Why I Am Buying Pandora at Any Price

NEW YORK ( TheStreet) -- I take equal amounts of heat from tortured Sirius XM ( SIRI) bulls and investors who would not understand what a perpetual startup is if Steve Jobs stood in front of them and explained.

These folks chide me because I have been purchasing shares of Pandora ( P) since last year at prices between $8 and $15 apiece. And, barring an unforeseen and wholesale change to the company's long-term narrative on earnings next week, I will continue to buy Pandora at any price.

Using Tuesday's closing price of $10.83, P is up 38.3% since posting a 52-week low of $7.83 intraday on April 18. Pick a peer, any peer and Pandora has outperformed it over that time frame. For example, SIRI is down 10.4% since its April 18 intraday low. Even Apple ( AAPL) is off by a scary 8.2%.

While it's fun to pull these types of numbers and claim short-term bragging rights, I tend not to let the practice cloud my logic, judgment or long-term conviction. It never hurts to know where you stand, but you must realize that a stock like Pandora can lose 40% just as fast (and even faster) as it gained it.

Pandora is not Sirius XM. It is not Apple. It sits at a stage of development Apple has already seen and SIRI bulls will never have a chance of seeing, particularly with Mel Karmazin at the lead.

Perpetual Start-Up

Steve Jobs ran Apple as a perpetual startup. Canadian thinker and marketer Mitch Joel relays words that provide a nice working meaning of the term:
It's hard for people who have traditionally had a job to think like an entrepreneur, but it's more critical than ever. I often tell people that an entrepreneur is someone who is trying to create the future that doesn't yet exist, while a businessperson is someone who is trying to mitigate risk and minimize mistakes.

Steve Jobs was an entrepreneur. It even said so on his death certificate. Mel Karmazin is a businessperson. And that's exactly how he should and will be remembered.

Make no mistake about it. Pandora co-founder and Chief Strategy Officer Tim Westergren is an entrepreneur.

I am tough on Sirius XM, in part, because there's so much potential there, particularly with a talent like Howard Stern under contract. But, in the absence of any forward-looking vision or meaningful marketing activities, I am not sure if anyone can salvage anything from the slow-growth wreckage Karmazin prepares to leave behind.

I am long-term bearish Apple because, with Steve Jobs gone and Tim Cook set to react as opposed to act, the company's best days are likely behind it. It will go from being great and dominant to merely good and cooperative. Pandora sits on the cusp of the type of breakout growth that shot stocks like Lululemon ( LULU) and Chipotle Mexican Grill ( CMG) to stratospheric, yet well-deserved multiples.

I will continue to buy Pandora whether it tanks 38.3% or rises another 38.3% after earnings because Westergren leads it along with other entrepreneur types, incredibly competent businesspeople and a staff that seems to buy into one of the key messages perpetual start-ups live by.

A risk I consider a bullish talking point from a Facebook ( FB) S-1 filing sums up that message quite nicely:
Our culture emphasizes rapid innovation and prioritizes user engagement over short-term financial results.

Another Facebook risk -- that revenue will suffer as usage goes mobile and the company works to monetize it -- applies to Pandora as well. Let the bears stay away from companies like Facebook and Pandora. Let them get short. It might make for a nice swing trade from time to time, but it will fail miserably as a long-term investment philosophy.

Specific to Pandora, please allow me to methodically spell out the confluence of factors that makes me so bullish as to buy the company's stock at any price:
  • More than 70% of Pandora listening happens in a mobile environment, particularly via smartphones such as Apple's iPhone;
  • Pandora dominates Internet radio listening (70% share of the top 20 Internet radio services) and sports close to a 6% share of all radio listening in the U.S.;
  • Pandora's mobile ad revenue grew from $25 million in fiscal year 2011 to more than $100 million in fiscal year 2012;
  • eMarketer expects mobile ad revenue to surge from $1.45 billion in 2011 to $10.83 billion in 2016.
  • Pandora is positioned perfectly to benefit from the confluence of two interrelated trends -- advertisers taking their message to where their target audiences reside and those target audiences changing the way they consume and interact with radio. Of course, both of these shifts foreshadow the death of broadcast radio as we know it. As listeners continue to move into mobile environments, advertisers will follow.

    As this transformation (not so) slowly develops, Pandora continues to secure all or part of advertising budgets once assigned solely and in part to terrestrial radio. That's why terrestrial radio runs scared and lashes out at Pandora at every turn. Its top sales people are jumping ship and bringing key advertisers to Pandora by the day.

    I have spent roughly 30 years of my life obsessed with radio. I worked in the business for 12 years. I have never seen it undergo the type of disruption and wholesale change Pandora has triggered. Not only does Pandora dictate this change, it controls the pace. Like Steve Jobs at Apple, it calls the shots, even if in a not quite as direct way.

    As I have said the last couple of quarters, I have no idea what to expect on earnings. Nothing ranging from the worst to the best possible outcome would surprise me. I can tell you, however, that I have been buying P stock since last year and will continue to do so, regardless of price, over the long-term.

    At the time of publication, the author was long LULU and P.