Buy Pandora Media Inc Stock While It’s Cheap

Pandora stock - Buy Pandora Media Inc Stock While It’s Cheap

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Pandora Media Inc (NYSE:P) stock has multiple positive catalysts, and the valuation of P stock is quite attractive at current levels. Therefore, longer-term investors should buy Pandora stock at current levels.

There were three very positive aspects of Pandora’s fourth-quarter results, which were reported on Feb. 21. Specifically, the company’s overall revenue came in above expectations, driven by its subscription revenue which jumped 65% year-over-year and a 12% jump in its advertising revenue per listener hours.

Clearly, its subscription business, which was launched about a year ago, is gaining traction against the competition, while advertiser demand for the service has increased meaningfully.

Two positive catalysts -the proliferation of voice-activated devices and Pandora’s launch of its Premium Access service – are probably largely responsible for the rebound of Pandora’s subscription business.

According to Pandora’s CEO, Roger Lynch,”In Q4, Pandora listening on voice-activated devices was up 145% year-over-year.” Those who spend the money to buy listening-activated devices, such as (NASDAQ:AMZN) Echo, are probably much more likely than the average Pandora listener to subscribe to the company’s premium subscription tier.
Consequently, as users of Echo and competing devices spent more time listening to Pandora last quarter, and as they were exposed to more ads for the premium tier, more of them likely bought subscriptions to the tier.
As Lynch pointed out, given the expected growth of voice-activated devices, the use of Pandora on such devices should continue to surge going forward. It’s a good bet that the company’s subscription revenue will follow suit.

Pandora Stock Catalysts

The other positive catalyst that probably drove the increase in P subscription revenue was the launch of the company’s Premium Access product. Unveiled late last quarter, Premium Access allows users to “Unlock a window of robust on-demand music listening in exchange for viewing a short video ad,” the CEO explained.

Moreover, he said Premium Access, “Represents the simplest and easiest way to try Pandora Premium for a limited period of time,” Lynch stated. As users become accustomed to the features of Pandora Premium but get tired of watching ad videos, many probably cave in and buy subscriptions to the premium subscription tier.

This trend should intensify as P markets the Premium Access product more aggressively and more users become aware of it through word of mouth.

P has other upcoming potential positive catalysts, including expansion overseas, increased content sharing with Sirius XM Holdings, Inc (NASDAQ:SIRI), which owns a 19% stake in Pandora, and the expansion of Pandora’s podcast lineup.

If Pandora is able to improve the quality and quantity of its talk radio lineup, its attractiveness and stickiness will likely grow by large amounts.

Additionally, as I’ve noted previously, Liberty Media Formula One (NASDAQ:LMCA), which owns Sirius, did a great job turning around SIRI stock, indicating that it could engineer a similar turnaround of P stock.

Pandora Stock Valuation

Speaking of P stock, the shares, which are trading at an enterprise value of about $1 billion, seem quite undervalued at current levels.

Pandora’s massive data alone is probably worth well over $1 billion, so at current levels investors are getting the company’s access to many tens of millions of smartphones and its entire music business for free.

Not to mention that Sirius and/or Liberty could easily decide to acquire Pandora at a premium to its stock price at any time.

Pandora stock has probably declined because some investors were upset by the approximately 7% year-over-year drop in the company’s subscriber base and its weaker than expected Q1 guidance.

But Pandora still had 74.7 million listeners as of the end of last quarter, and its positive catalysts should enable its results to improve significantly over the longer term. Meanwhile, the weak Q1 guidance was probably largely attributable to seasonality and conservatism, and Pandora stock is dirt cheap at current levels.

As of this writing, Larry Ramer owned shares of P stock. 

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