Great Time to Buy Pandora?

A frequent critic of Radio Insights responded to our brief post regarding Pandora’s precipitous decline by noting:

That looks exactly like the Amazon.com post-IPO performance. Did anyone here by (sic) Amazon at $26 a share? It's now worth $186 a share, by the way.

Certainly no one can predict what Pandora shares will be worth tomorrow let alone years from now. So it may ultimately become another Amazon.

Then again, it is just as likely to become another Pets.com, Netscape, or any one of the burst bubbles of the dotcom period.

What we can say for sure is that Pandora’s performance thus far has been nothing like Amazon’s in the months following its IPO in 1997.

As the graph at left clearly shows,  Amazon shares took off, and didn’t start tanking until the dotcom bubble burst in late 1999.

It took nearly four years and a recession for Amazon shares to return to near it’s IPO price, something Pandora accomplished in two day’s time.

Pandora's rise and fall  shows that a wildly popular service can still represent a bad investment. Investment professionals wonder whether Pandora can be profitable given onerous royalties the service is required to pay.

Questions about Pandora's profit potential also hang over the debate over broadcast streaming. If Pandora can't make any money streaming, how likely is it that broadcast groups can?

Bloomberg recently noted that at its peak Pandora’s value on paper reached over $2 billion, exceeding the valuation of the top ten radio groups combined.

Those ten groups generated combined revenues of over $8 billion last year compared to Pandora’s $167 million.

Yes, Pandora is growing rapidly, and radio is mature, but doesn’t it seem just a little optimistic to think that Pandora can deliver financial success anywhere close to what a $2 billion valuation implies?

But if you’re as optimistic as our critic, it might be a great time to mortgage the farm to buy Pandora at these bargain-basement prices.