NEW YORK (TheStreet) -- For some Wall Street analysts, it becomes personal and emotional. Or at least that's how they make it appear.
Quite frankly, BTIG Media analyst
Richard Greenfield should be ashamed of himself. I know that's harsh, but there's really not a nicer way to characterize his "coverage" of
Somebody at Pandora must have made Greenfield incredibly angry.
Maybe Pandora co-founder Tim Westergren sucker-punched him in a bar or stole a kiss from his significant other. It could be something more benign that bothers Greenfield about Pandora. I feel for him. Pandora's Music Genome Project spits out way too many Dropkick Murphys songs for my liking, but I take it like an adult.
In any event, guys like Greenfield are the reason why
Sadly, Greenfield has the power to move a stock such as Pandora. It's perfectly logical to think he might even do it for sport.
The schizophrenic way Greenfield covers Pandora helps create volatility in the shares. On one hand, I thank him; these moves make covered call writing on my position easy to execute and more lucrative than it otherwise would be.
On the other hand, there's no good reason for Pandora to move so erratically.
June 11: Pandora closes at $11.15.
June 12: Greenfield
by noting the Internet radio company's surge to the top of
App Store charts. He even posts a
video showing how great Songza is. Pandora closes at $10.49.
June 13: The rest of the media latches onto the flimsy Songza hype. Pandora closes at $9.90.
June 14: The media-manufactured spectacle subsides. Pandora recovers, closes at $10.42.
June 15-18: Pandora continues move up, closing at $11.47 on Monday.
June 19: Greenfield out with a cautious mention on Pandora because
will make its streaming service free on iOS apps. Pandora tanks as low as $10.67 intraday.
Until Greenfield or somebody else files a "note" akin to pulling a fire alarm in a high school hallway, expect Pandora to recover once again. It's already on its way.
Let me be clear. Bears are good for the stock market. On some stocks, I am as bearish as the next guy. But Pandora is not a stock that trades 50 million shares per day. It reacts to the type of tripe Greenfield puts out on a consistent basis. It's not his bearishness, in and of itself, that's the problem. It's his refusal or inability to consider the bigger picture, to tell the whole story.
He singlehandedly set off a media firestorm with the Songza report, and it's hardly newsworthy. As I noted last week, a move up and subsequent changes in a company's ranking in the App Store are hardly news. At the very least, provide some context.
Songza spent several days at Number 2. As I write this, it's at Number 17. It's been on the decline. Keep tabs on the
; it might change by the time you read this. That should not alarm you if you're a private investor in Songza because It's not news.
These apps, be it Songza, Pandora,
, move up and down, trade spaces, you name it, on a daily basis. You simply cannot base competitive threats or bullish or bearish sentiment on what happens in the App Store. It's hack analysis.
Services like Songza and Spotify are, without doubt, competition for Pandora. If I am in the space I join forces and send terrestrial radio to its death once and for all, but that's unlikely to happen. Or maybe not. I don't know.
Irrespective of M&A prospects, investors must consider competitive threats to Pandora within the context of reality. Rarely do you see bears such as Greenfield acknowledge Pandora's encroachment on the $14 billion radio advertising market. It's ramping up a sales team that continues to take talent and local dollars away from terrestrial radio. It's becoming more integrated in the systems local and national media buyers use to obtain inventory for their clients.
That's how Pandora makes money -- by going after that market aggressively. Just as it has a huge first-mover advantage in the Internet radio space, Pandora is ahead of its competition by light years when it comes to securing these advertising dollars. On the expense side, the industry will have Pandora (and
) to thank, not Songza or Spotify, for leveling the music royalty playing field.
I also wonder if Greenfield and other Pandora bears have ever gone beyond merely using the service before they formed an opinion about it. I have.
I am not a Pandora bull because I like the service. That's a horrible way to invest. I want to see things firsthand. I want to make an informed investment and write articles that go beyond the observations any everyday user of Pandora could make. As such, I spent my own money to travel to Pandora headquarters in Oakland and take a look around.
From what I understand, Greenfield has never paid a visit to Pandora, on his own dime or anybody else's for that matter. He does ask questions on the company's conference calls. I guess that's a start.
While in Oakland, I saw The Music Genome Project in action. It's not a jukebox. It's not some computerized playlist. In this age of automation, I was almost shocked to see it staffed by real people. Several of them. And they're not just any old real people. They're musicians who play every night and call "Music Analyst at Pandora" their day job.
Each day when a Pandora Music Analyst comes to work he or she receives a list of songs. The analyst proceeds to go through no less than seven pages of ratings that cover every angle imaginable about the composition of that song. The amount of thought (and over a decade's worth of innovation) that goes into each song the Music Genome Project assesses boggles my mind. This is not a mere recommendation engine; this is a proprietary system that nobody else can even come close to.
Over at All Things D, the great Peter Kafka made
between Pandora and Spotify that investors should not overlook:
Pandora programs music based on a complex algorithm based on songs' musical "DNA." Which means that if you tell Pandora you like the Ronettes' "Be My Baby" it will find other songs that feature "rock & roll roots," "a subtle use of vocal harmony," "acoustic rhythm piano," etc. But Spotify says it is relying on the "social graph," so it will find music that people who like the Ronettes also like.
And that's seven screens' worth of "etc." But, bottom line, what Kafka points out is critically important.
While the barriers to enter Internet radio might be soft, it takes years to present it the way Pandora has. And you do not simply build the necessary infrastructure or scale to meaningfully penetrate an establishment like the radio advertising industry overnight.
Beware of analysts like Greenfield. They need to spend more time assessing the work a company actually does as opposed to wasting away their days refreshing the Apple App Store rankings and shooting YouTube fan videos.
At the time of publication, the author was long FB and P