AAPL) launching iRadio -- only to crash again. This is a fantastic day trader's or swing trader's stock. Unless you have a world of patience, an ultra-bullish take on Pandora's future and, preferably, more-than-average covered call writing capability, Pandora is an awful stock for most long-term investors. It requires nerves of steel and sleeping pills; two things your financial advisor -- even if the little man inside you plays that role -- should never have to prescribe. It's not dead, but, listen, you either need to trade this thing or own it for another 1 to 3 years, knowing full well that it's a classic case of massive risk in exchange for an only halfway decent potential for massive reward. That's the definition of a highly speculative stock that should comprise a very small portion of your portfolio. That said -- there might not be a more misunderstood company than Pandora. Last night, I followed the earnings postmortem and not one bit of it gets past the standard focus on short-term noise. The problems Pandora faces out on sales calls, re: the fiscal cliff, are real. This is exactly the type of holdup the gridlock in Washington causes. While I don't agree with decision makers who use the fiscal cliff as an excuse not to invest in their businesses -- in fact, I think they're losers -- the reality is what it is. This thing puts a drag on economic expansion. But, that's part of the noise. It's temporary stuff. It says nothing about Pandora's business model, which, by and large, works. The company continues to pioneer mobile monetization alongside the Twitter powerhouse and Facebook's ( FB) emerging platform.
Mobile revenue was up 112% year-over-year to $73 million for Q3. Listener hours continue to soar, as Pandora now commands 7.09% share of all radio listening, up from 4.32% the same time last year.
Music labels want Pandora to charge a subscription fee and enter direct licensing agreements. Of course that's what they want because that puts more money in the music industry's pocket and less in most artists' bank accounts. Plus, it makes Internet radio an impossible business. Stress this: The ONLY way forward is a compulsory license scheme where, across platforms, everybody pays something close to the same amount. One company cannot continue to pay 7% of royalties, another 15% and another 55%. It's just absurd. That's the answer. Moving to a subscription-based model like Spotify is absolutely not the answer. It would be a disaster for everyone -- the business and the consumer. You cannot scale a subscription model like Pandora has scaled and continues to scale the free model. Spotify proves that. Look at how much it has spent, yet it has barely made a dent in the U.S. market. Without scale, you can't sell advertising; without advertising, you don't have a business. Pandora has scale at 59 million active listeners in the U.S. only. Spotify has no scale at 15 million listeners worldwide. We're approaching pivotal times in what comes down to a battle between compulsory versus direct licensing and a war of two different world views. Ultimately, as Pandora's market share continues to grow, traditional radio's footprint gets smaller and Spotify's deficiencies go public (that love affair is about to end), Pandora -- not the music industry, not disingenuous Clear Channel and surely not Spotify -- has the edge. The labels will not win this fight. Pandora's on the right side. As its popularity grows, so does its leverage. As Pandora makes its case in Congress and people such as myself spend weekends writing about the issue, that will become clear. Interesting stuff to talk about. Fascinating actually. But, with relation to the stock, it's even noise. At least right now. The stock stinks unless you trade it nimbly or really love it and salivate at "cheap" shares. I would not touch it until Pandora retakes control of the royalty conversation in Washington.
Follow @rocco_thestreet --Written by Rocco Pendola in Santa Monica, Calif.