Pandora (P) Stock: Tune In, Sell Out

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Pandora Media Inc (NYSE:P) has seen better days. The streaming music service has increasingly felt the wrath of Wall Street over the last year, as increasing competition and unfavorable economics hammered shares.

pandora media inc p stock tune in sell outP stock has lost a whopping 50% of its value in the last year alone. That’s cringe-worthy in and of itself, but compared to the 12% return of the S&P 500 (INDEXSP:.INX), Pandora’s swift decline is doubly offensive.

It’s very emotionally difficult to sell a stock after racking up huge losses, but I’m firmly convinced that investors should take emotion out of the equation and sell P stock now. The fat lady is singing … right after this commercial.

The Streaming Music Industry Takes No Prisoners

In the grand scheme of things, P stock is a newcomer to Wall Street. The Pandora IPO priced at $16 per share in June of 2011. For a time, P stock enjoyed the benefits of being a first-mover in the streaming music area, and Pandora shares languished for a year or so before rallying to highs above $40 early in 2014.

But Pandora’s niche focus is an angel and a demon, and lately it has been more of the latter. Pandora is doomed because of simple economic dynamics: Competitors saw an attractive new industry and invaded it. Now, Pandora — with its $316 million in cash and short-term investments — must compete against some of the biggest companies of all time.

Consider Apple Inc. (NASDAQ:AAPL), for instance, with its iTunes Radio and $3 billion acquisition of Beats. AAPL is aggressively muscling in and has a tidy sum of $178 billion to throw at its problems. Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has Google Music, Microsoft Corporation (NASDAQ:MSFT) is running Xbox Music, and Amazon.com, Inc. (NASDAQ:AMZN) is no Silicon Valley bum, either.

But Pandora’s most direct threat is probably Spotify, which rose to popularity a few years back largely through an integration with Facebook Inc (NASDAQ:FB) that gave Spotify a uniquely social twist. The ability to make your own playlists and play songs of your choice repeatedly is also something Pandora doesn’t offer.

Yesterday, Sony Corp (ADR) (NYSE:SNE) doused the fire with a healthy serving of gasoline. Sony discontinued its own Music Unlimited service, proffered through its PlayStation consoles, in favor of a distribution deal with Spotify.

But a far more serious economic problem — rising royalty costs — could cripple P stock. FBR Capital Markets downgraded Pandora stock in November for that reason precisely, giving shares an $11 price target.

Insane Valuation: No Treasure in Pandora’s Box

As if competing against the worlds largest, most innovative companies, a rapidly expanding Spotify, and rising content costs weren’t enough, there’s another damning aspect about Pandora stock making it a screaming sell: valuation.

I, like others, can’t get over the fact that Pandora doesn’t make any money. It’s expected to lose 17 cents per share in the 2014 fiscal year. What about 2015? It’ll make 4 cents per share, analysts say. Uh, 2016? Hopefully 26 cents, says Wall Street. Dare I ask what the experts are calling for Pandora to make in the full-year of fiscal 2017? Analysts say 30 cents per share.

Excuse me while I try to get this straight.

P stock currently trades, not at 55 times earnings, not at 55 times 2015 earnings, not even 55 times 2016 earnings — shares are valued at 55 times projected 2017 earnings.

I’m sorry, no. I will never pay that kind of premium for a company with an arguably inferior product, unattractive economics, and some of the biggest competitors in the world. Tune in and sell out of Pandora stock while the market still overvalues this stock.

As of this writing John Divine owns shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/pandora-media-inc-p-stock-tune-in-sell-out/.

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