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Are Pandora's (P) Strategic Efforts Headed the Right Way?
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Pandora Media Inc. has been in trouble for quite some time now. Despite the fact that Pandora holds a prime position in the online radio market, the company has been struggling with profitability. Further, rising costs related to licensing, footprint expansion and higher operating expenses will add to its woes.
As the company provides music streaming services on the Internet, it has to pay hefty music royalties and licensing fees, which makes its operations much more expensive. Additionally, the Copyright Royalty Board (CRB) raised the royalty rates by 15% last December. This added to the already high content costs.
Things went further downhill last year as there were questions about the standalone status of the company. There were numerous speculations, the most notable among them being that of satellite radio company Sirius XM Holdings Inc. (SIRI) making a fresh offer to acquire music streaming services provider.
However, Pandora has taken strategic measures to post a turnaround. Last year, the company announced Pandora Plus and Pandora Premium services. While Plus is a “one-of-a-kind, ad-free radio experience” available for $4.99 per month, Premium will create a playlist for users based on their playlist history, which CEO Tim Westengren was quoted saying as the “standout” factor. It will be ad free and will enable users to save songs for offline listening. Premium carries a price tag of $10. However, analysts observe that Pandora’s new service doesn’t offer something radically different from what is already available in the market.
Also, as part of its strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting label deals to reduce dependence on CRB rates and better manage its content costs. It has struck licensing deals with Sony Music, Warner Brothers, a unit of Time Warner and Universal Music Group.
Recently, to lower costs, Pandora announced a 7% cut in its workforce. Ticketfly will reportedly not be affected by the workforce trimming. It also added that it is on track to better its revenue guidance for the fourth quarter of 2016. For the fourth quarter of 2016, revenues are expected in a range of $362 million to $374 million.
Shares are up almost 6.33% since the announcements. In the past one year, Pandora’s shares have grown 35.03% compared with the Zacks categorized Internet Services industry’s gain of 16.36%.
Though these initiatives appear to be headed in the right direction, analysts observe stiffening competition as a very powerful threat. Pandora’s entry has been pretty late in the on–demand music services arena, which boasts big names like Spotify and Apple Inc. (AAPL - Free Report) .
Plus, the digital music streaming industry is expected to grow rapidly over the next few years and all the players including Apple, Spotify, Tidal, Pandora and Amazon (AMZN - Free Report) are striving to strengthen their presence. As per a Statistica report, revenues from digital music streaming are projected to grow approximately 9.47% between the period 2016 and 2020, leading to market volume of $2,773.2 million by 2020.
In fact, Apple Music has seen phenomenal growth. Within a year and half of its existence, reportedly, Apple Music now has over 20 million paid subscribers, inching closer to Spotify’s 40 million paid subscribers. Apple Music’s tie up with popular music artists like Taylor Swift and many more has been widely considered by analysts as the key to its success.
Will the cost cutting initiatives and new streaming services help Pandora post a turnaround? It remains a wait and see story.
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Are Pandora's (P) Strategic Efforts Headed the Right Way?
Pandora Media Inc. has been in trouble for quite some time now. Despite the fact that Pandora holds a prime position in the online radio market, the company has been struggling with profitability. Further, rising costs related to licensing, footprint expansion and higher operating expenses will add to its woes.
As the company provides music streaming services on the Internet, it has to pay hefty music royalties and licensing fees, which makes its operations much more expensive. Additionally, the Copyright Royalty Board (CRB) raised the royalty rates by 15% last December. This added to the already high content costs.
Things went further downhill last year as there were questions about the standalone status of the company. There were numerous speculations, the most notable among them being that of satellite radio company Sirius XM Holdings Inc. (SIRI) making a fresh offer to acquire music streaming services provider.
Pandora Media, Inc. Price
Pandora Media, Inc. Price | Pandora Media, Inc. Quote
However, Pandora has taken strategic measures to post a turnaround. Last year, the company announced Pandora Plus and Pandora Premium services. While Plus is a “one-of-a-kind, ad-free radio experience” available for $4.99 per month, Premium will create a playlist for users based on their playlist history, which CEO Tim Westengren was quoted saying as the “standout” factor. It will be ad free and will enable users to save songs for offline listening. Premium carries a price tag of $10. However, analysts observe that Pandora’s new service doesn’t offer something radically different from what is already available in the market.
Also, as part of its strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting label deals to reduce dependence on CRB rates and better manage its content costs. It has struck licensing deals with Sony Music, Warner Brothers, a unit of Time Warner and Universal Music Group.
Recently, to lower costs, Pandora announced a 7% cut in its workforce. Ticketfly will reportedly not be affected by the workforce trimming. It also added that it is on track to better its revenue guidance for the fourth quarter of 2016. For the fourth quarter of 2016, revenues are expected in a range of $362 million to $374 million.
Shares are up almost 6.33% since the announcements. In the past one year, Pandora’s shares have grown 35.03% compared with the Zacks categorized Internet Services industry’s gain of 16.36%.
Though these initiatives appear to be headed in the right direction, analysts observe stiffening competition as a very powerful threat. Pandora’s entry has been pretty late in the on–demand music services arena, which boasts big names like Spotify and Apple Inc. (AAPL - Free Report) .
Plus, the digital music streaming industry is expected to grow rapidly over the next few years and all the players including Apple, Spotify, Tidal, Pandora and Amazon (AMZN - Free Report) are striving to strengthen their presence. As per a Statistica report, revenues from digital music streaming are projected to grow approximately 9.47% between the period 2016 and 2020, leading to market volume of $2,773.2 million by 2020.
In fact, Apple Music has seen phenomenal growth. Within a year and half of its existence, reportedly, Apple Music now has over 20 million paid subscribers, inching closer to Spotify’s 40 million paid subscribers. Apple Music’s tie up with popular music artists like Taylor Swift and many more has been widely considered by analysts as the key to its success.
Will the cost cutting initiatives and new streaming services help Pandora post a turnaround? It remains a wait and see story.
At present, Pandora carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>