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(B)(N) Pandora Media Incorporated

October 4, 2013

Drama. Although it is an over-simplification, we can say that the radio search-machine, Pandora Media, does for music on the radio what Google does for search in the media. Instead of “key words”, we have “key notes” that are used to develop personalized play-lists for the user.

About Pandora Media

About Pandora Media

Undoubtedly, it raises issues of ownership and copyright and how we are to compensate artists, composers and publishers for the air (aria) that we breathe analogous in significance and value to the mind-meld provided by Google (CNET, September 18, 2013, Pandora scores legal victory against music publishers).

And for the company, how are they to make money? The company had revenues of over $400 million last year but lost $40 million anyway, and loses money almost every year in the tens of millions.

For the moment, the stock market is doing that job. The company has a current market value of $4.7 billion, up from $2 billion last year; it doesn’t pay a dividend, has a net worth of under $100 million and declining, and no fixed assets to speak of ($20 million) against which is set a current debt of $140 million and rising. Oh well. Please see Exhibit 1 below.

Directors and employees own about 20% of the stock and the balance is held by institutions (83%) of which six (Wellington Management Company LLP, Blair William & Company, Orbis Holdings Limited, Vanguard Group Incorporated, Brookside Capital Management LLC, and Goldman Sachs Group Incorporated) hold a little more than 30%.

It’s trading at $24 to $27 and well above the current price of risk, the Risk Price (SF) of $20 and rising (please see Exhibit 1 below) and our estimate of the downside in the stock price due to the demonstrated volatility is minus ($5) per share. We could set the stop/loss at $23 and be prepared to buy it back at a lower price if still above the price of risk, or join the short crowd and buy the November put at $25 for $1 today.

Exhibit 1: (B)(N) P Pandora Media Incorporated – Risk Price Chart

(B)(N) P Pandora Media Incorporated

(B)(N) P Pandora Media Incorporated

Pandora Media Incorporated provides internet radio services in USA, Australia and New Zealand. It has 175 million registered users.

(Please Click on the Chart to make it larger if required.)

From the Company: Pandora Media Incorporated provides Internet radio services in the United States. The company allows listeners to create up to 100 personalized stations to access unlimited hours of free music and comedy, as well as offers Pandora One, a paid subscription service to listeners. It is also involved in the sale of displays, audio advertising, and video advertising products to advertisers for delivery on computer, mobile, and other connected device platforms. As of January 31, 2013, the company had approximately 175 million registered users; and 65.6 million active users. Pandora Media, Inc. was founded in 2000, has 750 employees, and is headquartered in Oakland, California.

In contrast, Google Incorporated is an old-hand at this business of linking a valuable service to advertisers and bespoke sponsors, and after fifteen years, has a market value of six times as much ($290 billion) and a balance sheet and income statement to die for, but it also does not pay us a dividend and uses its money for research, business and software development and hardware. Please see Exhibit 2 below.

It’s trading at $875 today and off recent highs of over $900; our estimate of the downside in the stock price due to the demonstrated volatility is as much as minus ($75) per share but we have no reason to expect any surprises in next earnings report on October 17 (Business Wire, September 30, 2013, Google Announces Date of Third Quarter 2013 Financial Results Conference Call). The November puts at $870 are selling for $24 per share today.

Exhibit 2: (B)(N) GOOG Google Incorporated – Risk Price Chart

(B)(N) GOOG Google Incorporated - October 2013

(B)(N) GOOG Google Incorporated – October 2013

Google Incorporated is a web search and online advertising company that focuses on search, advertising, operating systems and platforms, enterprise and hardware products.

(Please Click on the Chart to make it larger if required.)

From the Company: Google Incorporated is a technology company and builds products and provides services to organize the information and make it universally accessible and useful. It provides Search, a service that delivers relevant search results in response to user queries; Product Listing Ads that offer product information; Search plus Your World; Google Now, a predictive search feature; and Google Knowledge Graph, which enhances Search service. The company also offers AdWords, an auction-based advertising program; AdSense, a program which enables Websites that are part of the Google Network to deliver ads; Google Display, a display advertising network; DoubleClick Ad Exchange, a marketplace for the trading display ad space; and YouTube that provides video, interactive, and other ad formats. In addition, it provides Google Mobile that extends its products and services to mobile device users; Google Local, which provides local information; Android, an open source mobile software platform; Google Chrome OS, an open source operating system; Google Chrome, a Web browser; Google+ for sharing various things online with different people; Google Play, a cloud-based digital entertainment destination; Google Drive, a place for users to create, share, collaborate, and keep their stuff; and Google Wallet, a virtual wallet for in-store contactless payments. Further, the company offers Google TV, a platform for consumers to use television and the Internet on a single screen; Google Apps, a cloud computing suite of message and collaboration tools; Search Appliance, a search technology for use within enterprises; Google Site Search, a custom search engine; Google Commerce Search for online retail enterprises; Google Maps Application Programming Interface; and Google Earth Enterprise, a software solution for imagery and data visualization. Additionally, it offers mobile wireless devices, and related products and services. Google Inc. was founded in 1998, has 45,000 employees, and is headquartered in Mountain View, California.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

One Comment leave one →
  1. September 26, 2014 11:01 AM

    You are a very intelligent individual!

    Like

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