Pandora Metrics Continue To Deceive

| About: Pandora Media (P)

In between earnings calls, and especially now that Apple's (NASDAQ:AAPL) iTunes Radio is on the map, Pandora (NYSE:P) trades on the catalysts of its monthly listener metrics. Last month, Pandora's listener metrics were enough of a catalyst to keep Pandora in the $27 region, but failed to move the company forward past its all time highs in the wake of Apple's competition and unconvincing numbers.

Pandora, which has yielded astronomical returns over the last 12 months (to the tune of 216% as of today) remains an unprofitable company that is trading at a $5 billion market cap and is still competing with Apple - who, for the purposes of this discussion - has unlimited resources and is going to beat Pandora to the international push, even though Pandora's CFO claims they could be using their recent offering proceeds to move internationally.

The facts are that Apple has unlimited cash, and if Pandora wants to continue to raise cash, they either have to dilute or take on debt.

Since September's metrics were offered, Apple has offered an update on its own conference call a week back, stating that iTunes Radio now had over 20 million listeners, and was continuing to grow. This did little to bother Pandora's stock, which has calmly treaded water in the $24 to $27 region over the last month.

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Today, Pandora is trading up on its recently announced October listener metrics:

  • Listener hours for Pandora during the month of October 2013 were 1.47 billion, an increase of 18% from 1.25 billion during the same period last year.
  • Share of total U.S. radio listening for Pandora in October 2013 was 8.06%, an increase from 6.61% at the same time last year.
  • Active listeners were 70.9 million at the end of October 2013, an increase of 20% from 59.2 million during the same time period last year.

Looks pretty good, right? Wrong. Here's a couple of things that Mr. Market seems to be missing about these metrics - which, again, are a bit deceiving for a couple of reasons.

1. Listener hours are up, but only in the face of Pandora recently eliminating its 40 hour listening limit. So, naturally, anyone that listens to Pandora or "leaves it on" is going to help increase this metric past its former limits. This one is a no brainer. That should generally throw out the "bullishness" behind this metric.

2. In addition, the 40 hour listening limit being removed helps everybody that uses Pandora "in the background" (i.e. your bars, restaurants, workplaces and homes that keep it on as background noise) continue to push well past 40 hours of listening time - even if Pandora continues to run while not actively being listened to.

3. Thirdly, active listeners is actually down about 1.8 million listeners since last quarter. Pandora does a good job of avoiding that by comparing to last year instead of last quarter; but iTunes Radio has clearly had an effect as Pandora has lost active listeners. What happens if this metric continues to fall off month after month? Surely, that won't bode well for Pandora regardless of how long those listeners are actively listening.


Pandora has a forward P/E of about 103. That would be on the high end of things if they weren't competing with anyone and going "social network" valuation, a la LinkedIn (NYSE:LNKD) or Netflix (NASDAQ:NFLX). However, that P/E is simply insane in Pandora's case.

Pandora remains a convincing short for me. I remain short through my puts and could possibly add at some point today. These listener metrics, like the ones celebrated temporarily from last month, are hardly an extremely bullish indicator that should be driving the stock up over 5% like it is now. As the reality of these metrics begins to sink in, I'm still predicting a major price correction for Pandora, who is again, a $5 billion company that has never turned a profit and is going head to head with the largest company in the world.

Disclosure: I am short 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.