A while back I wrote about Pandora’s stock (Symbol: P) saying I was going to completely avoid the IPO. I previously stated “I think this stock has a realistic chance of being on the decline unless they can should warranted profits soon.” Well the stock is down 56% off the high an I’m taking a second look at the stock because I think some profits might show up in the short-term. I am a heavy user of Pandora and what I have recently noticed is a large increase in ads. Not just audio ads either, local ads and even video ads. I’m so frustrated with Pandora in fact that I am about to pay the fee to “upgrade” to have ad fee radio.
Pandora generates $36 a year from users who opt to “upgrade” their services to avoid ads, and my guess is that because of their aggressive ad strategy, many users like myself will consider ponying up some cash. I’m not surprised to see such an aggressive push for advertising shortly after their IPO. It is clear to me that Pandora wants to generate more money either through ads or “upgrades” to show revenue growth.
Pandora’s stock has been extremely volatile, but I like it at its current price given that revenues are likely to increase. I am surely not willing to bet the farm on the stock, but I think its very for-seeable to clock in a relatively quick 10% to 25% gain. The main reason I am concerned for the long run on Pandora is the competition. Similar to the Amazon and Netflix streaming services of movies, content is always king, but not always cheap. Pandora’s content expenses have been increasing at a very high rate, and if they keep up, it ultimately could mean more ads and higher fees for “upgrades,” which would be a real turn off for many users.
I considered investing in Pandora options, but they appear to be entirely broken. Take a look at them. Ask price of an option @ $10 is $4.70, but the bid is only $.85! Translation, your option is worth about 82% less the second you purchase it.
Just as interesting is the strike price of $3 with an ask of $9.90 and a bid of $5.40. If the stock was to go to $20 a share you would execute such option, you would have paid $12.90 for your shares which is over $2 more a share than current market prices. It just doesn’t make sense. Just buy the stock!
Interesting to see how far the spreads are on such a volatile stock. Brokers must love Pandora. Update to come soon whether or not I take the plunge.