Here's Why Pandora Will Reach $56 Per Share

| About: Pandora Media (P)

Perhaps it wasn't attention-grabbing news when Spotify announced that they had successfully raised capital last weekend. The agreed upon valuation of the private company was at slightly over 3 billion dollars. Loyal and beaten up Pandora (NYSE:P) shareholders must have shrugged their shoulders, feeling quite conflicted. Pandora's stock price has been losing value on a steady and consistent basis since its IPO back in June of 2011. It currently sits with a market cap of a mere 1.3 billion. Any patience that remains in these frustrated Pandora equity loyalists will prove to be the key to their ultimate success.

The model that I created which has me arrive at a Pandora $56 per share estimate is based, in part, on using the assumed value of Spotify's capital raise and extrapolating it towards Pandora on a multitude of levels. Before I further illustrate considerations that led me to this figure, I will make a personal disclosure. While many will likely discard an over 7x projection of a $7 stock as insane and unobtainable, it's one to which I've hitched a heavy wagon. I, just hours ago, concluded purchasing a significant long position in Pandora shares based not only on my (fuzzy?) math, but what I perceive as a gross underestimation, lack of appreciation and overall misunderstanding of Pandora's product and their financial potential.

Presently Pandora has more than four times the active user base of Spotify and about three times as many paid subscribers at similar fees. Both companies face the same potential challenges in terms of competition from Apple (NASDAQ:AAPL). In fact, many reports suggest that Apple's forecasted streaming service would more closely mirror that of Spotify. I'm not convinced that Apple is going to be so inclined to go forward with these plans that are presently more than baked into the cake of the Pandora stock price.

The belief that Pandora will be unable to monetize their business in a strong and successful fashion, over the course time, is grossly misguided. Moreover, the lack of appreciation for people's radio listening habits is also glaringly obvious. Pandora has become so entrenched into our culture across many demographics that doubting their ability to conduct business in a successful fashion, should Apple proceed into the space, is far overblown. I can recall predictions of Amazon (NASDAQ:AMZN) going to zero once Wal-Mart (NYSE:WMT) made public their intentions of selling merchandise online. Clearly this didn't materialize. Furthermore, there is a potential upside to Apple going forward with music streaming. It will discourage small startup companies from bothering to enter and challenge what will be perceived as "too many giants to fight." An elimination of these hungry, energetic startups can keep Pandora from being wounded by "1000 paper cuts". This can be every bit the potential danger as the competition from Apple.

Perhaps another reason that Pandora currently sits with a terribly depressed $7 dollar stock price is that it is lumped in with the downtrodden "social media" group. I concur with those who feel companies such as Zynga (NASDAQ:ZNGA), Groupon (NASDAQ:GRPN) and even LinkedIn (NYSE:LNKD) and Facebook (NASDAQ:FB) are troubled holdings with overvalued prices. Ultimately, however, the cream will rise to the top and Pandora will be revered as the clear equity-holders winner in this space.

What also needs to be considered are the important aspects of branding. Whether or not it's been recognized by Wall Street, the Pandora brand name has exploded in the 12-34 year old demographic over the last year. It certainly carries more weight than Spotify and should not be under-appreciated for numerous reasons including, but not limited to, its takeover prospects.

In regards to the Internet Fairness Act that is presently circulating through Congress, while I believe the odds favor the bill becoming law over the next 3-6 months, in some form close to the original document, I don't feel it jeopardizes the viability of Pandora's business prospects should it fail. Pandora will be wildly successful in monetizing their business over the coming years regardless of the outcome. Among my theories for its passage involve their partnering with rival Clear Channel in this effort (politics do indeed make strange bedfellows). I could elaborate further on more of my thoughts that make this bill's passage a likely event, upon request, but will spare more details at present.

The crowded number of shares currently sold short Pandora will turn out to be yet another catalyst of a stock that is going to begin a meteoric rise before too long.

All of the above is just one man's humble opinion which, as mentioned, includes the bias of being a new, long term holder of its shares.

Disclosure: I am long P. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.