For the first time in a long while, there has been some hope surrounding struggling Pandora Media Inc (NYSE:P) stock.
In the wake of lackluster fourth quarter numbers, Pandora stock stumbled to near all-time lows of around $4.25. Since then, though, the stock has bounced to above $5.
The driver of the mini-rebound in P stock is the company’s acquisition of digital audio tech firm AdsWizz. That acquisition has forced some Wall Street analysts to upgrade the stock, like Raymond James.
The whole idea behind the recent bullishness is that the AdsWizz acquisition accelerates Pandora’s ad tech roadmap, thrusts the company more deeply into the secular growth audio advertising market, and opens up new revenue opportunities.
More specifically, because AdsWizz counts Pandora competitors like Spotify and SoundCloud as customers, the AdWizz acquisition actually gives Pandora much more access to the broad audio streaming market.
That means that Pandora stock is becoming more of a play on the entire digital audio advertising market, and less of a play on the Pandora platform winning in that digital audio advertising market.
That is a good thing. The Pandora platform has done nothing but struggle over the past several years.
But competitors like Spotify, Apple Music and SoundCloud have been tremendously successful. And the digital audio advertising market is growing with exceptional pace.
If Pandora can tap into that success through AdsWizz, then the company becomes much more than just a struggling streaming music platform. Pandora can transform into a marketplace for digital audio advertising.
As such, there is finally a light at the end of the tunnel for Pandora stock. Is the light that bright? No. But it’s bright enough to be interested by Pandora stock at current levels.
Pandora the Platform Remains a Dead Duck
Without the AdsWizz acquisition, there isn’t much to like about Pandora stock. After all, Pandora the streaming platform remains the ugly duckling in the music streaming world.
Total listeners on Pandora continue to drop. Total listening hours on Pandora continue to drop, too. This has been a trend for several years, as the platform has fallen by the wayside next to Spotify, Apple Music, and SoundCloud.
The on-demand, subscription business at Pandora is way behind the curve. Spotify and Apple Music are just crushing Pandora. Meanwhile, SoundCloud has become the place to discover new, trendy music for free, so Pandora is missing out on that up-and-coming market, too.
All the while, licensing costs are growing faster than revenue. And that is horrible for a company that isn’t profitable.
As such, there really isn’t any reason to invest in Pandora the platform. It has been, currently is, and will remain a dead duck.
AdsWizz Provides New Opportunity
But there is a reason to invest in Pandora stock now that AdsWizz is a part of the business.
AdsWizz is a firm that specializes exclusively in digital audio advertising. This is a market that is growing at a 42% clip. Consequently, Pandora’s acquisition of AdWizz is essentially a head-first dive into a 40%-plus growth market.
Moreover, AdsWizz counts essentially everyone in the digital audio advertising market as customers. That includes some of Pandora’s red-hot competitors like Spotify and SoundCloud. Essentially, then, Pandora will be running a business which provides advertising solutions to its competitors.
That is actually a good thing because Pandora’s competitors are doing so much better than Pandora. It’s also a good thing because Pandora could help create a centralized marketplace for all digital audio ads. That marketplace could be quite large.
Consider the massive smart speaker trend that is still in its early innings. Those smart speakers will become infused with more and more audio ads. Also consider the huge surge in podcast popularity recently. Those podcasts will also become infused with more and more audio ads.
All together, then, Pandora can use AdsWizz to create a marketplace for buying and selling ads in an audio advertising industry that is gearing up for huge growth over the next several years.
Bottom Line on P Stock
I don’t love the stock here because the Pandora streaming platform remains a dead duck.
But the company’s acquisition of AdsWizz does give Pandora a unique opportunity to diversify and super-charge growth over the next several years.
As such, Pandora stock does look interesting here hovering around all-time lows with a unique, potentially game-changing catalyst on the horizon. I’m not buying just yet, but I could be a buyer soon if Pandora executes on turning AdsWizz into a marketplace at the center of explosive growth.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
