Pandora: Great Company, Absolutely Crappy Stock

NEW YORK (TheStreet) -- I should write a book.

There's so much misinformation printed, almost hourly, about Pandora ( P) that the need exists.

My radio background helps me understand this company better than most, particularly when considering competitive threats, (e.g., from Apple ( AAPL)) and the markets Pandora targets.

The stock sucks right now. No question about that. Pandora deserves blame for some of the downside. However, short-term noise, by and large, dictates the stock's near-term fate. Everything from the Apple "threat" to weak guidance after a Q3 profit.

And, while you cannot call the royalty battle in Congress "noise," it's not like Pandora is the only company dealing with suffocating content acquisition costs. Spotify has it bad; they just use a different system for licensing music.

To that end -- and speaking of misinformation -- Pandora and Spotify don't just use different systems for securing songs, they are two very different complementary products.

It's difficult for people -- namely (and sadly) the people who write about the Internet radio space -- to understand this, but Pandora is radio.

In many ways, it's nothing like the radio we grew up with and still listen to. In fact, Pandora -- alongside iTunes -- took the radio industry as we knew/know it and opened up a can of disruption on it that has already gone down in history.

Pandora did what terrestrial was never able to do. It brought personalization and discovery to radio with the Music Genome Project.

You lay a seed -- a song, an artists, etc. -- and Pandora becomes your personalized radio station. The more you listen and interact with the platform, the better it gets at personalization of stuff you like and discovery of acts and tracks you might like, never heard of or had forgotten about.

So, while in one respect, you can label Pandora as "passive," it's really the opposite. Sure, you can sit back, do nothing and listen, but that's hardly a static proposition.

There's a market for radio. Traditional radio still commands hundreds of millions of listeners each week and billions of dollars in advertising each year. That's the pie Pandora continues to successfully go after. Pandora competes primarily with and is overtaking traditional radio, particularly as FM signals increasingly give up on music and run formats such as news, talk and sports.

There's an incredible focus on these two points -- targeting traditional radio listening and advertisers -- at Pandora. People on the outside who refuse to consult the company completely ignore this. They discount Pandora's dominant share of Internet radio listening (more than 75%), increasing share of total radio listening (now at over 7%), surging mobile listener hours and monetization and a growing local advertising infrastructure.

Nobody has come in or can come in, not even Apple, and erase this with one fell swoop.

The comparisons between Pandora and Spotify need to, at the very least, slow down. They're not as meaningful as most people make them out to be.

On-demand has been around forever. There's a time and a place for it. Always has been. Always will be. Same goes for radio. It's not a matter of one or the other.

Spotify has a multi-million songs library. That's great. You know the song you want to hear and chances are you'll hear it. It's not all that different from firing up iTunes or digging into your personal physical music collection.

At last check, Pandora has a catalog of around 1,000,000 songs. The typical surface scratch puts one in the win category for Spotify, but again, that's a thin, misleading and ultimately incorrect analysis.

When you go to Pandora, you start your radio station with a seed. Pandora takes the attributes of that seed and builds your personalized station. It's a fluid process. I have seen the Music Genome Project live and in action; it's an incredibly deep and complicated, human-organized system.

Type in "When You Were Young" by The Killers (I'm going to see them Friday night at Madison Square Garden!) and Pandora fires up a great live version of Coldplay's "Clocks" followed by MGMT's "Kids," which I like, but could thumb down to get "Starlight" by Muse.

You don't search a song on Pandora because you want to hear it -- you go to iTunes for that. You search a song on Pandora because you want it to curate a radio station you will like. One that's not a cookie cutter effort from Clear Channel ( CCMO).

Pandora's catalog includes over 99% of the songs or artists its users search for. The company knows this -- and like thumbs up, thumbs down and skip data -- Pandora keeps track. The company addresses the less-than-one-percent of items searched that do not occur in its catalog and tracks them down as necessary.

So, on both ends, this process is as active, if not more so than on-demand radio, certainly from Pandora's side. It varies from the listener's standpoint, depending on how much time he or she spends interacting with the platform.

Don't confuse the company with the stock. This is an excellent trading stock; a bad long-term investment unless you have a long-term time horizon of considerably more than a year.

The third quarter was solid. I also think Pandora acted with a bit too much caution for Q4. But it's better to underpromise and overdeliver.

In any event, nothing that has happened over the last several weeks -- even the stuff I strongly disagreed with -- changed the course of Pandora's long-term narrative. Don't believe uninformed noise, hysteria and emotion.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

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