P Stock: Is This a Game-Changer for Pandora Media, Inc.?

Pandora StockA Deal is Good News for Pandora Stock

Pandora Media, Inc. (NYSE:P) surged as much as 15% on Thursday morning. Why? The company received a favorable ruling from the Copyright Royalty Board. Analysts are giving up their previous bearish views on the company, and the Pandora stock could have more upside potential.

For those not familiar with the company, Pandora provides Internet radio service in the U.S., Australia, and New Zealand. It provides personalized experience to listeners and its service is available on computers, smartphones, tablets, car audio systems, and other Internet-connected devices. Basically, Pandora’s mission is to create a separate, individualized radio station for each user having just the “good” music on it, with none of the “junk” that other users like.

Pandora Stock: Music Genome Project

The neat thing about Pandora is that it can create stations based on the intrinsic qualities of music. Then, based on the listener’s feedback, Pandora can adapt playlists in real time. There are other companies that provide music discovery services based on genre, user connections, or ratings. Pandora, however, uses a unique algorithm to build what it calls the world’s most powerful music discovery platform.

Pandora’s music recommendation service is powered by the “Music Genome Project,” which was launched in the year 2000. The Music Genome consists of 400 musical attributes, including melody, harmony, instrumentation, rhythm, vocals, and lyrics. It is based on analysis done by Pandora’s team of musician-analysts, one song at a time, and is still continuing every day to keep up with new music that is coming out. The company has patented the Music Genome Project. (Source: “About Pandora,” Pandora.com, last accessed December 17, 2015.)

So, what was the fuss about Pandora’s music royalty? Well, on December 16, the U.S. Library of Congress’s Copyright Royalty Board (CRB) announced new rate rules for Internet content licensing. According to the new rules, Pandora’s rate will increase from $0.14 to $0.17 per 100 streamed songs for non-subscription streams. The rate increase will remain in effect for all of 2016, and may increase based on inflation through 2020. Previously, Pandora had asked CRB to cut the rate down to $0.11, while SoundExchange—the group that manages digital royalties for the record industry—wanted to raise the rates to $0.25. (Source: “Subchapter E – Rates and Terms for Statutory Licenses,” Copyright Royalty Board, December 16, 2015.)

Also, according to the new rules, Pandora will pay $0.22 per 100 streamed songs for paying subscriber streams. However, since about 95% of Pandora’s customers are using the free version, this probably won’t affect the company that much. (Source: “Why the Subscription Business is Important for Pandora and Where is it Going?” Forbes, September 4, 2015.)

Despite that, Pandora did not get a decrease in fees that it had requested. The copyright holders had asked for a 79% increase. The main point is that the increase in royalty fees was less than what many investors were expecting. Upon the news release on Wednesday, P stock vacillated in after-hours trading at first, before climbing nearly 20% later on. On Thursday, December 17, Pandora stock closed 13.54% higher at $15.26 apiece.

Pandora Chart

Chart courtesy of www.StockCharts.com

The new rules by CRB also removed a lot of the uncertainty about the company’s future performance. As a result, quite a few analysts have changed their views about the company. On Thursday, Credit Suisse raised its target price on Pandora to $24.00, Albert Fried & Company nearly doubled its price target from $11.00 to $20.00, while JPMorgan Chase & Co. (NYSE:JPM) raised the target price on Pandora from $25.00 to $30.00, which is almost double Pandora’s stock price today. (Source: “U.S. Research Roundup – Adtran, Pandora Media, Bluebird,” Reuters, December 17, 2015.)

The Bottom Line on P Stock

Note that Pandora also has ambitions in other sectors. The company recently acquired concert ticketing company TicketFly, and on-demand music-streaming service, Radio. With more growth drivers joining the company, the P stock price could climb even higher.

Stay in the loop. Follow Jing on Facebook and Twitter.