P Stock: Can “Music Genome Project” Pump The Beat Up For Pandora Media Inc.?
Most of the time, innovative companies are welcomed in the stock market. But when a company doesn’t transform an industry the way it intended to, things can go south very quickly. Pandora Media Inc (NYSE:P) stock is a good example. After reaching almost $38.00 a share in February 2014, Pandora stock has been on a steady decline.
On Monday, March 28, Pandora stock plunged more than 12%. Trading at $9.60 a share, the company has lost more than 70% of its value in just over two years. Could this spell the end of Pandora stock? Not really.
Why Pandora Stock Still Has a Shot
Before we get into why the company is not done just yet, let’s go over the bad news first.
The shock that sent the stock plunging on Monday was the company’s CEO change. Pandora announced that its CEO, Brian McAndrews, is leaving the company. The board appointed Tim Westergren, Pandora’s co-founder, as the new CEO, effective immediately. (Source: “Pandora Founder Tim Westergren Takes the Helm as Chief Executive Officer,” Pandora Media Inc, March 28, 2016.)
Pandora stock had a dramatic ride during McAndrews’ tenure. It surged to almost $38.00 per share in February 2014 but then went mostly downhill. Since McAndrews became CEO, P stock has lost over 50% of its value. The company did not say why McAndrews left.
No doubt, investors did not like the news of the management shakeup. But if you look a bit closer, you’ll see that Pandora still has its key to success in the music business—the “Music Genome Project.”
Pandora is not your average Internet radio company. Available in the U.S., Australia, and New Zealand, Pandora provides personalized Internet radio service. The company aims 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.
Of course, Pandora is not the only provider of music discovery services. What makes the company stand out is its algorithm. Started back in 2000, the Music Genome Project is “the most sophisticated taxonomy of musical information ever collected.” (Source: “About the Music Genome Project,” Pandora Media Inc, last accessed March 28, 2016.)
The Music Genome Project consists of over 400 musical attributes including melody, harmony, instrumentation, rhythm, vocals, and lyrics. Each song in the Music Genome Project is analyzed based on these characteristics by a trained music analyst. Pandora has patented the Music Genome Project and its database is still expanding.
Having a unique product is just the start and the company still needs to monetize on the idea. Luckily, Pandora’s revenue growth has been strong.
In 2015, Pandora’s total revenue surged 26% year-over-year to $1.164 billion. Both segments showed solid improvements. Advertising revenue increased 27% year-over-year, while subscription and other revenue climbed 17%. (Source: “Pandora Reports Q4 and Full Year 2015 Financial Results,” Pandora Media Inc, February 11, 2016.)
Going forward, the company could benefit from the scale of its business. While Pandora stock hasn’t been a hot commodity these days, Pandora’s service is still popular. The company reached its all-time high of more than 10% share of U.S. radio listening. It had more than 80 million active listeners by the end of 2015.
User engagement also improved. The average user spends approximately 22 hours a month listening to Pandora. This kind of user engagement is the “highest of any U.S. mobile application and more than double the next closest music service.” (Source: “Pandora Q415 & CY2015 Financial Results Conference Call Transcripts,” Pandora Media Inc, February 11, 2016.)
The Bottom Line on Pandora Stock
The company has an appealing product and a solid share of the market. Its revenue is also growing at an impressive rate. In the short term, bearish sentiment on Pandora stock could continue to be a drag. But the innovative music company is not over just yet.
