We came across a survey conducted by a Raymond James analyst that points toward the future of Pandora (NYSE:P) and indicates that a significant proportion of its users intend to increase their usage in the future. [1] About 38% of Pandora’s users intend to increase their usage over the next year. [1] While this figure is less than the figure of 46% for Spotify users, Pandora has a much larger user base of over 150 million in the U.S. Furthermore, if we consider only the active user base which amounts to over 50 million, the percentage figure would be much higher.
In short, the figures do not necessarily mean that Spotify’s future is brighter, in fact it may be the opposite. Pandora has a wide device reach, good relationships with vehicle manufacturers, brand recognition and an algorithm that helps provide personalized music service with an element of music discovery.
See our complete analysis for Pandora Media
As a supporting argument for the bullish view on Pandora, the analyst states that the company has significant opportunity to improve its mobile monetization to desktop levels. [1]
Pandora is actively making efforts to do so, but this improvement will not come until the subscriber growth slows down, in our opinion. For details on Pandora’s monetization strategy, see our previous article: Understanding Pandora’s Monetization Strategy.
The essence is that don’t be alarmed even if Spotify slows down Pandora’s user base growth. The positive side is that Pandora will be able to better sell its current mobile ad inventory and turn around losses to profits – which has been a bigger concern for the company than competition from Spotify.
Our price estimate for Pandora Media stands at $7.90, implying a discount of less than 25% to the market price.
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Notes:- Pandora: Raymond James Says Buy, Strong Lead on Spotify, July 2 2012 [↩] [↩] [↩]
