Pandora (P) announced today that the company has inked a deal with Snap Inc., the company widely referred to as Snapchat. Snapchat is a very popular social media platform where users share stories instantly. Pandora stock has now breached the $8 per share level on the news.
Snap Kit, a developer platform for Snapchat, is the mechanism that will allow Snapchat users to send songs to friends and family using unique song cards. These song cards will feature album art on top of an animated background. The recipient of the song card will be able to swipe up to listen directly on Pandora on an instantaneous basis.
Pandora envisions that music sharing via Snapchat will allow the company access to Snapchat's millions of users. Unique ways to tap into the marketplace could be a big coup for Pandora as long as Snapchat users adopt the concept in numbers that create a sense of community.
From an investment standpoint I feel that this is a positive development with potential, but also see a possible risk. That risk is that the company is relying on a younger generation, used to getting free music, to translate into premium subscriptions. The potential is that if Pandora's Family subscription takes off, then kids could already be premium users. If synergy can be created where the family plan sees compelling growth, translation into monetizing this Snapchat platform will be easier.
In 2018 Pandora stock has risen an impressive 61% on the initiation of several strategic moves. There is a bit of a risk that the surge in the equity is getting ahead of the financial results that the company will be able to produce. That being said, Pandora is subject of speculation in the media sector. SiriusXM (SIRI) already controls 20% of Pandora and the standstill agreement when that stake was taken expires in a matter of months. With Liberty Media (LSXMA) (LSXMB) (LSXMK) controlling 72% of SiriusXM, and both Liberty and Sirius XM pursuing IHeart Media, the circle of Media power players could be a compelling story which can give a big assist to the price of the equity in any of these companies. In addition, news about a court ruling in favor of an AT&T deal for Time Warner content has opened up wide speculation that consolidation in the media space is ripe to happen.
In my opinion the investment play here is to be a bit cautious. After an already impressive run in 2018, it would seem that absent any added M&A news things will cool off a bit and return to a stock that performs based on fundamentals. Pandora's consensus price target of $8 per share is now in hand, implying that there will either need to be upgrades or that analysts call it a hold. The financial numbers and traditional valuation models do not justify a price target much higher just yet. Jumping into Pandora now would essentially mean that you are speculating on positive news outweighing financial performance. Stay Tuned!
Disclosure: I am/we are long P, SIRI, LSXMA, LSXMK. 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.