NEW YORK (TheStreet) -- I have a soft spot for socially awkward San Francisco entrepreneurs. I figured at some point that weakness would burn me.
Now, on the rebound, I'm done giving
CEO Mark Pincus the benefit of the doubt.
Pincus sold the company's stock in a $12 per share secondary offering. Weeks later Zynga reported a pathetic quarter. Longs got fleeced. Pincus charged the shaver.
As employees from every rank jump ship at Zynga, the ones with the privilege of quitting to Pincus' face likely tell him,
It's not me, it's you
Investors who dumped the stock do not misunderstand Zynga. And folks who are furious with Pincus have a right to be. Whether he broke the law or not is irrelevant, however one thing's certain. On just about every level, Pincus goes down as 2012's most incompetent CEO.
Contrast the unacceptable scene at Zynga with the situation at
Earlier this year, I visited Pandora's Oakland headquarters. I was in the minority on Pandora; therefore, I had to go the extra mile vis-a-vis due diligence. I refused to rely solely on my instinct and standard research.
I came away from my chat with Pandora co-founder Tim Westergren more confident than ever in my long position.
IPO blowup, pressure on social media stocks has intensified. Looking back, it's clear Zynga deserved the stereotype of social media loser. Not Pandora; it suffered guilt by association.
Before it became obvious, nobody gave Pandora credit for how well positioned it is in the broad new media and mobile spaces.
When I met with Westergren, he credited Steve Jobs's invention of
iPhone with Pandora's raging success. Westergren and his team at Pandora saw the shift to mobile coming before the media and bearish Wall Street analysts a) started writing about it and b) incompetently misunderstood it.
Not only did Pandora understand the dynamics of mobile migration, it prepared for them. And, as Chairman and CEO Joe Kennedy explained on Wednesday's impressive earnings call, the interactive nature of Pandora as a visual
auditory platform provides display advertisers with more mobile real estate and audio spots with an already tuned-in audience. And, of course, Pandora can mix approaches across ad types and user platforms.
If you connected the dots on Pandora, faith has been rewarded.
Mobile revenue came in at $59.2 million for the second quarter of 2013, up 86% year-over-year. Pandora now derives more revenue from mobile than it does the desktop.
Pandora can target anybody with a budget, but its ability to focus on the $14 billion traditional radio ad market gives it edges practically everybody chose to ignore.
First, all Pandora sales executives across the country have to do is turn on the radio for the good leads.
Many local advertisers who have used traditional radio for years resist change. They're scared of it. Pandora can offer a taste of something different, but it's still radio; it's not completely foreign like Facebook or Twitter.
On a sales call, Pandora can claim more than 6% of all radio listening and standing as the largest radio station in 25 markets, including New York and Los Angeles.
Pandora disrupts an ad market terrestrial radio no longer has a hold on. In fact, many radio sales departments are horrified by the rate at which Pandora gnaws at its once-trustworthy advertiser base.
Second, for all that's good about competitors such as
, they do not enjoy Pandora's first-mover advantage. While other services are solid, no company in the streaming space has an audience near as large as Pandora's.
Additionally, the competition does not have the infrastructure -- a rapidly growing nationwide sales force, inclusion in ad buyer networks, reseller agreements, etc. -- to seize local advertising money as quickly as Pandora has.
Third, while it's huge to see mobile revenue growth almost outpace mobile listener hours, it's even more encouraging to watch content costs moderate.
After rising sequentially by 15.7%, 11.7%, 27.9% and 15.9% in the prior four quarters respectively, they only increased by 8.4% between Q1 2013 and the most recent Q2 2013. Royalties as a percentage of revenue decreased between Q1 2013 and Q2 2013. That's a vitally important trend to keep an eye on.
Pandora reported its first $100 million quarter on Wednesday. It raised guidance for the fiscal year. Even though it pays far more to stream music than Sirius XM and traditional radio, Pandora is on a clear path to profitability.
And that's really all you can ask of a company pioneering transformational times. Clarity. Straightforwardness. And a willingness to openly explain its long-term plan to investors.
I'm not sure if Pincus at Zynga is unwilling or unable to do likewise. Both possibilities should keep you miles away from his company's stock.
At the time of publication, the author was long FB and P
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.