Pandora Media Inc (P) is Still a Good Short Opportunity: Apple Inc. (AAPL), Google Inc (GOOG)

In a recent report on Pandora Media Inc (NYSE:P), I discussed the short potential of the company. In the last few months, the stock had climbed approximately 40% despite any fundamental improvement. Pandora has been facing problems of increasing content acquisition costs and declining margins. The company had pinned its hopes on the Internet Radio Fairness Act to turnaround its fortunes, but the bill has failed to get the required momentum.

Quarterly Results

Pandora Media Inc (NYSE:P) reported its quarterly earnings report the other Friday. The market was expecting Pandora to report an EPS of $-0.05 and revenues of $122.8 million. In stead, it managed to report earnings of $-0.04 on revenues of $125.1 million. The results beat analyst estimates by a small margin, but show a revenue improvement year over year. The revenue has shown a significant improvement y/y, but despite this increase the company reported a lower EPS compared to $-0.03 in the same period last year. This again shows that the growth in revenues is not effectively translating into bottom line improvement.

According to company disclosures, the market share of Pandora has significantly improved over the last few years. The company currently has an 8% share of total radio listening in the United States. The management tone was pretty bullish on its ability to target the $14 billion mobile advertisement market. A primary reason behind the growth of Pandora has been the company’s ability to monetize mobile. A major problem with internet advertisement companies has been their ability to monetize mobile. Google Inc (NASDAQ:GOOG) is facing serious problems in driving revenues from its mobile traffic. A large component of Google’s advertisement revenues is basically display advertisement, which is relatively harder to integrate onto a mobile platform. On the other hand, the advertisement model of Pandora is less affected by mobile because its advertisement is in audio format.

Apple Radio

A major portion of Pandora Media Inc (NYSE:P)’s traffic comes from Apple Inc. (NASDAQ:AAPL) devices; therefore, the threat that Apple might start its own radio service was catastrophic for Pandora’s stock price. According to recent reports, Apple has delayed the start of an online radio service that would have been a competitor to Pandora. The decision was taken after talks between Apple and record labels ended in a stalemate. The issues that led to the stall are still unknown because neither party has released an official update on the matter. This should not be considered an end of Apple’s radio ambitions, as the company still plans to start a advertisement-based radio service.