In the stock market, there is a thing called a “sucker’s rally”. A sucker’s rally is when a stock unjustifiably rallies until the suckers buy in. Then the stock drops, and the suckers lose money. Last week, we saw a sucker’s rally in Pandora Media Inc (NYSE:P) stock.
Following earnings, Pandora stock jumped more than 10% higher in after-hours trade after the company reported an unusually good quarter. Pandora topped revenue estimates thanks to a nice jump in the subscription business.
But the rally didn’t last. Why? Because the subscription business was still weak considering its size relative to other streaming media players. And outside of the subscription biz, there really wasn’t anything else to like about the report.
Pandora stock quickly reversed course. The day after earnings, P stock was down as much as 12% at one point.
Buy the dip? Nope. I’m doing anything but buying Pandora stock. This is yesterday’s favorite music streaming platform. And it’s stuck in neutral while competitors zoom by it.
Pandora Stock Isn’t Going Up Any Time Soon
Pandora was a pioneer in the music streaming world. Not too long ago, they essentially morphed into the king of music streaming radio stations. You select a genre or a band, and Pandora feeds you song after song that is tailored to your interest. But there are no skips. No on-demand music selection. It’s all free, so you listen to an ad every once and a while.
For a period of time, this style of free, music streaming radio stations was very popular. But then Spotify came along, and they offered an ad-free, on-demand subscription tier. No longer did you have to wait for a song you wanted or have ads break-up your playlist at random points. You could play any song at any point and there were no ads.
As it turns out, this is exactly what people wanted. And they were willing to pay for it.
But Pandora missed the boat.
While Spotify and Apple Inc.’s (NASDAQ:AAPL) Apple Music morphed into on-demand music streaming giants through their paid subscription services, Pandora continued to cede market share. While Pandora has since launched its own paid subscription service, it’s too little, too late.
Yes, investors did get initially excited about the way Pandora’s subscription business performed in the quarter. The company grew its subscription user base by roughly 5.5% quarter-over-quarter. Average revenue per sub also jumped 9% higher quarter-over-quarter.
But Spotify, which has a subscriber base nearly 13-times as large as Pandora’s subscriber base, is actually growing more quickly (roughly 6% quarter-over-quarter). Apple Music, which is also far larger, is growing its user base by roughly 15% quarter-over-quarter. Moreover, licensing cost per sub rose 14% quarter-over-quarter, so unit cost growth is actually outstripping unit revenue growth. That is a horrible combination for a company that hasn’t been profitable in two years.
Meanwhile, total listener hours fell to 5 billion in the usually active holiday quarter. That is the lowest listener hours have been in holiday quarter for Pandora since 2013. Active users totaled 74.7 million, the weakest holiday quarter reading since 2012.
Bottom Line on Pandora Stock
Clearly, this is a company that is past its golden age.
With Spotify and Apple Music still ramping, Pandora’s streaming service failing to gain serious traction, and the company still running sizable losses, the only thing I see in the future for Pandora stock is more pain.
Avoid it like the plague. When you talk about the music streaming world, Pandora doesn’t even come up anymore. It’s all about Spotify. And Apple Music, SoundCloud and Alphabet Inc’s (NASDAQ:GOOGL) YouTube.
Pandora? It’s so yesterday. That makes Pandora stock a must-avoid, even at all time lows.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.