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The Pros and Cons of Pandora Media Inc (P)

Looking at the stock and options picture for Pandora Media

by 3/7/2014 7:29 AM
Stocks quoted in this article:

No matter how many times Pandora Media Inc (NYSE:P) begs me to switch from their "free" ad-model service to one where I have to pay them money to listen to songs I probably already have on iTunes anyway, I vow to refuse!

Apparently, I'm not the only one. They released some numbers yesterday and they didn't quite meet expectations, as the stock dipped about 4% in early trading. This, from TheStreet:

In the month of February, Pandora announced that listening hours for the month were 1.51 billion, a year-over-year increase of 9% during February 2013. Over the past four months, listening hours have decelerated, leading some to believe that competition from Spotify, Apple's (AAPL) iTunes Radio, iHeartRadio and others may be eating into the company's listening audience. Today the leading Internet radio service announced new metrics that were reached in the month of February 2014.

Pandora's share of total U.S. radio listening in the month was 8.91%, up from 8.25% last year, and up from 8.57% in January. The company said it had 75.3 million active listeners in the month, up 11% year over year.

OK, well that doesn't actually sound so bad. I guess the "whisper" was worse. When in doubt, though, make sure to give the people less info.

In the release, Pandora said it "intends to discontinue its monthly disclosure of key audience metrics. The final monthly release will be provided in June 2014 (covering audience metrics for May 2014). The company's standard practice of providing listener metrics on a quarterly basis will continue unchanged."

I guess the big problem is really everyone can replicate what Pandora does, although clearly the overall audience keeps growing. And they seem further along in getting the exclusive in new cars -- the ultimate captive audience.

And really, the stock looks pretty darn good, yesterday's drop notwithstanding.

Pandora Media (P) Schaeffer's Volatility Index

Volatility is "meh" for Pandora, but at near 50, it's pretty high, considering this isn't a newly traded name any more.

And a good proportion of the open interest remains on the put side:

Pandora Media (P) put-call ratio

And it's pretty much all focused below the stock itself, which suggests to me there's a bit of built-in support.

Pandora Media (P) March open interest configuration

The pretend analyst in me wonders how a company that sells a product that's now replicated everywhere can thrive. The stock and options picture suggests otherwise, which helps confirm why I'm a lousy fundamental analyst. I'd go with what people actually do with their money, and they seem comfortable owning Pandora.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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