Pandora's Plans To Mitigate Soaring Costs
Furthermore, a big chunk of growth will come from the automobile segment, which accounts for almost half of radio listening. Pandora has already made some strides in this direction, but it will face competition from Sirius XM (SIRI) ,which has been very successful in tapping into this segment.
See our complete analysis for Pandora Media.
From PCs to Mobile
Pandora started out as an online radio service primarily for personal computers. However, given the recent surge in smartphones and tablets as well as the success of Pandora's app, the majority of the growth in listener hours is coming from mobile devices.
However, the bad news is that the advertising spend is still focused on the mobile platform. This is the reason why Pandora's monetization levels on its mobile apps are lower than those on PCs. Nonetheless, this is changing and mobile ad spending in the U.S. is expected to grow from $1.45 billion in 2011 to close to $10.8 billion by 2016. Pandora will leverage this growth to increase its ad pricing to combat soaring costs.
Pandora's unique selling point to advertisers is hinged on two factors:
In addition to the above, the company has also hinted at a plan of integrating into systems that its listeners use on a frequent basis to improve monetization. Ultimately, Pandora aims to improve the ad revenue earned per listener hour, which will directly impact upon the profits and help it mitigate rising content and marketing costs.
Our price estimate for Pandora Media stands at $7.90, implying a discount of about 25% to the current market price.