Pandora (P) Stock Continues To Fall: Should Investors Unplug?

Shares of Pandora (NYSE:P) fell on Thursday, despite a lack of noise surrounding the music streaming company. This latest slump begs the question: why are investors dumping Pandora stock as streaming music’s popularity soars as a whole?

Music Industry

U.S. recorded music industry revenues jumped 17% in the first half of 2017 to hit about $4 billion, more than double last year’s gains, according to a recent Recording Industry Association of America report.

Revenues for non-streaming, pay-per-song-or-album digital services, such as Apple’s seemingly dated iTunes, fell by 24%. Overall, digital downloads accounted for 19% of total revenues—they had been the largest category until as recently as 2015. Now streaming services are the top moneymaker in the music industry.

Streaming revenues skyrocketed 48% to hit $2.5 billion, as more than 30 million people now pay for streaming services such as Pandora, Spotify, Apple (NYSE:P) Music, and others. Streaming services account for 62% of all music revenues. This big jump indicated a growth rate of nearly 1 million new subscriptions per month.

The biggest year-over-year gains came from limited tier paid streaming services, which popped 213%. Services such as Amazon (NASDAQ:AMZN) Prime and Pandora Plus dominate this sector, which again leads us to our key question: why is Pandora stock still on a downward trajectory?

Why The Dip?

Paid, non-ad-supported streaming subscription revenues rose from $474 million in 2015 to $1.71 billion this year. Yet, shares of Pandora have fallen since RIAA’s music industry report came out just over a week ago. The reasons are a bit hard to pin down, as the company’s new limited subscription offerings grew substantially in popularity.

It would seem that investors might be worried that Pandora won’t be able to compete long-term with big-name premium monthly streaming services—such as Apple Music, Spotify, and Jay-Z’s Tidal—which have basically no restrictions and even allow users to download songs for offline use.

Pandora’s problems could get worse soon as Spotify, with its $9.99 per month “Premium” service, is gearing up to go public (also read: Spotify is Likely Going Public Without an IPO: Will Other Tech Unicorns Follow?).

Current Fundamentals

Shares of Pandora dipped by over 2.50% on Thursday to touch $7.70 per share, just a dollar above its 52-week low. The company’s stock price has fallen 37.27% since the start of the year.

Within the last 60 days, Pandora has received 3 upward earnings estimate revisions for its current quarter and 6 downward revisions. The company has received nearly the same ratio of downward to upward earnings estimate revisions for the following quarter and next year during this same time frame.

Based on our Zacks Consensus Estimates, Pandora’s full-year earnings are expected to decline by 11.27%, although the company’s revenues are projected to gain 7.83% for the year to hit $1.54 billion.

Pandora’s P/B Ratio of 9.27 is dismal compared to this “Internet – Services” average of 2.75 and its Cash Flow per share loss of 0.76 helps to show that the stock is not currently a value investment.

Bottom Line

The company’s sales are expected to climb and the overall music streaming industry is booming. Still, Pandora’s full-year earnings are set to take a huge hit and its competition is only growing.

Pandora is currently a Zacks Rank #3 (Hold) stock but scored an “F” for Value in our Style Scores system, which helped it score an overall “D” VGM grade.

As the company threatens to dip near its 52-week low again, it might be a stock that investors consider staying away from, at least until they see how fellow streaming giant Spotify fairs in its early trading days.

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