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In an On-Demand World, Pandora Is Doomed

pandora - In an On-Demand World, Pandora Is Doomed

By the end of last year, Pandora (P) was an underdog to say the least. A company that was, at one point in time, a cutting-edge music option was struggling to turn a profit in an increasingly competitive industry.

Shares of Pandora stock lost over 60% during 2017, including a 30% drop in November on the heels of weak third-quarter results and soft guidance. For the full year, revenue increased just 6% while the company’s GAAP net loss widened to $518 million, from $343 million the year before.

Since then, the underdog has been part of a Cinderella story. Pandora stock has gained 68% so far this year — far better than the broader market. And yet, in my opinion, it still isn’t a buy.

In an on-demand world, a radio station — even an algorithmic one — isn’t what subscribers are looking for.

Behind Pandora’s Rise

Fueling Pandora’s run has been the announcement of partnership after partnership. The company announced a deal with Snap Kit, SnapChat’s (SNAP) new platform for developers. It announced a partnership with an AT&T (T) wireless plan. It can sync with FitBit (FIT). And its app was added to Amazon (AMZN) Fire TV.

Morgan Stanley boosted the stock’s price target last week, too, but shares have already reached the level it laid out. In early May, the company reported 12% year-over-year sales growth for the first quarter of 2018 and a slightly smaller net loss than it posted for the comparable quarter last year.

Pandora’s Time Has Past

Still, there are no profits in sight for Pandora. Looking forward, Pandora is slated to post a 16 cent per share loss this quarter, a loss of 6 cents per share next quarter, and a total loss of 49 cents per share this year.

Those numbers are a reflection of a company that’s struggling with costs and cash flow, while no longer being a game-changer. Years ago, Pandora’s “music genome project” was novel and exciting. The thought of being able to discover new music tailored to your tastes was unique. Now, the idea of using data and algorithms for custom offerings is obvious to say the least.

Other offerings have both algorithmically generated playlists tailored for users in addition to standard on-demand streaming music. Spotify, Tidal, and Apple (AAPL) Music are just some of the biggest names in the space. The prospect of having things on-demand is perhaps the greatest driver of consumer tech in general. Music isn’t an anomaly with regard to that trend.

And Pandora’s service just doesn’t cut it anymore–it has fewer on-demand options than its larger competitors.

While Pandora has posted an insane recovery this year, the partnerships that have investors feeling bullish don’t change the long-term forecast for the music industry. Even dominant on-demand players struggle to grow subscribers and turn a profit. A former darling like Pandora definitely isn’t the right place for your money.

As of this writing, Robert Martin was long AAPL.

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