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This stock is a threat to Apple, Google, & Sirius (And, Justin Bieber)

Lawrence Lewitinn
Talking Numbers
This stock is a threat to Apple, Google, & Sirius (And, Justin Bieber)

…but can it survive first? Internet music service Pandora is set to report earnings today. But will the music run out on them?

Ever since 2000, the music business has been a terrible business to be in. That was the high watermark for the business, when sales were near $20 billion. That year saw the rise of Napster, co-founded by Sean Parker (the guy played by Justin Timberlake in that Facebook movie). The short-lived file-sharing service introduced the idea that, as long as you have an internet connection, any song you want should be free and immediately accessible.

Three years later, a panicked industry turned to Steve Job’s Apple iTunes to save them. And, while they were now collecting some money on internet-delivered music, music revenues are now down to nearly a quarter of what they were just thirteen years ago.

For many consumers, Apple’s pay-per-song model is still too onerous. They’ve turned to other services to get an even lower cost-per-song. They can turn to SiriusXM, the satellite radio network at $199 per year. They can go to MOG, Rdio, or Spotify, which each charge about $5 per month for unlimited, uninterrupted music. Or, they can go to the most popular streaming music service, Pandora, where most users can listen for free, though a small percentage pays $36 per year for an ad-free experience.

Pandora’s million-or-so song library sounds like a lot, but that’s paltry compared to Spotify and Rdio’s 20 million tunes. What makes Pandora different is the role of its algorithms in curating the content. While services like Rdio and Spotify are self-curated (where you pick the songs you like and you put them on your playlist), Pandora is algorithmically curated, picking songs as part of its “Music Genome Project” based on your preferences. It can be hit or miss but, after a while (and, after you rate the songs as you listen to them), it can be mostly hits.

Curation is nothing to sneeze at. Expert curation can help make artists big in an age of easy access to music, good or bad. A senior music industry executive who asked to not be identified cites the importance of SiriusXM in getting an artist in front of happy (and paying) new fans.

“A year ago, I had the band Of Monsters And Men play a show where they weren’t even top billing,” said the exec about the Icelandic indie folk band. “Now, a song they have has 60 million page views on YouTube. Two weeks ago, they played ‘Saturday Night Live’. When I asked their management what made them blow up like that, they said it was all from satellite radio.”

Then, of course, there’s Google. While they announced a streaming music app at their developer’s conference last week, they already have a bit of the market: YouTube. Millions of music videos, either officially sanctioned by the artist’s label or homemade by fans, are at the ready (though an unfortunate amount seems to be dedicated to Justin Bieber). And free, too.

Pandora now has to keep its place as king of streaming music . Its revenues are growing but it still hasn’t had a profitable year.

With the stock now double what it was just six months ago, is it time to drop more beats or just drop it? We posed that question to Steve Cortes, founder of Veracruz TJM, who analyzed the stock’s fundamentals and Richard Ross, Chief Market Strategist at Auerbach Grayson and a Talking Numbers contributor, who analyzed the technicals.

Watch the video above to get their take on whether they think Pandora is a buy at these prices.

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