The Real Fear for Pandora Investors

NEW YORK (TheStreet) -- Subsequent to its secondary stock offering, it's farcical to watch the tech and financial media's reaction to Pandora (P).

Am I the only one not six months behind on the company's prospects?

When everybody hated Pandora, I loved it, particularly because I was doing the necessary work to obtain a better understanding of the company's business. Then the haters -- once the stock soared and Pandora's results spoke for themselves (i.e., things became obvious!) -- turned on something much larger than a dime. As an investor or merely an observer of the Internet radio space, lots of good that does you.

So, then, when everybody was wholly on board with loving Pandora -- around six to eight weeks ago -- I started questioning things. My reconnaissance started to give me a slightly bad taste. Case in point: Mid-August's Can Pandora Hit $40 a Share? Focus on page two of that article.

It's not that I'm about to jump off of the bandwagon; I'm just not as fired up about the company as I once was. I see cracks that, quite frankly, have little to do with what has critics "concerned" this week -- the allegedly "updated" risks section Pandora filed with the SEC attendant to notification of the stock offering. As if this seemingly universal concern from the armchair Pandora watchers, after how wrong they have been, means anything?

Talk about click bait.

This Greg Sandoval article is little more than filler between display ads: Pandora sees more risks to its business. Lazy journalism 101.

Did Sandoval bother to look at previous Pandora filings, such as its annual report for the fiscal year ending January 31, 2013?

I guess not. Must have been too much work to open two browser windows and compare the documents against one another.

I read through the new filing and previous ones. There's nothing "more" or new here, at least not if you have paid close attention to Pandora since it went public. There's a lot of boiler plate and a bit of management saying cool your jets, we face the same challenges we always have. Even Elon Musk at Tesla Motors ( TSLA) recently admitted he thought Wall Street had gotten ahead of itself with his company's stock. And I can tell you this -- because I know for a fact -- Musk was feeling this way as early as late May when TSLA only traded for around $100.

It's called managing expectations. Pretty standard practice, which is likely part of the reason Pandora gained back all it lost and more on the secondary news during Tuesday's trading. Plus, it's not like the company's set to fall off of a cliff.

If Sandoval and others had been doing their homework they would know that Pandora executives have been, for a couple years now, not so much cautioning, but stating the obvious to those of us who asked and are willing to listen: At some point, the company's rapid growth will moderate. These guys are incredibly forthcoming if you show them you're trying to get it right. Case in point, a January 2012 Seeking Alpha article I published after one of several conversations with former Pandora CFO Steve Cakebread.

Anyhow, Pandora's problem(s) isn't what you see the media focus on. It's not a problem that royalty costs are prohibitively high, mobile ad rates have not caught up with desktop rates or listener hours and other key metrics might moderate. They're not problems at least in the way I choose to define "problems." They're realities. A difference between the two words does exist.

The helpless pessimist looks at these things and says, They're problems. I guess we're screwed. They rely on external forces -- things often beyond their direct control -- to dictate their fate. Others feel content to rely on a wing and prayer.
  • A judge will rule that Internet radio royalty rates must come down
  • Magically, mobile will be a more lucrative ad sell than desktop
  • And, somehow, amazingly, Pandora will capture every single person in the country as a subscriber. You know, just like Reed Hastings thinks Netflix (NFLX) will

I've never seen a business, or any other life situation for that matter, without its share of "problems" and grim realities. It's all about how you receive and react to these problems. And how you choose to deal with reality.

At this stage, Pandora could be doing a better job creating its own opportunity and success as opposed to fixating on "problems." That's the fear. That it doesn't get this message. That it stands still and gives these "problems" more power than they deserve. That it makes its reality worse than it needs to be.

Search "Pandora" in my recent article history. You will come upon more than a few articles and links to earlier pieces that articulate, in detail, what I mean by this. In short, Pandora needs to conceive new businesses and nurture existing ones that allow it to not only generate additional lines of revenue but create the type of environment and produce the level of goodwill it needs to alleviate its well-publicized concerns.

It needs to do all of that while maintaining focus on its core business -- personalized radio redefined. Not easy, but certainly doable. And obviously beyond the processing capacity of most of the media.

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

Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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