Has Pandora Media Inc (P) Become the Perfect Stock?

Pandora Media Inc (NYSE:P) has made big strides forward in the Internet radio space, with 2012 proving to be another big year for revenue growth at the company. Yet profitability continues to elude Pandora, in large part because of the incremental costs of providing music to listeners that are only likely to keep rising in the years to come.

The scariest threat for Pandora investors lately has been the prospect of competition, and rivals are definitely weighing in. Sirius XM Radio Inc (NASDAQ:SIRI) came out with a beta version of its own personalized radio platform in January, and with its already-impressive subscriber base of nearly 24 million customers, Sirius could displace a large number of potential Pandora users. In the longer run, an offering from Apple Inc. (NASDAQ:AAPL) could prove even more disruptive, as Apple already has huge relationships with music labels that will make it easier for the iDevice giant to negotiate favorable deals at lower content costs than Pandora pays.

With that in mind, Pandora is taking a big gamble, capping its free streaming option at 40 hours per month. Above that, the company will charge $0.99. The move is trying to get more users to subscribe to the $3.99-per-month Pandora One premium service, which offers an ad-free listening experience, but users have been reticent in the past even to pay that modest fee.

For Pandora to improve, it simply has to find a way to monetize its service enough to generate a profit. Otherwise, all the growth in the world won’t get Pandora any closer to perfection in the years ahead.

The article Has Pandora Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns shares of Apple. The Motley Fool recommends and owns shares of Apple.

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