Google Inc (GOOG) & Pandora Media Inc (P): What Should You Know?

Pandora is positioning itself to compete not with a rival streaming service, but with its biggest competition: broadcast radio. Earlier this spring, Pandora announced that its audience data will appear in the three most popular media buying platforms, which allow advertisers to compare audience ratings.

Previously, only traditional broadcast radio stations used these platforms. But advertisers trying to figure out which outlet will yield them the biggest bang for their buck can now see Pandora’s data, too. Until now, Pandora had to hope that advertisers would manually research its national and local audience ratings.

Considering that more than $14 billion is spent on spot radio advertising every year, according to the Radio Advertising Bureau, any effort to tap more of this market matters to Pandora.

Putting Down Its Foot

As Pandora gains more users, its costs to stream music are outstripping the revenues it reaps from advertising sales. In fact, the company reported that its per-track royalty rates have increased more than 25% over the last three years, including 9% in 2013 alone. They are scheduled to increase an additional 16% over the next two years.

To mitigate these costs, the company took the unusual step of limiting its users to 40 hours of music a month. This “allows us to manage these escalating costs with minimal listener disruption,” the company noted in a blog post in February.

I like this limit. It shows that Pandora is bold enough to take the needed steps to make sure its finances remain strong. Recognizing and immediately taking action will help it remain financially competitive in the long run.

It’s a Buy

Despite Google’s entry into its space, I still see Pandora as a buy. The company closed 2012 with a record 8% share of the total U.S. radio market, and it enjoyed record mobile monetization. I see no reason why that won’t continue.

For the first quarter of 2013, Pandora is expected to post an earnings per share loss of $.10 compared to the EPS loss of $.09 the company posted during the first quarter of 2012. Don’t frown too much about that projected loss. Pandora execs say the company is the largest radio station in almost every major market, and it will begin fiscal year 2014 with “extraordinary momentum.”

The article Will Google Threaten This Pioneering Radio Service Giant? originally appeared on Fool.com.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Chevron.

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