Will Pandora’s run come to an end?
NEW YORK – There is little doubt that Pandora (NYSE:P) has been on fire, and their shares have climbed more than 200 percent since New Year and almost 190 percent over the previous 52-weeks. As it stands today, the company has a market capitalization of $ 5 billion, and they are nearing break even. The consensus forecast amongst analysts is that the company’s revenue will grow from $ 500 million in the current fiscal year to more than $ 850 million in 2016 – that is an annual growth rate of 30 percent. While Pandora has yet to make a profit, the company has a positive cash balance, which they are using to drive growth.
However, some question whether Pandora can sustain their momentum, especially given the low barriers to entry in the internet radio market and the company’s much-publicized licensing disputes. One of the newest players in the internet radio space is Apple (NASDAQ:AAPL), the company recently launched iTunes Radio, which caused Pandora’s stock to take a bit of a hit. However, Pandora quickly recovered as most investors agreed with comments made by Pandora CFO Mike Herring who said he did not worry about Apple iTunes Radio because, in his view, no one does internet radio better than Pandora.
This remains to be seen, Pandora currently has the edge with 73 million users, but Apple picked up 11 million iTunes Radio users within 5 days. While Apple’s growth rate will close, it would appear that they are well positioned to rival Pandora. Microsoft (NASDAQ:MSFT) has talked about entering the fray, using their Xbox as the platform and Sirius Satellite Radio’s (NASDAQ:SIRI) internet radio service is currently available on Apple’s iOS and Google’s (NASDAQ:GOOG) Android operating systems. Sirius, in particular, has more than 24 million monthly subscribers and has already showed investors that their model works – earning more than $ 156 million in 2012. There are also other startups such as Daisy and Deezer as well as entrenched competitors such as Spotify and Rhapsody.
Another issue that Pandora is facing legal battles regarding licensing costs and royalty payments and the Copyright Royalty Board (CRB) could issue a decision, which would effectively seal the fate of Pandora. Because of the growing number of competitors and the legal battles that the company is facing, Pandora might not be a smart play for investors. Share of Pandora closed the week at $ 28.17.