I write this article as I write most financial stories these days: headphones on, listening to some combination of the Grateful Dead, The Strokes and Janis Joplin on my Pandora Media Inc (NYSE:P) playlist.
In a separate browser, I have Yahoo! Finance open, and I’m watching Pandora stock waft lower in early morning trading — after the past month’s erratic action, P stock is still threatening to dip below $13 again.
That, in a nutshell, illustrates Pandora’s conundrum over the past two and a half years — the American public loves the company and its products, but Wall Street stubbornly rejects the stock.
In the increasingly crowded streaming-music space, Pandora is still at the top of the heap, with 78.1 million listeners, a few million more than its closer competitor, Spotify. Like me, the vast majority of those listeners tune in for free — only four million of Pandora’s listeners pay for the premium, commercial-free service.
However, all those ads that us free Pandora listeners have to suffer through every few songs have helped the company maintain consistent double-digit sales growth since P stock went public in 2011.
Early on, that was more than enough to tickle investors’ interest — after some post-IPO growing pains, Pandora stock made a big move starting in November 2012, rising from $7 to $37 over the next 15 months. Then the bottom fell out. After peaking at $37, P stock abruptly nosedived to $22, tried to recover, then fell to $14 by early 2015. Pandora stock hasn’t been above $21 since, although it has rallied nicely since bottoming at $8 this April.
A lack of earnings has been the culprit. For all its sales and user growth, Pandora has never been profitable. Per-share losses came in at 33 cents last quarter. With sales growth dwindling from 99% in 2011 to 26% in 2015, investors have been abandoning ship in droves the last couple years in search of profitable companies — or at least ones with better sales growth.
So, with the losses continuing to pile up, sales growth declining and even the user base slipping from 79.4 million to 78.1 million over the past year, is there any hope for Pandora stock?
I say yes — for the following three reasons.
- New Subscription Services: Just this month, the company launched Pandora Plus, an improved version of its $5-a-month Pandora One subscription service, which allows users to not only listen to music without those pesky ads, but have access to higher-quality streams and a higher daily song-skipping limit. Pandora Plus will allow subscribers to listen to their music offline, and give them even more skips. And it’s just the start — by year’s end, the company also plans to launch a $10-a-month, on-demand service that will allow subscribers to select which songs they want to listen to, and not just select channels based on certain songs or artists. That should allow Pandora to better compete for subscribers with Spotify and Apple Inc. (NASDAQ:AAPL) Music, both of which already have their own on-demand services.
- More Record Deals: Until this week, Pandora had deals with more than 1,800 independent record labels. Now it’s luring some of the industry’s biggest fish — on Sept. 13, the company announced new deals with Sony Music, Universal Music Group and Merlin Network Group, with more deals apparently in the works. Because the major record labels control 77% of all global music, these deals should significantly expand Pandora’s already vast music library.
- Pandora Stock Is Gaining Momentum: Getting knocked backward for two solid years might be a death sentence for some stocks. But–despite this morning’s pre-market pullback Pandora stock has showed serious signs of life over the last four months; it’s up 55% since May 3, and has scarcely fallen below its 50-day moving average during its current run. In fact, now that it’s bumping up against its 50-day line, this might be an ideal time to buy.
The Bottom Line on P Stock
You know an industry is red-hot when Apple, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) — which just launched its own streaming music service — want in on the action. That’s increasing competition for Pandora, but Pandora is meeting that competition head-on: CEO Tim Westergren has set a goal of nearly quadrupling his company’s annual revenue to $4 billion by 2020.
“We’re no stranger to competition,” Westergren told CNBC in a live interview on Wednesday. “We’ve been here before and are very confident about our ability to execute.”
With Pandora stock trading near its four-month support level, I think it’s worth taking a relatively low-risk flyer on the stock in case Westergren is right.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
