Pandora Media Inc (P) Earnings: The Good, The Bad and The Ugly

Here come the big guys

Until now, Pandora didn’t have a serious competition, but Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) are expected to become direct competitors with Pandora in the near future. Google Inc (NASDAQ:GOOG) recently started All Access, a paid-subscription model similar to Pandora, and Apple Inc. (NASDAQ:AAPL) is starting its own free online radio towards the end of the year. Both of these companies are big and popular enough to eat Pandora’s lunch. Apple Inc. (NASDAQ:AAPL) is particularly good at monetizing content and capturing attention of audiences. Considering that most of Pandora’s revenues come from mobile devices, the company should pay big attention to what Apple and Google Inc (NASDAQ:GOOG) are doing. Currently, Apple and Google’s ecosystems account for more than 80% of all smartphones being sold. There are also other competitors that are joining the market. For example, Nokia Corporation (ADR) (NYSE:NOK) offers its own music application, Nokia Music, which comes with every Windows Phone that’s being sold. At the moment, Nokia Corporation (ADR) (NYSE:NOK) Music is a free service and it is gaining popularity rapidly. It’s difficult to tell how Nokia Corporation (ADR) (NYSE:NOK) plans to make money on its application though.

Caution advised

Pandora Media Inc (NYSE:P)’s advertisement revenues barely keep up with content costs. In the last quarter, the company’s advertisement revenues grew by 49%, whereas its content costs grew by 48%. Overall, the company’s revenues grew at 55% whereas its costs grew at 53%, which shows that Pandora is having trouble with keeping its costs low while increasing its revenues. The company’s costs seem to grow as fast as its revenues do, which is not helpful for Pandora.

Overall, Pandora is a speculative play and investors should be cautious with it. If I owned shares of Pandora, I’d be selling covered calls to reduce my risk. Currently, the company’s value is not justified by its fundamentals.

The article Pandora Earnings: The Good, The Bad and The Ugly originally appeared on and is written by Jacob Steinberg.

Jacob Steinberg owns shares of Apple, Nokia, and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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