P - Pandora Media Inc.

[Guest Worlds Within the Margin]

"Pandora Media, Inc. provides Internet radio services in the United States. The company allows listeners to create up to 100 personalized stations to access unlimited hours of free music and comedy, as well as offers Pandora One, a paid subscription service to listeners. It is also involved in the sale of displays, audio advertising, and video advertising products to advertisers for delivery on computer, mobile, and other connected device platforms. As of January 31, 2013, the company had approximately 175 million registered users; and 65.6 million active users. Pandora Media, Inc. was founded in 2000 and is headquartered in Oakland, California." yahoo finance description

 

 

Some SeekingAlpha articles on the stock:

 

http://seekingalpha.com/article/1725402-not-enough-people-in-the-u-s-to-justify-pandora-valuation

http://seekingalpha.com/article/1732792-5-simple-reasons-im-still-short-pandora

 

 

The stock has rallied to around its 52 week high, despite the recent release of iTunes Radio. Given that iTunes Radio already has a huge advantage at capturing potential growth as it is already installed into apple products, Pandora will have some challenges effectively growing to justify valuation.

 

 

Now obviously this isn't really something most (unless I've missed something) value investors would consider buying, but I just found it interesting the number of stocks that have gone near parabolic recently of off future earnings expectations, TSLA comes to mind. Perhaps FB to some extent and maybe NFLX too.

 

Disclosure: I have a microscopic short position on Pandora through being long a 2015 17 strike put.

 

 

 

[JBird]

They have 70% of the internet-radio market with 140 million registered users. They played 14 billion hours of music radio last year. Since inception 13 years ago, they have an accumulated operating deficit of $140 million. Pandora's "Risk Factors" section of the 10-K takes up 27 pages, and that's probably not enough.

 

At a price of $5 billion, does buying Pandora make sense? Your required return rate makes a big difference in answering this question but say it's 7%. Pandora must earn at least $350 million into perpetuity to justify the price-tag. In their 10-K they state they won't be profitable for the near-term. If they don't make a profit in the next 2 years, that required annual earnings figure rises to $400 million. Who thinks that can be achieved?

 

For the 2013 fiscal-year they had an operating loss of $38 million. That being said, that figure includes $95 million on marketing and sales (net of related stock-compensation). I don't know percentage of that figure should be considered maintenance vs growth capital. Considering iTunes radio is here, it may be all maintenance.

 

I'm wary of shorting for a lot of reasons but a long-term put on this stock seems attractive to me.