Although Pandora is a popular Internet radio company, will it prove a good investment? In the following video, Jeremy Bowman and Isaac Pino examine three reasons to steer clear or sell.
First, Pandora's revenues aren't translating well into profits. The company uses advertising for revenue, but more than half of its revenue is spent on content costs. Unless revenue rises or expenses fall, Pandora may struggle in a fast-changing, competitive market.
Second, radio is a mature industry, and traditional FM radio has advantages over Pandora in royalty costs. Further, Pandora has to overcome significant industry red tape that further hampers profitability. In fact, Pandora had to leave the Canadian market because of royalty payments and other issues.
Finally, Pandora faces significant competition -- among them, Apple, which sent Padora's stock down when it announced its intentions to enter the Internet radio market.
Isaac Pino has no position in any stocks mentioned. Jeremy Bowman owns shares of Apple. The Motley Fool recommends and owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. 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.