation fears seemed sound. His expectations for Apple to roll out a streaming service later in the year played out. However, the stock still soared 190% in 2013. Pandora's popularity and its improving ad-based monetization efforts paid off. Active user gains have been decelerating, but top-line growth has been climbing nicely as Pandora milks more money out of its listener hours.

Analysts and investors came around to embrace Pandora after his initial downgrade, and now he's back in what may seem to be another contrarian move by backing the stock after a sharp correction. He's probably right this time. Pachter is encouraged by Pandora's strong performance in March. Pandora served up a record 1.71 billion hours of content last month, and attracting 75.3 million active users makes the analyst target of 76.2 million listeners by the end of 2014 a pretty conservative goal.

Investors will naturally want to keep an eye on any growth metrics that Apple puts out. It was initially chatty about strong iTunes Radio milestones, but it's been quiet lately. The market will also naturally be tuning in to Pandora's monthly metrics until the dot-com speedster stops putting them out in early June.

Given Pandora's steady, if not improving, fundamentals, it seems as if the recent sell-off presents a compelling entry point. The challenges are real, but they were also real a month ago when the stock was trading well above Pachter's now seemingly optimistic $35 price target. It's Pandora's turn to pump up the volume, once the market can come up with a catalyst beyond today's analyst upgrade that actually sticks.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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