This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Pandora Is Killing Itself Right In Front of Our Eyes

Stocks in this article: P

NEW YORK (TheStreet) -- Pandora's (P) finished. If you haven't already, get out while you can.

Here's the deal ... in as plain, simple and straightforward terms I can come up with.

A couple of years ago when I was bullish Pandora stock in the teens and high single digits, very few people understood the company's core business. They couldn't wrap their heads around the notion of Pandora redefining radio with a focus on personalization and discovery. This combo fuels Pandora's pitch of highly-targeted advertising directly -- and, now, through agencies -- to the folks who have historically bought traditional radio.

The second Pandora executives explained the model to me, I was sold. Obvious no brainer.

Over the last year or so, investors started to catch on. Wall Street became bullish, almost to an analyst. And the stock flew on an understanding of what Pandora was accomplishing with advertising, not to mention the company's ability to beat back every competitive threat that came its way.

But that storyline's no longer sexy. And it shouldn't be.

Pandora believes all it needs to do to remain Internet radio's leader is improve the listener platform and continue to poach advertising dollars from broadcast radio. The company remains hyper focused on that strategy and that strategy alone. This misguided stubbornness will mark the death of Pandora.

It's not that that business won't continue to do well. It will ... but, as Richard Tullo, who covers Pandora for Albert Fried, so colorfully states in a recent research note:

We still think Pandora's faces a significant growth rate decline and we think investors need to depart the bus and seek alternate modes of transportation ... If we are right and 1Q represents more then a seasonal dip and investors may be paying too much for Pandora shares which are transitioning from a secular growth story to a more slow growing seasonal growth story ... At issue in our view, is mobile video advertising is growing 57% according to eMarketer ... But just a 1% improvement in Pandoras mobile seasonal decline suggests mobile growth is failing to capture the budget dollars following into the space which includes social networks, TV, as well as IP radio.

Right on.

Growth will slow at Pandora, in part, because the company's a victim of its own success. The radio ad sale -- online or off -- has never been one to produce the type of exponential growth we saw from Pandora over the last year or two. As Tullo explains, Pandora lags companies such as Google (GOOG) and Facebook (FB) with respect mobile ad revenue acceleration. But, of equal importance, broadcast radio has gotten its act together.

Thanks in part to to its acquisition of Arbitron, Nielsen Holdings (NLSN) is helping terrestrial radio utilize music preference and other types of data in increasingly innovative ways Pandora refuses to meaningfully explore, let alone implement and execute.

This should anger and scare Pandora's seasoned investors as well as those considering the stock. The only hope we have -- barring an epiphany at the highest ranks of Pandora's currently clueless regime -- is a company with resources and vision kicking the company's tires and buying it.

In an article where I argue it would make sense for Google (GOOG) or Yahoo! (YHOO) to buy Pandora, I provide comprehensive explanations of what Pandora's not doing, but absolutely should be doing with the mounds of data it collects -- every second of every day and has been collecting every second of every day -- from its users for years.

Granted, without integration into the Google search infrastructure, Pandora can't do some of what I rundown in the above-linked article. But it still can do quite a bit with data ... enough to create the type of lucrative line of revenue Twitter (TWTR) is already working aggressively to cultivate.

That last link -- you also need to go read it for background.

You should also read this excellent piece, published by Kara Swisher and Walt Mossberg's Re/Code -- The Future of the Music Industry Is Selling Audiences to Advertisers. I could link to my writing on the subject over the last year-plus, but I'll give somebody else the floor.

Pandora should also read that article.

While it's clearly in the best position to build a multi-faceted data business around music, there are others more than ready and willing to pass it by. Twitter has already started. If you think the new combination of Spotify and The Echo Nest hasn't, you're as out of the loop clueless as Pandora's CEO. And if Beats Music has done anything the right way, it's making Ian Rogers -- one of the pioneers on artist development via data and such -- the streaming service's CEO.

But, to reiterate -- what's really sad is that Pandora's the company that should be taking the lead here because the quality of its historical and real-time data is among the best there is, if not the best. Given that I was behind Pandora when nobody believed in it, it's painful to watch the company drop the ball.

On its present path, Pandora will wallow and quite possibly die. However, with an infusion of a common sense/vision cocktail, Pandora could avoid the carnage. But its leadership lacks something to make it happen -- the will, intellectual capability, vision, a true concern for the fate of the music industry, the desire to make more money for the company and its shareholders -- I don't know. 

Ugly. Very ugly situation. And it's about to play out. As usual, I'm probably six months to a year ahead of the curve. But, on the bright side of that, Pandora has the chance to heed the warning and make things right. And, given the number of people intelligently writing on data these days, it has quite a few smart minds to consult for guidance. 

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs