Pandora's Potential Makes It a Buy
NEW YORK ( TheStreet) -- Despite my bearishness toward terrestrial radio, I have a soft spot in my heart for the business. I literally grew up in and on the radio. I wish the people running the business were not so inept. It pains me to watch the industry continue to fade into irrelevancy. For nostalgic reasons and because of my continued interest in all things radio, I receive a daily email blast from Radio-Info.com.
The summary transcends terrestrial radio and provides valuable information and insights on everything from the modern version of AM radio, Sirius XM (SIRI) , to burgeoning Internet radio. It also publishes data that shows how much money radio stations across the country bring in in sales each year.
Earlier in the week, Radio-Info published the top 10 highest billing radio stations in the nation. Not surprisingly, most of them operate in the nation's largest markets, particularly New York City, Los Angeles, Chicago and Washington, D.C. While that list helped me illustrate Pandora's(P) opportunity in local advertising sales, Radio-Info's rundown of the top 10 billers in Chicago provides even more color. Before we consider the meaning of the Chicago numbers vis-à-vis Pandora, let's do some important stage-setting.
To understand, Pandora's opportunity in local radio advertising, it helps to understand its opportunity in the mobile ad space. I detailed the potential in an article earlier in the week:
I estimate that Pandora's sales efforts accounted for about 6.9% of all mobile ad revenue in 2011. If the company secured just 7% of all mobile ad revenue in 2016, it would generate mobile ad revenue of $758.1 million, based on eMarketer's forecast.
That presents the very real possibility of more than $1 billion in sales.
And, of course, that 7% number is incredibly conservative, given Pandora's current growth rate and investments into the sales end of the business.
Also earlier this week, the New York Times ran a story that not only touted Pandora's enormous opportunity in local radio ad sales, but the progress it is making stealing clients away from traditional broadcast radio:
Pandora's pitch to advertisers is that its technology can cater to consumers with far greater precision than radio - it can pinpoint listeners by age and sex, ZIP code or even musical taste - and that as it grows, Pandora will effectively be the top station in many cities...
This year, Pandora has had 400 local advertising campaigns across the country. One new client was Planet Honda in Union, N.J., whose president, William Feinstein, said he gave up on terrestrial radio years ago because he felt it cast too wide and expensive a demographic net.