Proof That Pandora's Growth Is Over

| About: Pandora Media (P)

Pandora has traded, more or less, based on earnings calls, listener metrics, and analyst upgrades/downgrades. I've been a bear on Pandora (NYSE:P) since Apple's (NASDAQ:AAPL) iTunes Radio was announced with iOS 7 - and became an even bigger bear when I saw that Apple was gaining listeners quickly and was moving into International markets much quicker than Pandora was.

Nonetheless, Pandora's stock - currently still valuing the company at around $5 billion - has been another story. It's been up over 200% since the beginning of 2013, and has yielded enormous gains for those that bought in earlier this year.

This morning, Pandora again announced its listener metrics for the month prior and, for the third month in a row, we have what I believe to be decisive metrics that for some reason the market thinks is worthy of a 3% spike pre-market.

Pandora announced:

  • Listener hours for Pandora during the month of November 2013 were 1.49 billion, an increase of 18% from 1.27 billion during the same period last year.
  • Share of total U.S. radio listening for Pandora in November 2013 was 8.44%, an increase from 7.17% at the same time last year.
  • Active listeners were 72.4 million at the end of November 2013, an increase of 16% from 62.4 million during the same time period last year.

Impressive year over year gains, right? Why wouldn't anyone feel bullish about these metrics. Well, let's take a look at how the last three months have stacked up:

September 2013 October 2013 November 2013
Listener Hours 1.36 billion 1.47 billion 1.49 billion
Share/USR 7.77% 8.06% 8.44%
Act. Listeners 72.7 million 70.9 million 72.4 million

Let's forget about listener hours and share of radio time for a minute and dive right into the meat and potatoes of these stats: active listeners.

Now, if I had told you that Pandora was going to have less active listeners in November of 2013 than it had two months prior in September 2013, that wouldn't be a good thing, right? Clearly, the active listeners have started to hit some type of plateau, and they're definitely not indicative of the growth that a company trading with an astronomical forward P/E of 103 needs.

Listener hours have increased, but we expected that with Pandora recently pulling its 40 hour listening limit - which I argued in a previous article helps listeners that use Pandora "in the background" (i.e. bars, businesses, etc.). If that number didn't increase with the removal of the 40 hour listening limit, then we'd see some major issues. However, as the limit was lifted for October, we saw only nominal growth in listener hours from October to November. Again, a sign of things plateauing and certainly not indicative of the growth necessary for Pandora to turn a profit.

Additionally, to address the share of U.S. radio listening on the rise, it's a simple cause and effect of more people listening to internet radio, and less people listening to terrestrial or satellite radio. As you can see from the metrics, that share of total listening simply does not drive either of the other two metrics, and shouldn't be the backbone of a bullish argument.

Pandora has clearly hit a plateau, and is going to continue to spin its wheels into 2014. As I've stated repeatedly, there's simply no way that a company this overvalued, showing this little growth, is going to be able to monetize and compete against a company like Apple, who has stepped into the space.

Whether it's quick and painless, or long, drawn out and ugly, Pandora is likely to correct seriously into 2014 due to its fundamentals. In addition, remember high P/E stocks like this are also usually the first ones to correct during a macro market or sector wide pullback. There is way too much risk is going long an overvalued Pandora at this point - short or stay on the sidelines.

Best of luck to all investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in P over the next 72 hours. 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.