- Pandora stock has had a torrid 2015, losing 25% through the year.
- Increasing competition from Spotify and Apple Music has mounted pressure on Pandora.
- Should investors look to buy the seemingly discounted Pandora stock?
Pandora Media (NYSE:P) stock has had a terrible 2015, with the stock finishing the year 25% lower than where it started. Pandora stock significantly underperformed the broader markets, with the Nasdaq Composite (INDEX:COMPX) returning 5.7% through 2015. (See chart below). An important question for investors is whether or not to buy the seemingly discounted Pandora stock now?
Pandora Fundamentals Continue To Deteriorate
Pandora fundamentals continue to look worrisome. While the topline has increased considerably from a quarterly run-rate of $180 million in Q3 2013 to $311 million in Q3 2015, the bottomline has taken a totally different path. The GAAP losses have increased from $1.7 million in Q3 2013 to a huge loss of $85.9 million in the latest quarter.
Source: Pandora net income chart by amigobulls.com
If the management commentary during the last reported quarter is anything to go by, Pandora's bottomline is headed even deeper into the red. Going forward, Pandora will be hit by a $90 million settlement of a lawsuit by music publishers over music released before 1972. The payouts had been structured as $60 million in October 2015, followed by monthly installments of $7.5 million. The potential impact on the Q4 2015 result could be as high as $75 million. For a loss making company, with $360 million cash and cash equivalents sitting on the balance sheet (Q3 2015 end), this means a big red flag.
The impact of the hit to Pandora's bottomline can be gauged by the fact that the Pandora stock shed a quarter of its value following the last quarter earnings call, even after meeting analyst estimates for Q3. In short, Pandora's bottomline looks set to sink further into the red.
Increased Competition Is Hurting Pandora
Spotify and Apple music have been mounting the pressure on Pandora with attractive product packages and highly competitive pricing.
While Pandora appears to be the cheapest of the premium services, Spotify offers a far bigger content library while Apple music is targeted at entire families with an option to add 6 members who can use it across all their Apple devices. Moreover, with the increasing use of adblockers, the need for an user to shift to an ad-free paid version of the service reduces so much. Hence, the ability of Pandora to sustain its topline growth isn't as clear as previously thought.
In conclusion, Pandora has had its fair share of troubles, which can be expected to continue. Increasing competition and weak fundamentals make it hard to justify an investment in Pandora stock at the moment. Investors would be better off looking for better risk/return ideas in the market.