Here's Why Pandora Media Inc. Is Beating Apple

Although the stock of this music company is down big since its IPO, it still has a key advantage over Apple.

Apr 18, 2014 at 11:02AM

Pandora (NYSE:P) has been beaten down of late. The momentum name is down nearly 30% over the last month. This comes despite the fact that Pandora posted growing listener hours on a year-on-year increase in the number of active listeners and a higher share of the radio market in the U.S. for the fourth quarter. Yet, investors remain concerned about the company's growth opportunities. However, the market appears to be overreacting. 

Still growing 
Investors overreacted on the February news that the company saw no increase in its base of active listeners. Investors took this as the market reaching a saturation point and that future growth would be difficult and costly. But things appear to be picking up.

For the month of March 2014, Pandora reported a 14% increase in listener hours to 1.7 billion compared to 1.49 billion in the same month of the previous year. In addition to this increase, its market share in the U.S. radio market increased to 9.1% versus 8.05% for the same period last year. Its active listeners increased 8% from 69.5% in the previous year to 75.3% this year.

Stacking up the competition
From 2009 to 2013, Pandora's revenues jumped from around $55 million to $427 million. But over that same period, its net loss has increased from $16.8 million to $38.1 million. This comes as the company has been increasing its spending on sales and admin expenses to attract more listeners. 

Compare this to Sirius XM Radio (NASDAQ:SIRI), which over the same period grew revenues have from $2.5 billion to $3.8 billion, a jump of 32%. Its subscriber base increased from 18.8 million to 25.6 million. Sirius XM's bottom line has also improved significantly from a loss of $352 million to a profit of $377.2 million from 2009 to 2013.

The market is willing to accept some degree of losses, as long as Pandora is growing rapidly. Apple's (NASDAQ:AAPL) iTunes, which was released in mid-2013, has yet to be the Pandora killer that it was once assumed to be. Pandora has survived the initial onslaught thanks to its first-mover advantage.

Pandora's competitive advantage
Pandora is still enjoying its first-mover advantage, being the pioneer in the customized music streaming service space. It was able to successfully convert its advantage into significant advertising revenues on the strength of its large Android listener base. Over 80% of Pandora's revenues are generated from ads. Compared to Spotify, which gets 80% from subscription fees, Pandora has figured out how to attract advertisers. 

But the thing is, Apple is no ordinary competitor. The tech giant has a very large cash pile and it controls a large ecosystem (thanks to the number of iTunes accounts), which means Apple already has a large potential listener base. But personalization is important for consumers, and Pandora's Music Genome Project (its personalization algorithms) is helping insulate the company from its competitors.

The exaggerated impact of the price hike
Pandora's recent hike in its Pandora One service by $1 to $4.99 per month was its first hike since the service was launched. The revised price will only apply to new subscribers and will not affect existing ones. It is also ending the yearly subscription option and moving all subscribers to monthly plans. Average revenue per subscriber is bound to improve from last year and the increase will flow directly to the bottom line.

Bottom line
For investors looking for a beaten-down momentum stock, Pandora might be worth a look. The company has no debt and is expected to grow earnings at an annualized 40% over the next five years. The company still has a first-mover advantage and continues to grow revenues despite new competition.

Bigger than streaming music, here's the biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Pandora Media. It also owns shares of Sirius XM Radio. 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.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information