Pandora (NYSE:P) is the leader in Internet radio in the U.S. and stands out with its ability to offer unique and personalized Internet radio experience to listeners. By analyzing the intrinsic qualities of music, the company is able to create stations and adapt playlists in real-time based on user feedback. Pandora has been riding on the consumer thirst for personalization and growing preference for online platforms. Apart from this, it is also benefiting from its partnerships with automakers such as Ford (NYSE:F), GM (NYSE:GM) and 16 other such deals. It is remarkable to see how Pandora’s growth is hinged on the growth in the number of mobile users.
At the end of 2011, Pandora had over 125 million registered users and a 69% market share of all Internet radio listening time among the top 20 stations and networks in the U.S. The total hours streamed amounted to 8.2 billion and 65% of that came from the mobile platform.
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Going forward, we expect the number of mobile listener hours for Pandora to grow at a much faster pace compared to other listener hours. The fact is if it wasn’t for the growth in smartphones and tablets, Pandora wouldn’t be growing so fast. We expect that by 2015, the mobile platform will account for close to 90% of Pandora’s music listening, and the company will stream more than 20 billion hours of music annually.
This forecast assumes that Pandora will be able to hold off competition from Clear Channel Radio’s iHeartRadio service and Spotify’s on-demand service. There is a chance that the growth could slow in 2012 as the rivals expand their services.
Our price estimate for Pandora stands at $9.89, implying a discount of about 5% to the market price.