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Here's How Pandora Media, Inc. Stock Rose 14.1% Last Month

By Anders Bylund – Apr 12, 2018 at 9:17PM

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The streaming music service bought an advertising specialist last month, and one analyst absolutely loved that deal. That looks like a mistake.

What happened

Shares of Pandora Media (P) gained 14.1% in March of 2018, according to data from S&P Global Market Intelligence. The highlight of the streaming music service's month was the acquisition of audio-based advertising company AdsWizz, which one analyst argues could double Pandora's addressable market.

So what

That $145 million deal will boost Pandora's ability to make money from audio ads inserted in its free digital radio streams. Only 7% of Pandora's monthly users have elected to pay for ad-free radio streams or an a la carte service similar to Spotify's premium version, leaving 93% of the user base in the ad-supported market. And since AdsWizz also manages ad flows for some other streaming audio services, Pandora's advertising reach should increase significantly as well.

Young woman on a bus, smiling at her smartphone while wearing headphones.

Image source: Getty Images.

Now what

Analyst firm Raymond James believes that AdsWizz will double Pandora's addressable market to roughly $28 billion per year. But fellow Fool Rich Smith makes a convincing argument that it's overstating the real-world business value of this small buyout. If this buyout really adds more than $765 million to Pandora's market value, as Raymond James proposes, there would be a bidding war going on instead of an uncontested announcement.

I used to believe in Pandora and still own the stock, but it's getting harder and harder to explain why it's in my portfolio. The AdsWizz deal does nothing to soothe my nerves, and the stock shouldn't have jumped on this weak tidbit of news.

Anders Bylund owns shares of Pandora Media. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.

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