Forget the Skeptics; Pandora Stock Looks Promising
Pandora Media, Inc. (NYSE:P) has been struggling lately, with slowing economic growth and increased competition in particular hitting the company hard, but an ambitious strategy for global expansion and resolution of formerly outstanding legal issues could soon send P stocks soaring.
The online radio company is seeking to acquire the rights to broadcast media outside of the U.S. and the long-term implications of this move could send the Pandora stock price soaring. Pandora has broached the topic of international access to music collections with rights holders and has identified the United Kingdom as one of its prime initial target markets, according to inside sources. (Source: “Pandora’s Big New Push to Conquer International Markets,” Bloomberg, November 10, 2015.)
The move towards global expansion is nothing new for Pandora, which has, in fact, previously identified international markets as its long-term goal. The tricky part will be navigating domestic issues over music rights, with big-name record production companies such as Warner Music Group Corp. and Sony Music Entertainment essentially holding Pandora’s future in their hands.
Pandora Stock Is Down, but Only for the Moment
However, all is not rosy for Pandora, which has recently been forced to deal with issues on multiple fronts. Having settled a legal dispute last month, the Pandora stock price experienced its worst one-day decline on record. The company has begun formulating a long-term strategy for dealing with rising competition from rivals such as Apple Inc. (NASDAQ:AAPL) and Spotify Ltd., both of which have encroached upon Pandora’s market share recently.
Critics have not been kind to Pandora, as the online radio company has relied increasingly on government-appointed bodies to calculate rates. Chief among the complaints is that artists are simply not reimbursed adequately for the rights to their work. (Source: Ibid.) These sorts of disagreements are the main obstacle to Pandora edging out domestic competition and expanding on the international scale.
In order to upgrade the quality of the services it provides and stimulate sales, Pandora has opted for a more diplomatic strategy. The online radio company agreed last week to license American rights to U.S. songs from ATV Music Publishing and Sony Music. (Source: “Pandora sees stock bump thanks to Sony/ATV deal,” New York Post, November 10, 2015.) Pandora hopes that reaching an accord with a large music industry player will compel others to follow suit and cut a deal with them. (Source: “Pandora Cuts Songwriting Rights Deal with Sony/ATV,” NewsFactor, November 9, 2015.) If successful, such a development could launch the Pandora stock price to record-highs.
Legal issues remain, though, with Pandora wrapping up a $57.9-million song rights dispute in October, which focused on songs produced prior to 1972. (Source: “Pandora loss widens as costs jump; shares plunge after hours,” Reuters, October 22, 2015.) Record companies had been furious with the lack of compensation for older songs, which led to a great deal of tension with Pandora.
What About Pandora’s Financials?
The settlement of these legal problems was ill-timed in terms of Pandora’s stock price, as it coincided with an underperforming third-quarter earnings report. This double dose of bad news sent P stocks crashing and overall listening hours on Pandora’s services declined three percent year-over-year. The effect was disastrous, to say the least; the Pandora stock price nosedived by approximately 35% the following day, marking the worst drop since the company went public in June of 2011.
Chart courtesy of www.StockCharts.com
This is not to say that the October 22 third-quarter report was necessarily negative. Revenue levels rose by approximately 30% compared to the same period in 2014, coming in at $311.6 million. Revenue from advertising rose by 52% and adjusted net income surged 12.8% to $22.9 million; this equals $0.10 per diluted share. While these numbers fit quite well within Pandora’s guidance levels announced three months prior, analysts had expected a better performance. Market reactions were swift, sending the P stock price crashing.
But there might well be good news on the horizon; Pandora anticipates higher revenue figures ahead of the holiday shopping season. (Source: “Pandora Says Online Sales May Boost U.S. Holiday Season Revenue,” Bloomberg, November 10, 2015.)
The next year or so will be critical for Pandora’s future success. The Copyright Royalty Board (CBR) will be setting adjusted new rates for the company, but there is a strong disagreement over the exact terms of this restructuring. (Source: “Pandora’s Big New Push to Conquer International Markets,” Bloomberg, November 10, 2015.) While Pandora itself is looking to lower the 44% of total revenue it spent on music rights in 2014, industry groups are looking to coerce the company into handing over 78%.
But this may not be all bad news, as an increase in the costs of music rights may carry additional benefits for Pandora users. A decision that compels Pandora to pay more could likely mean gaining the right to have users download and store media onto their devices or even skip songs in return for more advertisements.
This would represent a fundamental shift in the way Pandora views itself and its place in the business world. While the company had previously adopted an adversarial stance towards the music industry and saw itself as necessarily having to work against it, the dynamic of that relationship may be completely changing. Perhaps it’s time for Pandora to stop fighting against the industry and instead work with the big-name music companies to forge closer relationships and establish mutually beneficial arrangements.
What form would such a constructive relationship take? The rise of the online streaming media market has surged in recent years. It’s not too late for Pandora to launch itself globally as the premier online radio company. I remain unconvinced that Pandora stock will continue to crash, as the company has many positive factors working in its favor. Pandora has continued to manage itself according to long-term profitability considerations and has moved to better integrate itself into the music landscape with its former legal opponents.
The Bottom Line on Pandora’s Stock Price
Despite what the naysayers may think, Pandora is likely to succeed because of its focus on monetization, as well as the commitment to remaining the premier global Internet radio vendor. Rest assured that the Pandora stock price forecast will likely be a favorable one in 2016. If you had not done so before, it might be worth your time to take a second look at this promising stock.