Be Prepared To Bail on Pandora
Shares of Pandora (P) are up more than 70% on the year. This may come as a surprise to some, but the internet radio giant isn't dead yet. But that's far from a glowing endorsement.
While Pandora is still a dominant platform in the realm of music streaming, many investors are still betting on the company's demise. How else can it be explained that 35.7 million of the company's stock was sold short as of last week.
Granted, 35.7 million pales in comparison to the 380 million shares of Sirius XM (SIRI) that's on the "shorts' list" but 35.7 million still represents 30% of Pandora's float. I'm not sure that I would be making this bet today. Not when Pandora is growing active listeners at an impressive rate of 35%.
I do wonder, though, if now is not the right time to take profits? Gains of 70% is no small change. Holding here is likely more risky than selling and missing more gains. Besides Apple (AAPL) is coming to the table. And the company is not known to play to lose.
Last week, reports surfaced that Apple met with Universal Music to clear the first obstacle in the company's plans to enter the internet radio market. Given Apple's dominance with the iTunes platform this should be an easy transition. This now puts the future of both Sirius XM and Pandora in doubt.
However, I think the biggest question hinges on Pandora, while growing, isn't making any money – not to the extent of Sirius. The ad-based model has not been extraordinarily profitable, whereas Sirius has become a cash-flow machine. Pandora will likely be squeezed out of the market, which is what the shorts are betting on.
Meanwhile, Apple has remained silent on the matter. But all indicators point to a music streaming entry. It's the logical next step. Given the successes of both Sirius and Pandora, Apple sees an opportunity to differentiate itself from Samsung and other mobile devices manufactures like BlackBerry (BBRY).
The question here is how long will it take for either Google (GOOG) or Microsoft (MSFT) to make a bid for Pandora? Plus, once Apple officially announces its entry, which is expected to occur at the company's Worldwide Developers Conference, what will Pandora's stock look like? Do you want to be holding to find out? I wouldn't.
Disclosure: At the time of publication, Richard held shares of Apple and had no positions in the other stocks mentioned.