Pandora Crashes, But Is It Dead?
That's because the company slashed Q4 guidance, citing concern from advertisers over the fiscal cliff.
Of course, this turn of events -- as is protocol -- led Pandora's stock to crash. If history repeats, it will rebound over the next several weeks until something else "bad" happens -- say Apple (AAPL) launching iRadio -- only to crash again.
This is a fantastic day trader's or swing trader's stock. Unless you have a world of patience, an ultra-bullish take on Pandora's future and, preferably, more-than-average covered call writing capability, Pandora is an awful stock for most long-term investors.
It requires nerves of steel and sleeping pills; two things your financial advisor -- even if the little man inside you plays that role -- should never have to prescribe.
It's not dead, but, listen, you either need to trade this thing or own it for another 1 to 3 years, knowing full well that it's a classic case of massive risk in exchange for an only halfway decent potential for massive reward. That's the definition of a highly speculative stock that should comprise a very small portion of your portfolio.
That said -- there might not be a more misunderstood company than Pandora. Last night, I followed the earnings postmortem and not one bit of it gets past the standard focus on short-term noise.
The problems Pandora faces out on sales calls, re: the fiscal cliff, are real. This is exactly the type of holdup the gridlock in Washington causes. While I don't agree with decision makers who use the fiscal cliff as an excuse not to invest in their businesses -- in fact, I think they're losers -- the reality is what it is. This thing puts a drag on economic expansion.
But, that's part of the noise. It's temporary stuff. It says nothing about Pandora's business model, which, by and large, works.
Mobile revenue was up 112% year-over-year to $73 million for Q3.
Listener hours continue to soar, as Pandora now commands 7.09% share of all radio listening, up from 4.32% the same time last year.
Pandora and Music Royalties
The fly in the ointment -- content acquisition costs. For Q3 -- and all of this data is available at Pandora's investor relations Web site -- Pandora paid close to $66 million in music royalties. That's roughly 55% of revenue.
I will continue to write about it, but it takes more than one article or a sound bite to make sense of such a historically-rooted, emotionally-charged and complex issue. It needs to be a conversation. One that requires patience and is comfortable calling it a night with unanswered questions lingering.