NEW YORK ( TheStreet) -- I recently wrote about why there isn't a bubble in social networking and new media stocks. In this article, I follow up with more color on the broad space, focusing on two companies and one major catalyst that will send both higher over the long-term.
Going MobileIt's clear that when Steve jobs introduced the the first iPod, he set up Apple ( AAPL) to dominate technology. One look on the streets, subway cars, buses and gymnasiums of America (and the world) told the story. White wires hanging from ear buds became commonplace. It only made sense that all of these iPod adopters needed more than a pinwheel and a two-inch screen to keep their fingers, eyes and steel traps busy. Jobs had plenty of answers. As I argued yesterday, if you follow the uncritical crowd and say there's a "Bubble 2.0" or you lament more "irrational exuberance," you'll miss out on the next big thing: the explosion in targeted and interactive, cross-platform and multiplatform advertising, particularly via mobile devices. I often cite a report from eMarketer. It details what to expect in terms of mobile ad revenue growth over the next several years. Bookmark that report. The first stock to buy on the basis of that report is Pandora ( P). Pandora used that eMarketer report to make an interesting case during its last quarterly report:
"We made tremendous progress in mobile monetization during FY 2012. Total mobile revenue more than quadrupled vs. FY 2011, growing from approximately $25 million in FY11 to over $100 million in FY12. In fact, based on recent data we've seen in an eMarketer analysis, we believe that Pandora achieved more mobile ad revenue last year than any entity other than Google."Dominic Paschel, Pandora's vice president of corporate finance and investor relations, provided more details after the report in an email:
"Look at the chartAlthough Paschel might have painted an overly optimistic picture (though not by much), he gets the overarching theme correct. Pandora is perfectly positioned to be a leader in the mobile ad space going forward. Here's what I wrote at Seeking Alpha about how I see it playing out:
in the eMarketer reportwhere you see GOOG at 35.7% and with our disclosure of $100M, that puts us at 6.9% ahead of Apple (even discounting the fact that some of AAPL and GOOG's numbers likely include some of our remnant)."
"eMarketer data show that Pandora captured roughly 6.9% of total mobile ad spending in 2011, which is the company's FY2012, minus one month. If Pandora owns just 7% of all mobile ad revenue in the U.S. in 2016, it will bring in $758.1 million four years from now. I expect that 7% number to actually be much higher."
A recent report from SNL Kagan supports a bullish view on Pandora's place in the mobile "upsurge." As the firm notes, if consensus exists on anything in digital media, it's that mobile is poised to explode, and Pandora should be able to better monetize its growing mobile listener base going forward. As advertisers continue to warm to the idea of making digital audio part of their advertising campaigns, Pandora not only adds new customers, but keeps strong ties with existing ones. The company reports about an 80% renewal rate for current clients. Although I expect Pandora to be a top five player (or thereabouts) in the mobile ad arena, I anticipate Facebook ( FB) will take the No. 1 spot or come in a close second to Google ( GOOG). As tech reporter Chris Ciaccia noted Monday, Facebook can dominate mobile. The numbers Ciaccia cites from a Sterne Agee analyst are nothing short of astonishing. Facebook is not a fad. It's a more-than-sustainable phenomenon. It's easy to sound wise in hindsight; it's much more difficult to see the future when it is unfolding right in front of you. It's puzzling that we miss the future that we actively participate in shaping. I owned the first iPod roughly a decade ago. Sadly, I lack Steve Jobs's vision, so I did not see the portable music player morphing into a telephone (check that, smartphone) and full-fledged mobile and social computing device. Mark Zuckerberg has created a similar kind of monster. He changed the world. Like Jobs, he merely takes us along for the ride. I agree with Warren Buffett, who had this to say about Zuckerberg on CNBC:
"He's a very smart guy. He's built an incredible company. I think he'll -- he's going to keep control of his company, that's for sure. So he will get to paint the painting he wants to paint. And I've always advised any entrepreneur to try and retain that ability and fortunately I've been able to do it at Berkshire."Without doubt, the language in Facebook's S-1 filing might seem a bit scary. The words "control" and "controlled" come up frequently. In essence, after the IPO, Zuckerberg will have majority control (and voting power) over Facebook. This makes the board of directors a nonfactor.
This brings us to a fundamental issue: the role of entrepreneurs and visionaries in the success of great companies. Some folks want to discount the accomplishments of people like Jobs, Zuckerberg and Pandora co-founder Tim Westergren. As such, they do not want to give them too much control or too much credit. I've got news for you. Listen to Buffett. These guys deserve more control and more credit than we give them. At varying levels, each man changed the worlds we roam. I will never understand why investors ask so many hollow questions -- concerns that border on paranoia -- as opposed to jumping on the bandwagon while the jumping is good. Later this week and early next week, I will provide thoughts on how to play the Facebook IPO and on which stocks to trade in order to benefit from the coming explosion in mobile. At the time of publication, Pendola was long Pandora.