Pandora Stock: Pandora Media Inc Needs a Revamp

Pandora StockA Model Change Required for Pandora Stock

Pandora Media Inc (NYSE:P) has staged a nice rally from its 52-week low of $7.10, but Pandora stock will continue to have to play the catch-up game in the ultra-competitive music streaming business, in which Spotify AB and Apple Inc. (NASDAQ:AAPL) are tops.

My prior thinking was that Pandora stock would fare better if it would be acquired but so far, despite the rumors, there is no evidence that P stock will be acquired.

For investors in Pandora Media, patience is probably running thin. If you bought Pandora stock at $40.00 in March 2014, you probably would have divested the position, otherwise you are very deep in the loss column, with a long way to go to recoup the losses.

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Chart courtesy of StockCharts.com.

On the surface, it looks great for Pandora Media, with more users than its two main rivals, Apple and Spotify, which have 17 million and 40 million paying customers, respectively. (Source: “Spotify Passes 40 Million Subscriber Mark, Crushes Apple Music,” Forbes, September 14, 2016.)

Pandora Media’s New Strategy

The thing hurting Pandora Media is its inability so far to turn many of its 80 million users into paying customers. This will need to be rectified, otherwise a doomsday scenario could be setting up for Pandora stock.

A look at Pandora Media’s current revenue breakdown demonstrates the problem dogging P stock. Revenues are driven by advertising growth and not paying subscribers, which is a recipe for disaster for online streaming businesses.

In the second quarter, Pandora Media generated only about 16% of its total revenues from subscriptions, while advertising accounted for a whopping 77%. And to make matters worse for Pandora stock, the growth in its subscription stream was a dismal one percent, versus 15% for advertising. (Source: “Pandora Reports Q2 2016 Financial Results,” Yahoo! Finance, July 21, 2016.)

To try to get subscribers to fork out their cash, Pandora Media will be launching a competing on-demand music service similar to its rivals. Pandora stock currently offers up an ad-free version of its free “Pandora One” service at $4.99 a month, but the traction has been soft. The soon-to-be-launched “on demand” option will allow Pandora Media to compete on a better platform with Apple and Spotify.

Yet it could be problematic for P stock to convince its subscribers to shell out money for something that they have not paid for, despite the fact it’s a different service.

The more time passes, the more I think Pandora Media will have to pray that its new strategy works, since I’m not sure the company would be attractive for bidders. Of course, with 80 million users, it would be tempting for a rival to buy Pandora stock and try to convert the free riders.