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Why I'm Long Pandora: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Early last week, I introduced two media stocks I consider sells -- Netflix (NFLX) and Sirius XM (SIRI) -- and six I consider buys -- Rogers Communications (RCI), Bell Canada (BCE), Time Warner (TWX), Disney (DIS), Pandora (P - Get Report) and Madison Square Garden (MSG).

Later in the week, I outlined my bull case for both Rogers and Bell, and today I'll explain why I like Pandora.

When I go long media stocks, I do so with a time horizon measured in years, not months and weeks. I also consider five key criteria when making my selections:
  • Massive and/or rapidly growing revenue
  • Multiple, diverse streams of revenue
  • Multiplatform delivery of premium content
  • Direct control over premium content
  • Ubiquity

Although the other long plays, by and large, score high on all five counts, Pandora does not. That's one reason why it's easily the most speculative of the bunch.

"Massive and/or rapidly growing revenue." Pandora wins here, particularly in the "rapidly" category. The company's revenue is not necessarily massive, but it has soared 1,819%, from $14.3 million in the 2008 fiscal year to $274.3 million in the 2012 fiscal year. Revenue increased 99% between the 2011 and 2012 fiscal years.

"Multiple, diverse streams of revenue." Although Pandora does have two primary revenue lines, they're too lopsided to truly deserve the "multiple" tag and not dynamic enough to be "diverse" or truly synergistic.

Advertising makes up roughly 87% of 2012 fiscal-year revenue, whereas subscription and "other" revenue make up just 13%.

Advertising will always dominate, but Pandora can and should look for ways to pump up the subscription and "other" line item.

I will expand on this in future articles, but the recently-introduced Pandora for Business initiative and the addition of a la carte subscriptions for premium programming represent down-the-road possibilities.

"Multiplatform delivery of premium content." Pandora scores well here. The company delivers its content via the Web and mobile devices ranging from smartphones to tablets. You can also stream Pandora through a television via streaming players such as Roku.

"Direct control over premium content." I classify Pandora's content as premium because each user can take what is ultimately easily accessible content and allow Pandora to tailor it to his or her tastes.

That's the power of the Music Genome Project and the reason why so many people choose Pandora over other Internet radio services. This interactive user experience also promotes the discovery of new music that users might not have otherwise found.
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