Several recent positive catalysts appear to have transformed Pandora (NYSE:P) stock from a Wall Street dog to a Wall Street darling. Over the last week of August, Pandora stock jumped about 14%, establishing a new 52-week high in the process. The shares, which were trading just over $7 in early May, look to be heading for double digits soon.
Raymond James Issues Bullish Note on Pandora Stock
One of the biggest reasons for the recent rebound in Pandora stock was definitely a positive note issued on Aug. 30 by research firm Raymond James and described in-depth in a Barron’s article. The note stated that, aside from Apple (NASDAQ:AAPL) Music, Pandora and Spotify (NYSE:SPOT) were the most frequently downloaded apps on both iOS and Alphabet’s (NASDAQ: GOOG, NASDAQ:GOOGL) Google Play in the U.S. between June 1 and Aug. 28.
After conducting the study, the firm is more confident that “pure play” streaming providers i.e. Pandora and Spotify, are in a “stronger than perceived competitive position” because, unlike offerings by Amazon and Google, they can be accessed using all kinds of devices.
In a February column, I predicted that “given the expected growth of voice-activated devices, the use of Pandora on such devices should continue to surge going forward.” The proliferation of such devices would cause many more people with disposable income to be exposed to ads for Pandora’s paid premium service, the column noted.
As a result, the music streaming company would be able to sell many more subscriptions, I added.
In subsequent months, Pandora’s subscription revenue has surged, and Wall Street, in the wake of the Raymond James note, seems to finally be realizing that voice-activated devices can be a tremendous positive catalyst for Pandora and Pandora stock.
Soros’ Investment in Pandora Stock
The hedge fund of billionaire investor George Soros showed confidence in Pandora’s outlook by buying over 7 million shares of Pandora stock. Made in the second quarter, Soros’ purchases were disclosed on Aug. 15. Soros, one of the world’s best-known billionaire investors, also purchased more than 728,000 shares of Spotify stock.
By investing a combined total of around $178 million in Pandora and Spotify, Soros has shown tremendous confidence in the independent streaming music sector. His bullishness on the sector has doubtlessly encouraged other investors to dip their toes into Pandora stock and Spotify stock.
New Types of Powerful Ads
On Aug. 30, Pandora unveiled three new types of ads. The new products, among other things, will allow advertisers to target listeners in certain locations and will enable marketers to ensure that listeners hear the ads in a certain sequence. Furthermore, Pandora will also enable advertisers to utilize ads that play for just four seconds to ten seconds.
I believe that these ads give marketers powerful, highly effective capabilities that cannot be matched by traditional radio. As a result, these innovations should cause many more advertisers to move from traditional radio to Pandora, greatly boosting its results and causing P stock to rally much further.
Of course, location-based targeting is extremely attractive to advertisers. Facebook’s (NASDAQ:FB) ability to target users in specific locations has led thousands of small and medium businesses to buy hundreds of millions of dollars worth of ads on that platform. I have little doubt that this innovation will likewise lead hundreds, if not thousands, of small and medium businesses to move from advertising on traditional radio, which of course cannot offer a similar capability, to advertising on Pandora.
Storytelling is a key component of entertainment, and our society has become addicted to stories that are told in multiple episodes. Pandora’s new product that will enable marketers to utilize sequential ads will allow marketers to exploit that trend. Listeners will be curious to hear how the story progresses, causing them to pay more attention to all of the ads. Of course, terrestrial radio can’t provide this capability.
Finally, short ads can be very effective, given the low attention spans of modern individuals. Four to ten seconds is enough time to share a short message that effectively promotes a brand or event. Although traditional radio could technically play such ads, the logistical difficulties of charging different prices for them and incorporating them into their rigid schedules would probably prevent traditional radio from playing such ads on a large scale.
As I’ve written in previous columns, Pandora has many other positive catalysts, including its partnerships with, among others, AT&T (NYSE:T) and Snap (NYSE:SNAP), and its ability to share content with Liberty’s Sirius XM Holdings Inc. (NASDAQ:SIRI). Liberty has made a $480 million investment in Pandora.
Given Pandora’s many positive catalysts and the fact that P stock has a market cap of less than $2.5 billion, investors should definitely buy the shares at current levels.
As of this writing, Larry Ramer owned shares of Pandora.