Following its most recent earnings release, Wall Street bashed the streaming music business, but there might be a few reasons to hold on to hope that Pandora (P) can turn it around.
Its recent acquisition of concert ticket company Ticketfly may be just the diversification strategy that Pandora needs to climb to the top. Customized playlists on Pandora will give way to targeted concert advertisements from Ticketfly, and this partnership could soar, taking the streaming service to new heights.
Tune in, as The Motley Fool's technology analysts, Dylan Lewis and Sean O'Reilly, discuss Pandora's hopes for the future.
Listen to the full podcast by clicking here. A full transcript follows the video.
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This podcast was recorded on 11/13/2015.
Sean O'Reilly: How much more rope does Pandora have with Wall Street?
Dylan Lewis: Yeah, I think there are some silver linings here. So, full disclosure, I'm a shareholder and I am definitely ...
O'Reilly: Plugging your portfolio, Lewis.
Lewis: Well, I think it's important to note, and I'll say it's -- I'm a little frustrated because I was watching the climb recently, and you saw over the last couple months, like I said, they hit that peak in the low $20s. And a lot of that was due to the market thinking that they would have a very favorable ruling with the new royalty agreement that would be reached.
O'Reilly: Because was it a lower court, or what was it that they got the hint of a better ruling?
Lewis: It was basically that an agreement that they reached with an independent label was decided that it could be a reasonable benchmark for larger negotiations. And so that was obviously something that worked very well for their cost structure, and the market was happy about it.
So we had this climb over the past couple months because of that, and you know, it's not that the business outlook changed at all. The streaming space was still becoming more crowded, and so I think I'm personally a little frustrated that I didn't see that and have a little more hindsight. I think it might have been a good time to get out. But I have to say I really do like the Ticketfly acquisition.
O'Reilly: That was my other question. So you're still happy about that, because from what I remember about it, it still sounds like a really good idea.
Lewis: Yeah, when we did the show a little while back I was super bullish on that. I think it's one that integrates extremely well into the platform as is, and I think as a standalone business it's pretty solid. You know, to have someone like that under your umbrella is great. It's like, I think the concert business is, like, a $6 billion business right now. Right now it's being dominated by Live Nation or Ticketmaster.
O'Reilly: Well, it seemed like a win-win for everybody because, if memory serves, Live Nation and just Ticketmaster and everybody, they do Taylor Swift tickets. They'll be better for the second tier like the, I don't want to name names, but people that aren't Taylor Swift.
Lewis: Well, no, so, I mean, I went to a show last night in D.C. at Black Cat, which is like maybe a 150-person venue, and Ticketfly sold the tickets. They are the mid-market ticket seller, and they're perfect for people like that. And I think it's a largely underserved market right now.
O'Reilly: Did you find the band on Pandora?
Lewis: I did not. I think NPR got me over to the band.
O'Reilly: Oh, God. I would not have guessed that, by the way.
Lewis: I'm an NPR listener. What can I say?
O'Reilly: You Bostonists.
Lewis: So I think Ticketfly is definitely a big catalyst for them and it's something that, I have a small position with them, so I think I'm going to hold it and see what happens. Because I like what's going on there and there's the possibility -- I was talking with Vince, our CG analyst, a little bit earlier -- I said, "There's the possibly this is kind of like an eBay/PayPal type thing where it's like, they wind up with this better business under their umbrella at some point. That might become the more viable option.
O'Reilly: Then you'll have to spin it off.
Lewis: Right. I mean, it remains to be seen. That's a little bit of speculation here. But the other thing that I think investors want to keep in mind is, so these were rough numbers, and you know, it's kind of surprising to see numbers sequentially dip, like even in the some of the struggling social media companies.
Even if year-over-year growth isn't fantastic, you'll at least see 1% or 2% climbs sequentially. And so something to keep in mind is that Apple Music introduced its product at the end of June. And that was a free trial product, right?
O'Reilly: When does the trial end, Dylan?
Lewis: So after three months you look at the period that Pandora's reporting for; a good portion of that was while Apple was running its free trial.
O'Reilly: So they held their own when a major competitor ramped up.
Lewis: Yeah. That is, if you're trying to defend these poor business metrics right now. And I think in the coming quarters now that most people will be off that free trial, we'll be able to see whether this is a momentary dip influenced by that, or if the competitive pressure from Spotify, Apple Music, etc., is too difficult to overcome.
I happen to think there will be a decent number of defectors from Apple Music. I remember seeing a stat that 61% of people that had Apple Music had turned off the auto-enroll option so they wouldn't be rebilled once the trial ended. So I don't know that Apple Music is going to be as sticky as people think.
But again, I think if you're looking for something to be happy about with Pandora still, it's Ticketfly. It's not quite the core business right now.
